Chuck Yates Needs A Job

0:00 Hey, Digital Wildcat is Nimble Fatty here. I'm talking today about the Mark, the Minerals and Royalties Conference. April 14th and 15th at the Posto Hotel. Colin's gonna be up there as part of a

0:13 panel talking about AI. It's gonna be really cool. It's the best party. It's the best minerals conference. We'd love to have you guys there. So if you go to mineralsconferencecom to sign up and

0:25 you use promo code DW2025, they'll give you a hundred bucks off Tom Nimble Fatty sent you

0:56 Well, the goal gets you back on the road so you can get to Westview before traffic. No kidding. Exactly. No kidding. Do you know the Baron house? I told you that. I'm meeting them for a drink

1:06 at River Oaks Country Club. Oh, nice. Yeah. So I'm actually going there right after this. Oh, very cool. Very cool. Now, who are they? They're good dudes. Mark real estate fund that he

1:17 managed. Okay And I met him through

1:21 YPO, his son, Hudson, joined him after working in real estate in the Northeast. But they're now doing venture capital, like fund to funds and direct investments, as well as real estate. But

1:34 they do a ton of direct investing with us, like when we do SPVs, they'll come in with us on different things. Oh, nice. A lot of different things. But he's a really good dude. I don't think

1:43 I've ever met him. Yeah. Good, good guy. Interesting So how did y'all get started? Mercury? Yeah, what was Mercury's story to start? So, you know, Dan Watkins, my original partner. I don't

1:55 think so. Looking at Dan. You know, you give me out of the energy world. I'm kind of clueless about most people. Gotcha. This is a really good guy. He and I got to know each other late '90s. I

2:06 had finished up my stint investment banking, you know, working for Sylvia Barnes. I know. You know, Britt Nesbitt Burns, right? Who I love. I've had Sylvia on the podcast. Oh, has she done

2:15 it? Yeah. She and I talked strategy of negotiating a deal in the class we did on buying oil and gas properties Awesome. Yeah. Awesome. I mean, she taught me so much. And so this was before

2:27 Nesbitt was bought by BMO and then became BMO capital markets eventually. So I worked there for a couple of years, was working all the time, right, for her, right? It was great. But then my dad

2:37 was in tech and I felt like the tech industry was like getting beyond me. I wanted to get into it because like this was late 90s and that's kind of where the action was at, right? Yeah. Internet

2:47 was blown up. Internet was blown up. But I'm here in Houston for my girlfriend at the time. It was in vet school like everyone in the injury industry was a. petroleum engineer, I just didn't feel

2:56 like I fit, right? So there was a group getting together called the Houston Technology Center, this nonprofit incubator. And so I had started to help out companies, like with their PowerPoints

3:06 and getting them in front of investors. And they had some jobs opening up. And so I took that as an opportunity to go get some tech experience before I went back to business school. So I joined HTC

3:17 and while I was there, I formed an angel group, so the Houston Angel Network. You know, have you ever heard this story? I have to keep going, it's a good one. Yeah, so Lloyd Benson the third,

3:28 right? Who is the chair, you know, son of the senator. One day walking to his office and he's like, Blair, what are you working on? I'm like, oh man, I'm 30 entrepreneurs, helping them with

3:38 their business plans, trying to get them funded. This is back when you had a business plan, right? Not a PowerPoint. And he's like, hey, we need to create an angel network. And I'm like,

3:48 what's that? Had no idea, no idea. Exactly. And he's like, well, it's basically, It's a collection of. wealthy individuals who invest into startups before the venture capitalists do. I'm like,

3:57 Okay, well, how do we do that? He's like, Well, here's a list of names. And he gave me this yellow list of basically the wealthiest people in town and they had real phone numbers on them, no

4:08 emails. No one was using email back in the day. And he's like, I want you to call everybodyand put an angel group together. And that way when you're working with startups and helping them with

4:17 their business plans, you can then help them with their presentation. We'll go and we'll raise them money I'm like, Man, this sounds great. And I went and visited a couple of angel groups, right?

4:26 It's the kind of see how they operated and I started calling people. And out of those hundred, 50 called me back. The ones that did call me back, 40 were like, All right, let's do this. And

4:36 then the chair of that group was a guy named Paul Hobby, who you know. And Paul, this was before he had launched Genesis Park. And so he had shared that angel group but also had some people like

4:48 Peter Shaper and Neil Kelly And so those guys went on to put - venture fund together called Genesis Park and they pulled me in from the incubator to kind of bird dog deals, you know, as an associate.

4:60 Old school, cold calling. I love this. Old school, cold calling, but that was Lloyd Benson, the third's name

5:06 calling for Lloyd Benson, the third. And so, but that's how I got my start. And so I'd help startups. I met all these wealthy individuals. And then I wouldn't work for Paul and Peter and these

5:16 guys at Genesis Park. And then I ran a company there that we sold to IHS. This company called Intermat was a software company bore with the details. But I was at Intermat and they were like, Hey,

5:28 we want you to run or excuse me, IHS. And they're like, Hey, before they went public, they're like, we want you to run product strategy. But they wanted me to go integrate like 30 of their

5:37 deals that they had bought, you know, over time. And I had a little kid on, on the way. And I'm like, you know, I think I want to do something else. And so I joined up with Dan Watkins, Dan

5:48 had put the rice alliance together, the rice business plan together. And he had built a relationship with Steve Jurbitson from Draper Fisher Jurbitsons, like Tim Draper, Steve Jurbitson, and so

6:01 were John Fisher, really famous fun that did a bunch of the deals way back in the 90s, like Hotmail and Skype and all of these. And they had this super cool idea, which was, hey, we're gonna go

6:11 find young fund managers across the globe in the air of the internet and we'll network them all so we can figure out what the best deals are. We'll co-invest in each other's deals, but everybody run

6:21 independently So they had essentially anointed Dan as being their Texas fund. And so Dan had called and said, Hey, we wanna help out with this. I'm like, Hey, I'd actually like to join. So I

6:32 left IHS, I joined Dan, and we formed DFJ Mercury at the time. What year is that? 2004. Okay. Took us about a year to get our capital raised, all high net worth individuals. I went back to

6:43 that list of the boy gave me. Right, right. You know, called some healthy - No 3Fs. Yeah, friends, family and fools. And fools, and there were a lot of fools that first find, so. Um, you

6:53 know, now we're on fun five and people back then were like, gosh, we paid the tuition for you guys to figure stuff out, like what you're actually doing. But no, so I've been doing this now for

7:02 about 20 years, uh, from a venture capital perspective. Oh, that's amazing. And the, um, so the, the whole approach you guys take is, Hey, we're not one of the coasts. I mean, it's, it's

7:17 kind of the approach. You know, when we got going, Austin ventures was like the dominant VC Probably we did back when I was at Stevens. We did, um, I'm blanking on the name of the company, the

7:29 flywheel battery company, but we did it with Austin ventures. Yeah. Yeah. Really smart guys there and gals. Um, but at that point in time in the mid 2000s, they were well known for basically

7:41 saying, Hey, we think the venture markets dead. We're moving to the puck. The puck is at private equity. So let's become more private equity like. And what they did was they missed the entire

7:52 way. of social, right? Think about what happened, 04 through 08. I mean, you had Facebook, Twitter, Google, like this entire wave of the internet, which started to enable the social economy

8:03 than the app economy. And so we wanted to be the fund in Texas to see these new venture deals, because AV practically, and frankly, wasn't doing it. And so a lot of fun to them. Because I mean,

8:17 I remember we did a deal with them back at Stevens. I went over to Caine We were going to look at internet, energy, internet imploded. So I became an oil and gas guy for the next 20-some-odd years.

8:31 And I googled off some ventures the other day, and they didn't have a website. So they continue to raise some funds. Their best fund, I think, was mid-90s that had, I remember Vignette. That

8:42 was the largest software IPO of all time. And they had a couple other great deals on it. And just like all funds, they're like, no fund just lasts forever. Right, right. So they had some young

8:52 partners splinter off and build some really great firms. One of their successful partners, Bill Wood started Silverton Partners. Okay. But a guy named Morgan Flager runs now. Live Oak ventures

9:03 kind of spun out of them. And active power was the flywheel. Yeah, yeah, yeah. I think that was in that fourth fund too. That fourth fund was killer. That if they sold after six months after

9:16 the IPO that crushed it. Yeah. If they held it, not so much But I think I've seen stats. I think it was their fourth fund where they returned 10 times, like a 10x fund. You don't do a 10x fund

9:28 in the middle of the country in tech. Right. It just doesn't happen. But anyway, when they started becoming more later stage, we tried to fill in the gap. And then over time, as they did more

9:38 and more funds, there were more funds kind of competing with us, but that's how Mercury got its start. The, and so walk me through kind of the first days of Mercury Give me, give me a lesson that.

9:51 people wouldn't have thought of starting a fund. Well, I tell you, so you got to be cheap, right? I'd made some money on selling InterMat to IHS,

10:02 but basically I had to put all that in, like poker chips to pay for. Bob Simnot started that to me to join Kane. He's like, How much are you worth? And I said, I'm worth a million bucks 'cause I

10:13 just didn't want to sing poor. And he goes, If you'll invest that in the fund, I'll give you the job. I didn't have a million dollars I mean, I was like, I meant

10:25 300, 000. Well, you can put that into it, right? I was like, Oops. So we were, you know, we were trying to scrape two nickels together. Partly, you know, it was less good. And we didn't

10:31 take a salary for a couple of years, right? Just anything, management fee, we were pouring into the companies 'cause it took us a while to like raise the capital. But Dan and I, we were taking

10:41 free space from the incubator that had helped launch the Houston Technology Center. So he and I were sitting right across from each other like this, and this was back in the day where you didn't

10:51 really co-work, right? Right. And so, but you know, we kind of survived a year of that, didn't get on each other's nerves, but I always tell young people who wanna raise funds, expect to put

11:02 all the money to work in companies. You're not gonna take any out for management fee. You're gonna spend money on legal and some other things, but like you've just gotta get a track record. And so

11:13 we were lucky enough that one of those early deals was alert logic. And so we were the first, you know, institutional money into alert logic, along with a group called OCA Ventures up in Chicago.

11:24 And that deal had an up round prior to us closing the fund. So we were able to take that momentum and basically close out our first fund, which was 20 million. But I'm telling young people all the

11:37 time, I'm like, expect not to get paid for a few years. And like, well, what do you mean? It's my job. I'm an adventure capitalist I'm like, well, you gotta raise money to pay yourself.

11:47 right? And a lot of people just don't necessarily fully realize that the, you know, the key of kind of having in effect a seated fund. What happened to us on Energy Fund seven. So this is the

12:01 first fund Mike and I are raising without Danny at Kane. And so it had been the weirdest thing because we'd gone and seen all the LPs to kind of do a pre we're about to raise round. And then in the

12:15 middle Kane

12:18 was going to merge with the Aries. So we went and told the all the LPs what a great deal this was going to be. And then Kane broke up with Aries and then we went back and told the LPs about how

12:28 great it was that we broke up. So we had seen all of our LPs like, you know, three times in six months. And so we had our first close of about a billion dollars. And it just kind of stuck there.

12:41 And we were and all of a sudden this deal we had invested in Silver Hill. front page of the Wall Street Journal. Kane trying to sell Silver Hill for2 billion. We raised an additional billion in

12:54 nine and a half weeks. Just from that. Just from that. Yeah, just from that. Excellent. And the greatest part about that story is I'm picking Sarah, middle daughter, Sarah. I'm picking her up

13:07 at soccer practice and she goes, Daddy, why have you been so busy? And I said, Well, we're fundraisingand I'm taking calls with Europe and Australiaat all these weird hours And it's 'cause the

13:17 story hit the Wall Street Journal and she's like, Daddy, you leaked that story, didn't you? And

13:23 I was like, I was like, No, I actually didn't. Had I known it, I would have leaked it in a heartbeat, but I hadn't figured that out. And 10-year-old Sarah Yates told me, Daddy, next time just

13:34 ask me, I'll tell you how to do it. I'll tell you how to leak it. Yeah, she. But you know, and the thing I tell people all the time, like you have advice too, is, you know, No one's gonna

13:45 listen to your chicken and egg story about, well, how can I invest if I don't have any money? Yeah, nobody cares. Nobody cares. Yeah, exactly. Yeah. You're gonna hear it, they want a seated

13:55 fund, they wanna know where their money's going and you just gotta figure that out. You're like this, so two years in, right? We're up and running, 20 million, we're doing our first annual

14:04 meeting. And because we were part of DFJ and their network, Tim Draper, right, just brilliant, he came in 'cause he's on our investment committee, right? So he's coming into our annual meeting

14:16 and I go and pick him up at the airport. Well, I am in a very old used Ford Explorer, right? And, you know, like the Exploder. And I just couldn't afford another car. I was pouring everything

14:26 into the fund, right? And I go and pick him up and he looks at the car and it's got rust on it and he's like, Is this yours? I'm like, Yep. He's like, Is this your only car? I'm like, Yep,

14:34 my only car. He's like, I love it. He's like, This is the fund one, Mobile. The fund one, Mobile. Don't change this car for two funds until you have tons of DPI. All right, we drive to the

14:47 annual meeting and he's introducing himself to everyone. He's like, you know, Blair just picked me up in a fun automobile piece of crap Ford Explorer. He's like, you should be proud of that. And

14:55 everyone's like clapping and I'm sitting there embarrassed. And like 20 years later, I totally get what he's talking about, right? Yeah. He's like, you got to leave it all on the line. And I

15:04 think he looked at venture the same way. Like you or I look at backing entrepreneurs, right? You want it to be thrifty, you want it to be resourceful And back then, I was like, oh my god, I

15:15 wish I could afford a better car, right? But I couldn't because I'm backing all these companies. But it was pretty interesting, the salad days, as we got. So did it ever get easy, either

15:30 fundraising or investing? You know,

15:34 I saw it with fundraising first. And then I'll ask you a clarifying question on investing. Fundraising, no. It's gotten easier, but it's never easy. And I think part of it was, you know, when

15:46 we spun out with Mercury from DFJ, we were very targeted only software companies. And so, you know, like anything, you get better with age, right? Or you stop doing it. And I think, you know,

15:58 the team and I, we've gotten pretty good at not only finding companies in the middle of the country, but helping them. And so our returns have gotten better. So over time, we've been able to

16:07 bring in endowments and foundations. We have a really good mix of LPs And so I find that fundraising is easier, but it still takes a year, year and a half to get a fund up and running. And how

16:19 does that process work? Yeah, so we have to get to a point where our DPI numbers, right, distributions paid in, like the money we're giving back to our investors, it's got to be at a certain

16:31 threshold, like a third or 05 or one times. And it's got to be at a certain threshold for our previous funds And then our net IRR, right? compound it has got to be at a certain point. We've got

16:45 to be competitive with other products. And not just venture products, but like we got to be competitive with like cane, like with private equity. And so the market has got to be in almost perfect

16:57 form and you've got to be ready. And what I tell young people too is sometimes you got to sell companies just to sell companies, like almost like sacrificial lambs because you need the returns. And

17:08 now in this market where you can sell to private equity, it's not like the entrepreneur has to sell out completely, like we need liquidity. So we start to think about this two to three years out,

17:18 hopefully the stars align, but then we are looking at fundraise within a two year window 'cause you can never plan it immediately. And then you gotta go when the going's good, right? The markets,

17:28 the timing's good, your liquidity's good, your biggest LPs are flush with cash. And then we typically talk to our existing LPs, hey, will you commit before we go out? And they say, usually yes

17:41 around this range. subject to diligence. And so for me, it's we go out with Mercury Fund Six, right, which we'll hopefully do early next year. And hopefully I've got a hundred to 150 million

17:51 committed from existing LPs already. It's so hard to go to market having nothing committed. Like I look back at what I did as a first time fund. I don't know if I do it again. You know, the body

18:02 doesn't remember pain, right? I think that's why women give birth multiple times. And like the body doesn't remember fundraising pain. But you know, for me, and like what we do as a team is

18:12 we've got to like, we've got to plan it out two years in advance. And then if we don't have liquidity, and if the markets aren't good enough, we have to wait, right? Yeah. And that's when you

18:21 start trading in your cars for four explorers in the morning. Right, right. So, well, the point you made that I love that's totally missed on the energy business and probably a lot in the

18:33 audience, and I don't mean to

18:36 be condescending is just,

18:39 I'm looking

18:44 at the camera. Oh, yeah, yeah, I do that periodic dramatic effect. Da, da, da, da, but no, the issue is investing's all relative. I mean, people tell me and I can buy PDP at PV15. If

18:55 Treasury bills are at 15, who the hell wants to own an oil well? Who? I get so many comments from older LPs saying, Hey, your first fund or second fund didn't beat the SP. I was better

19:06 off being in the market or I was better off being in

19:11 whatever it might be. And I'm like, You're right, I can't argue with that. And so I think a lot of times individuals put money into venture funds.

19:21 And sometimes I question why? 'Cause there's definitely better ways that's less risky to make money. But over time, what I've discovered is a lot of high net worth individuals want access. And I

19:33 think one of the things we've gotten good at is not only, hey, invest in our fund, 5x over a 10-year period, but we will give you opportunities to invest at a much lower risk in our later stage

19:46 deals without being promoted, right, or very little promote. Or we may put an SPV together for a special opportunity of something else. And that's one of the things like institutions. Sometimes

19:57 they like that, but man, the individuals are used to, and I mean, we've really been doing that a lot over the last two to three years. Well, and I would think just being in the ecosystem too is

20:06 cool I mean, going to Yale's party whenever the Christmas party and being able to see people that you see is worth something. Yeah. No, they enjoy that. And then we put on a big conference called

20:19 the CXO Summit outside of Austin every other year, and that brings about 300 people in. And that's usually growth equity and venture and then a bunch of companies throughout the middle of the

20:29 country. And a lot of times we'll invite LPs to that because we want LPs just getting access to other funds and other deals, right, if they want to put money to work in venture. always like, gosh,

20:38 don't let us be the only fund you do because we may have a fund that doesn't perform, right? Or you have a deal that doesn't perform. And so like we just believe in balance, you know, really for

20:48 everybody and everything. And so fundraising still fly to a city, eight meetings that day, roundhog stays. It used to be that way. Our second fund, here's a good story and I'll answer that. So

21:03 first fund, put the money to work. And we had a lot of great co-investment in later rounds that really gave us great up marks, you know, groups like, you know, NEA, you know, Austin Ventures,

21:14 a bunch of different funds. And so we had really good IRR going into the second fund. We raised the next 20 million for fund two in like six weeks, closed it down, and they were getting ready to

21:25 raise institutional money. We had done our first close. We were going to raise another 50. Everyone was excited. And then Bear Stearns went under Yeah, right. And it was oh wait, nothing was

21:36 happening. And so I met a woman, I don't know if you've met her before, Dana Levy-Germain, just phenomenal individual. She and I become good friends. She was essentially a placement agent who

21:49 worked with a number of brokerage houses to help raise funds. And her specialty was once you'd already raised a little bit of capital, then she could go out to institutions and hopefully fill in the

21:59 rest. So she and her husband had moved here and Dan and I met her And she's like, Hey, I really like the story. You know what, let's go out and fundraise, even though it's a terrible market. So

22:10 this is end of '08, '09, just like. Oh, yeah. Bitty. Oh, yeah, that was miserable. But imagine, we could get any meeting we wanted. You know why? Yeah. So we were flat in New York, San

22:20 Francisco. I mean, we were like the pink zebra coming in from Houston, like, wait a minute, a venture capital firm in Houston, Texas. Oh, we got to take this meeting. We got to take this

22:30 meeting, right? I mean, we would come into some of these meetings in New York and Boston, they'd literally be sitting there with like popcorn and Coke's, just like. Yeah, exactly. And they're

22:37 like, Tell me more, tell me more. And so in doing that, it's like anything else, right? It's like the Gladwell 10, 000 hour rule. We probably took 400 in-person meetings during '08 and '09.

22:49 We ended up raising 70 million because we had a couple of exits in Fund One, right? And so that DPI, right, the money going back to the LPs and they were like, Okay, great. We'll take a bet on

22:60 you. But I got really, really good at fundraising during that period. And I was telling again, younger managers who are going out, they're like, How do you get good at fundraising? 'Cause I've

23:11 been told I sell very well and I'm like, You gotta listen. And you gotta look, right? And I got really good at just reading people about how they were reacting to what I was saying and just

23:23 listening a lot. And it's kind of like a sales call, right? talk to Colin, you know over at time. you know, digital wildcatters about this, you know, when you go on a sales call, it's always,

23:32 Hey, what's your problem? How are you solving it today? What frustrates you? Right? And so, I learned over time to ask you, Cha, okay, I know you're interested in venture. Have you ever

23:43 invested in venture before? And your answer is, Sure. Well, how'd that go for you? Man, really crappy. I'm like, Oh, for 10 on deals. And I'm like, Okay, well, we can help with that You

23:55 know, you invest in our fund, you'll invest in a pool of deals. You may still do your own, but you may send your deals to us and we'll review them for you, give you some guidance. But it just

24:04 got really, really good at that. And that's really done, I think, wonders both for me and just me training my team about how to fundraise and just having open dialogue with people around what they

24:16 want. I mean, just because somebody wants to invest in you doesn't mean you take their money. You know what I mean? Yeah, you know, the two things I kind of found in fundraising and and I

24:25 totally usurp a story from somebody, but I claim it as my own. You know, I talk about being in college and Van Halen came and we saw the show in Houston. It was so great. We decided to go to San

24:36 Antonio the next night to see it. It was so great. And then we went to Dallas and then I think I added New Orleans in there and probably seven other cities. But the point to the story I always tell

24:47 is every time Eddie Van Halen fake dropped his guitar at the same point in the set. David Lee Roth had exactly the same shtick with the blonde on the front row at every show during Panama. And you

25:01 just ticked it through. I always say a good fundraising pitch is a script that, you know, you've got the story. And what was always so funny is my business partner Mike Hines. Mike loved to just

25:13 wing these things. I always wanted to know exactly where I was Because I was scared, I was going to tell the same story again, you know, when you're fun, right? You have eight meetings in a day.

25:25 You're like, I'm not gonna drop stick right now. Yeah, exactly. So I was always like, you don't, and if I was with a marketing person and they cut me off, I'm like, hey, we can talk about the

25:35 script after the meeting, but we don't do it in the middle of the meeting. And then the second thing is, I always found the simpler I made the story the easier, give somebody an analogy and just

25:45 make it simple. It took me a long time to get to that point, make it simple, right? Our story is simple but relatively complex in my mind, right? Hard to execute, but simple in terms of

25:58 describing. But simple, right? Early stage venture capital, middle of the country, based in Houston, but then it's a why, why, why, right? Why should I care about this? Why should I care

26:06 about this? You know, I was very scripted at first. What I found now though, at least for me, whenever I'm talking to someone about investing, I don't even take a deck out anymore And I try to

26:19 have talking points and then talk to them. I know the five things I have to say. Those things, and then I'll pull the deck out and I'll pull a slide up. Yeah, if you need it. Yeah, it's almost

26:28 hard now. I mean, when we go out for fun six, I'll have to get back into that motion. But like, I really enjoy having conversations with people to see whether or not it's the right fit or maybe

26:38 there's something that I don't know. Like if they're asking me about a certain aspect, I'm like, Gosh, that's a great question. I don't know, you know, kind of getting better about that.

26:47 But no, but your question before, you know, I miss the road shows because the last two funds, I've probably only taken trips with my partners to maybe a couple trips to New York and a couple trips

26:59 to Boston and maybe one trip to San Francisco, but everything else has just been people coming into us or just doing it over Zoom. And I kind of miss doing like New York, Greenwich, Hartford, you

27:12 know, Boston, you know, doing, you know, the deals and we would do like all the endowments too to go, know You. the Northeast, go to the Southeast. that I kind of miss is, you know, you're,

27:23 you're, you're going to a city or whatever, and you have to be in an American made car. And you have, you have to have a driver, because there's no way you can physically do all the meetings

27:35 without a driver. But at the same time, it can't be a Cadillac Escalade. Yeah, it's got to be a suburban certain things for certain. Yeah, I like that. I like the nuance, little pieces of that,

27:46 because when you hear them, it makes perfect sense, right? But you wouldn't have maybe necessarily have thought about them, you know, on your own. Yeah, no, it, you know it, was interesting

27:57 too. Like back when I had to fundraise, and you probably this way it came, the dress code was different back in the mid 2000s. Oh, yeah. Right. You go to New York, you're still wearing a tie

28:07 now. I mean, I don't think I wear a tie. I don't wear a tie at all, really, unless I'm at a private club or a funeral or something. But some places we go, we're almost expected to be dressed

28:18 down a little bit. to end with what they're used to on the West Coast. It was always that awkward dance. You have

28:29 someone that's a state employee and you don't wanna look obnoxious in terms of a5, 000 Italian suit. But to some degree, if you don't look nice, you're not successful. You aren't successful. No,

28:43 it's so, yeah, I know. I wore like a Timex, like Ola Bill Clinton, like an Ironman forever Just because I broke watches, I didn't see the need to have a nice watch. And two meetings in a row,

28:56 someone I actually knew on the other side, and something fun, three, was kind of like a nice Timex. And they were giving me a hard time. And I was like, oh, okay. And so

29:07 I ended up buying a decent watch, not crazy, crazy watch. But like little things like that, for the longest time, Dan, my original partner and I, We subly space in Houston. because we're like,

29:20 first fund, we're not gonna get nice space, right? It's just gonna be bare bones. That's what LPs expect. And then I finally got to a point of saying, you know, our employees expect more now,

29:31 but I think our LPs expect more, right? And they do. We can afford decent offices. They don't have to be palatial, but that's one of the reasons we built the office we did now and we kind of got

29:41 lucky 'cause our team has grown, we've been more successful, but everyone stays there for lunch and they work all the time and we have a really positive office culture But like also people like

29:50 coming over to our office for meetings and stuff. But that was a balance too, right? You go super cheap, you go what people expect,

29:60 it's tough. No, it's a weird, weird balance. The, so level set me technology today. I mean, what are y'all investing in? What are themes, what are. Man, I mean, it is super simple with

30:11 that too. I know it's simply, how can it be simple? I mean, the world is driven in my mind by three or four things. Number one, it's gen AI, and we can talk about that a lot, especially with

30:23 digital wildcatters and collide. It's driven by FinTech with blockchain digital currency and the current administration, right? It is game on now for crypto. And so all the infrastructure that's

30:36 being lightly built over the last 10 years is now being reinvested in, and you're gonna see a lot of things happen there. Our third big one is robotics. We don't necessarily have expertise in

30:46 robotics, but if you think about all the automation happening in manufacturing plans, but then how AI and Gen AI within robotics, I mean, now these humanoid robots, like it is probably gonna be

30:60 two to three years where you've got humanoid robots as workers in the working class, right? And the question is, are they gonna be like on farms, like migrant workers, or are they gonna be doing

31:12 things as, you know, serving food? I mean, are they be working with old people, right? you know, kind of helping them out. And then the fourth is space. Like that could be the greatest

31:24 investment opportunity of our time because once things really start landing like a new space station, you know, a moon, you know,

31:34 facility when Elon gets his wish and we finally get to Mars. I mean, just that's gonna open up so much investment. And so our focus, we're a software fund and we like capital efficient deals And

31:46 so Gen AI is right on point. My partner Samantha Lewis has become an expert in blockchain and crypto. And so she does a ton of FinTech with that embedded and we're kind of dabbling in space. We're

31:57 trying to think through robotics. And, you know, a lot of people talk about quantum computing, but right now that's really like more chipset based and chips are capital intensive and expensive.

32:07 So we don't necessarily focus on that. But right now it's, it's Gen AI. I mean, probably 70, 80 of what we do is Gen AI So the fascinating space story that I heard. is that now when you send a

32:19 man up in space, you know,

32:25 back in the day, it had to be an astronaut. They had to be able to do calculations up there. They had to be an engineer. They had to be a scientist. They had to be able to do all that 'cause you

32:37 literally had the computing power less than my iPhone, right? Today, everything's done from the ground So literally the astronaut, they're looking into the future as an artist of some sort. And

32:52 it's because at the end of the day, we need for human interests, there to be a person on the craft. And so having a singer up there and writing about experiencing the world from this view, this is

33:05 just crazy. I mean, think of, I think Bezos is next crew, right? You know, four women, I think Katy Perry's one of them, right? And then his girlfriend and two other women. And I think

33:18 you're right. I mean, I think people knock space tourism, but I think what people don't understand is it's less about the tourism and it's more about innovation, like this whole notion of American

33:32 exceptionalism. I mean, people have to dream, right? And I think we've gotten so negative a as society. And I think this is one of the things, everyone's like, God, it's such a waste for

33:40 Muskto want to go to Mars. I'm like, Well, is it? Think about our society after JFK gave his moon speech that Rice, right, that was a Mercury speech. That's what we were named after. Mom was

33:51 there. Yeah, amazing. Amazing, right there at Rice. But I think that dawn of a new era is starting. I mean, you have kids now who want to be astronauts, but they also want to build rockets and

34:03 they want to build space stations. They want to do all these things. I think it's really, really exciting times. We had to the breakfast club that you came in and spoke at that I'm a member of.

34:13 We had a CEO of one of the companies that's building private space station here in Houston. He came and spoke and it was interesting. We were discussing use cases for it. And literally one of the

34:26 use cases is gonna be a band that goes up there for three months and records their album. Yeah. And it's gonna be our, seeing the world out the window and being able to reflect on it and stuff.

34:39 And that every artist's gonna have to go record that album. Yeah, think about that. That'd be like, yeah, someone obscure like, you know, Bonnie Verre, right, goes to the woods. Yeah, no,

34:48 no, goes to space. Yeah, exactly. Comes back with an amazing album. Everybody, you saved the live album, now you've got the From Space album. I know. Yeah, it's just crazy. So what's the

34:57 story on AI? How are y'all looking at AI? What is AI in y'all's mind? Yeah, so I'll take you back. So when we spun Mercury out of DFJ Mercury, one of the things my partner Dan did was he started

35:13 investing in data deals, right? And in doing that, what he found was in the middle of the country, entrepreneurs weren't hiring data scientists, fast enough, often enough, you name it. So he

35:26 ended up putting a group together called Mercury Data Science that went out and hired data scientists. A lot of them from Baylor, Rice, Johns Hopkins, Stanford, you name it. And then we would

35:38 fractionalize them as consultants and they would help our companies build data science projects Now, that early days was more like machine learning and some other, you know, forms of data science.

35:49 How would you differentiate machine learning from AI? Yeah. Well, just because you hear that a lot. Yeah. I mean, AI is like, you know, it's an automated, like think of artificial is like

36:01 automated intelligence. And so you can have AI with something that just continues to go, right? When you get something like generative, like it's generating idea on top of idea on top of idea,

36:13 right? And so it's kind of multifactorial and so it's doing multitudes of things rather than like one simple thing. And then machine learning is just learning from the data that it computes from and

36:24 it just keeps going and going from there and it just, you know, does, you know, compute it much, much bigger times. And so our group was doing machine learning, pulling data from sensors and

36:36 other things for like manufacturing software, oil and gas software. It's company called ambient, you know, that's in the space that it's doing that. And then all of a sudden these generative

36:45 models came to market like chat GPT-3 and the world changed, right? 'Cause like, wait a second. Now you can, these LLMs have been trained, you know, these large language models have been

36:57 trained on so much data that you can build agents to go do things or you can ask these large language models questions that it will get somewhat right. And that just started everything. So about two

37:09 years ago or so when GPT-3 came out Everyone just stopped and said, okay, what does this mean? For us as a venture firm, at first, it was like, okay, we invest in SaaS software. Is SaaS

37:24 software, which basically manages workflows, but those workflows are still human-driven. It just captures data and does calculations. Will that get replaced by an agent? And I think the question

37:35 was in the future, yeah, it probably should. So it's okay, so do we invest in SaaS or do we invest in agents, right? Like what's the difference there? And so we started thinking that way. But

37:46 then you fast forward and so deep-seek, right? Deep-seek came out what now? Six weeks ago, eight weeks ago, it dropped. And these LLMs like, you know, chat GPT from OpenAI that have cost

37:59 billions to build. Deep-seek does it for less than 10 million and they built it with those models. But now that you have this really cheap model that you can train models with, what does that mean?

38:13 pretty exciting for us because number one, that opens up entrepreneurship where anyone can use a deep-seak model and solve a problem for anyone. We'll get to that in a minute. But then the

38:23 existential piece comes up, which is, wait a second, if I or you, Chuck, want to build an agent to solve one workflow in my life or for a company and I'll sell that, I don't need any other

38:35 employees. I don't need venture capital. So like what deep-seak really did was say, hey, wait a minute, these massive venture funds of 500 million, a billion, two billion, where are they gonna

38:47 put all their money? Because the best deals that are built AI first, using agents to do all the work internally and then building agents for some purpose, they don't need more than three to five

38:60 million, maybe 10 to grow to 100 million of revenue. And we're already seeing that. I mean, there was the first100 million company that has six employees. I think venture capital is going to

39:12 change a lot. Now, some of the money may go into other areas, but I think these Gennai software companies are going to be really, really capital efficient. Oh, wow. I hadn't really even thought

39:23 all that way through. I thought at some point we would get to where we had, in effect, agents instead of people, but wow. Yeah, and so six people, 100 million are revenue. Yeah, I mean - Holy

39:35 cow. And so some of our companies that we've invested in that are Gennai, they're more for vertical applications, like in pharmaceuticals or financial services or like oil and gas. Like we don't

39:45 want any of those companies to have more than 20 employees. And so if those companies with 20 employees are replacing multitudes of software and multitudes of employees at the companies that buy the

39:59 software, the question's gonna be, now where are the jobs gonna be? And I'm not at doomsday where I believe tech takes out tons of jobs I think tech always repurposes people. And I think the

40:12 question is going to be, when people are repurposed, what's that next opportunity? But if you think of a big fund like Sequoia or NEA, where are they going to put all their money? I really think

40:26 those funds are going to start investing in public market companies, and you'll start to see them become more like RIA's, and they'll take positions in some of the biggest companies along with

40:36 private companies, because there won't be enough places in the private markets to put all that capital to work Yeah, I mean, I guess you could see the world where we go invest in the public company

40:46 and force them into the 20 employee model. Right, right. I mean, one of the biggest opportunities for newer venture funds that I've heard, and also like, you know, some growth, private equity,

40:57 is going out and finding old world service businesses, rolling them up, and then bringing in AI agents to be like service as a software, right, and take over those service roles I mean, there'll

41:09 be a human in the loop to like - heavy lifting and other things, but it's just absolutely fascinating, you know, times that we live in. And so, you know, I'll probably, you know, invest for

41:19 another 10, you know, 15 years, you know, before I call it quits and just do angel investing. And I think my jobs will be a lot different in a decade than it is now. I just don't entirely know

41:29 how, you know, so that's cool. That's cool. So how did you all look at us at digital op-catters? And just for the record, I don't know that a press release has come out yet, but it's coming at

41:40 some point. You guys led a5 million round into us. Yeah, super exciting. So I had known about you guys and I'd met Colin and probably two, two and a half years ago. And I can't remember who

41:53 threw, but then my senior associate, Alex Grosso, you know, he and Colin were doing it forever. And Alex comes from the energy space. And he basically, how long ago was it that you talked to

42:03 our breakfast club? Oh, man, probably a year ago, right? That was a year ago. I remember we talked about it. then we were saying, Hey, we got something coming to market. And I was like,

42:12 Yeah, but aren't you guys just a marketplace? Aren't we just a media company? Just a media company? You're like, Yeah, it's a little bit more than that. And so when it dawned on me, it was

42:21 okay. Gen AI, generative AI, like LLMs, large language models, it's all about training data to do things. And in a world where the big LLMs, like these foundational models exist, what other

42:37 opportunities are there? Well, there's specific opportunities in various industries. So each industry, pharmaceuticals, automotive, oil and gas, should have specialty data that needs to be

42:49 aggregated and then used to train a specialty model so that when you're doing the job, when an agent is doing the job of a worker, it not only goes to these foundational models, which is general or

43:01 relative data, but also specific specialty data And so when you said that, and then. these LLM started dropping, and then I saw other people doing these small language models, and I finally met

43:14 Colin, it was like, okay, got it. And this whole notion of what you guys are doing, that we had to learn about RAG, you know, is really, really interesting, like retrieval, augmented

43:27 generation, where it's retrieving data, but the data from the foundational models augmented by another model, and all of these things, and these words all kind of go together, and I'm still

43:37 learning as we move forward. We then said, Okay, this is interesting. You know, we took a pitch, right? Remember you invited me and Alex over, and we sat down and Colin was talking about what

43:46 you guys were doing, and you and he were riffing back and forth, and finishing each other's sentences. And I can just see the excitement you guys, 'cause you guys are two of the better networked

43:55 people in the space. You know how to sell into these mid-market companies. And so we probably did two months of research on who else was doing Gen AI in oil and gas. And we couldn't find anyone,

44:10 except for Microsoft, walking into Exxon with OpenAI and saying, Hey, 10 million, we'll build whatever you want. And we found one company on the West Coast, which was a bunch of Stanford grads

44:22 saying, Hey, we have a model, we'd like to purpose within the space. But there was no one from the space doing this. And so once we knew that, it was like, okay, we wanna make this investment,

44:33 then it was just about getting enough data to get to the point where our valuation expectations and your value expectations met. And it's like, okay, let's do a deal, let's make sure. That's

44:42 funny. Yeah, no, well, I gotta always say, we always need to disagree on that, 'cause who would wanna invest in a CEO that thinks they're worthless than you do? Exactly. No, no, let's take

44:53 that down by 20. All right, that's great. But it's been fun because we always talk, you guys talk about collide, right? being the perplexity of oil and gas in like our parlance internally, we

45:08 talk about collide being like the omniscience of oil and gas or like one of our companies, right? Other companies that have done these vertical rag models with specialty data. And like we've seen

45:18 how they're built, we know what their trajectory is. And so, you know, the next one we do, it's going to be like, this is the collide of chemicals or whatever that might be. I mean, it's just

45:30 an exciting time. Yeah, no, it's been, it's been totally the Wild West. At some point, Colin and I'll do a podcast and kind of lay out exactly what we do. At this point, we're still trying to

45:43 be somewhat covert about it. But it's pretty wild. I mean, we've, we've got, we're working with a two man shop right now. Yeah. And figuring out, can we do something where they can pay us

45:56 enough money that it's worth our time and creates enough value to them. And then we're in a big huge, multiple big huge publicly traded companies. a two-man shop, that's the dream. That is the

46:09 promise of AI. It's not just you and I can build an AI company for others, it's that anyone can build a company to do anything. Utilizing AI internally, how efficient can they be? Can they

46:25 outsource everything and just use their own human intellect and their ability to just critical thinking and then an AI tool and let's go out and attack it I mean, to me, that two-man shop is like

46:36 more interesting than the enterprise. So I know the enterprise brings in more money, but 'cause that'll just drive entrepreneurship within the energy space, you know. Yeah no,, I think that's

46:45 right. And I think the other thing too is engineers in the oil and gas business are so incredibly value added. They make such additive type decisions that lead to great value Just time their of much

47:01 so spend yet

47:03 dickin' with stuff. Yeah, and if you can get rid of that, I think that's - And it's not the administrative, it's just that it's like binding the data, collecting it, talking to someone,

47:14 analyzing it. Analyzing it. Yeah, I think if you could just cut to the chase, I think it's, you know, 'cause again, will there be some jobs replaced by AI in the energy patch? Sure, but I

47:26 think what Kaleid has the opportunity to do is make people super human. And that's really, really special. Well, in the history of all technology is companies that lean in and use it to empower

47:37 their people as opposed to cut people are always the winners 10 years later. Yeah, big time, big time. That story just - Keep the talent, right? And just keep building and growing from there.

47:49 And we're seeing that, like, you know, different case example, like our companies that are more legacy SaaS, they've all had to get religion quick on these AI tools to say, okay, do we need as

48:01 many engineers? Do we need as many salespeople? me as many marketers. And some companies have cut down their staff considerably while others have said, you know what, we may cut the

48:10 underperformers, but we're gonna keep everybody, 'cause we know we're gonna need more people when we scale, we can just scale faster using these AI tools. And we're already profitable, right? So

48:20 how much profit do we really need? 'Cause it's really about growth, you know, when it comes to these innovative deals. So it'll be interesting to see how companies balance that out. Yeah, so

48:28 we're sitting here in five years. What are we talking about in five years that no one's talking about today?

48:38 So here's one. Yeah,

48:43 getting on a political bat, you know, we really haven't had an immigration policy in the last five years, right? 'Cause it's been so politicized. Oh, it's 25. Yeah, 25, yeah. But the last

48:53 five years, it's just been like - George Bush, the second, in effect, almost had the big deal done. Yeah, but they didn't - Couldn't get it done. Didn't get it done politicized back and forth.

49:05 But now I think with the current administration, something's happening, right? I'm not going to get into whether it's good or bad. But one of my reservations about it is, you know, apart from

49:15 just making sure it's humane, right? Because there's a lot of good people that are being upended is, okay, as an American, we have jobs to do, who's going to do those jobs? Because a lot of

49:28 good people are coming into this country saying, I'll do that job And when those people go away, the people that are left, they've shown an inability or reluctance, or, hey, I don't want to take

49:40 that job on, who's going to fill those jobs? I think in five years, we're going to be talking about humanoid robots doing the jobs that are either too difficult, too dangerous, or that people

49:50 don't want to do. I mean, imagine having humanoid robots as firefighters or as police officers, let alone farm workers, uh, any type of like, you know, frontline type of worker. That's a weird

50:07 environment, man. I don't know if people are ready for it, but that's what I believe the powers that be have been told is going to happen, and that is why this immigration policy is moving forward.

50:19 Have you ever been to the flying cow? No. Okay, so, you know, I live down in Richmond, Texas. So down, it's technically in, I think, Booth, Texas, but, you know, you head down 59, you

50:34 get to 762, you take a right to go to my house, you take a left, you go to the flying cow, they import Wagyu beef, and their folks actually in Houston that drive out to the flying cow to buy

50:45 their beef because they've got some deal with the Japanese company. Anyway, it's really good. They make great burgers and all that. A robot brings your food out to the table. Is it one of the

50:57 ones that looks like Rosie from the Jetsons? Yeah, yeah, yeah, I've seen that robot, but I haven't seen it in person. Yeah, it actually comes right out to the table. It's got the numbers and

51:06 all, it's kind of crazy. Crazy, crazy. Have you seen the, I think Maddy, my daughter showed me like on TikTok or something, but I think it's a Chinese robot that they've taught how to fight and

51:21 it's doing essentially like jujitsu and it takes a saber out of someone's hand and disposes of it, but it's using AI both for vision. The torso is separate from like the legs and so the way it moves

51:39 is freaky. I mean, it's the most human thing I've seen. And so, so then you get to a point of view. We may need that in a board meeting with Colin. We may

51:50 keep people over on the side, but then you're talking about military, right? Everyone's like, oh, military will just be drone base. There won't be any humans I mean, you could have humanoids

51:58 fighting humanoids. And it's like attack, it was a Star Wars, a terrible Star Wars movie with the attack of the clones where they had all the rear force head type robots. Yes, exactly. Exactly.

52:09 We're not far off from that. And when you think about what we're talking about in five years, I think it's gonna be robotics 'cause we're gonna be there. Yeah, that's wild. How many gen AI deals

52:22 have y'all done? Yeah, in the last year, we've done seven vertical gen AI deals that are similar to Collide and two horizontal. And we've done deals besides like all the big funds. But we're

52:42 really learning this market quickly. Is there something across verticals you're seeing that may be trends that sitting here at Collide we need to know about? Yeah, it's how you go to market It's

52:56 really hard to go to market going enterprise first. because the enterprises are being sold by Microsoft and Accenture and KPMG, and they're gonna build their own. And so, if you can find these

53:06 vertical markets with really strong mid-market participants who wanna get more efficient, because the market kinda demands it, that's where you just can absolutely go nail it. And then the thing

53:17 we're looking at throughout our portfolio is pricing, 'cause the pricing's changing, right? It's not on a per-seat basis per se anymore. Sometimes it's, hey, use what you need, almost like an

53:28 employee. You're starting to see this with OpenAI, right? They came out literally last week and said, we're thinking about our agents that we sell to people as being, if it's a super smart agent,

53:40 which means it uses the latest chat GPT, it's maybe 200K a year because you're basically getting a PhD level person. But if it's an agent that's not utilizing the best model, then it may only be

53:51 20K a year or 5K a year. And I think we got to think about, through that and all of our vertically I plays, but we are learning all of this like real time. And we're helping all of our companies

54:02 kind of get those better. With our two-man shop that we're working with, that's actually the deal we have with them is document the value add. Period. If I save you this much time, if I allowed

54:14 you to find why production can go up 5 a year or whatever, please document that for me So I think with

54:25 this first agent or this first product which essentially doesn't replace a petroleum engineer but makes their job super efficient. What's that worth rather than hiring three more petroleum engineers?

54:37 Is it a third of a petroleum engineer's salary? I mean, that may be how it gets priced out. But again, it's like SaaS. What I always said about SaaS, this is why funds like Vista and Insight and

54:48 others got so big SaaS software, 70 of it's exactly the same. It's the playbook, right? Right, you build an operating business, 70 of the same. So last 20 or 30, that's where special, things

55:01 really, really happen. So AI is gonna go the same way. We're seeing the exact same thing. And so I think the funds that do a lot of these investments and learn those best practices and those

55:11 playbooks are gonna be able to help their companies better. Yeah, interesting. Blair, you were cool to come on. Thanks, ma'am, I appreciate it. A long time ago. And thank you, thank you so

55:19 much for the money. Hey, it spends, right? It hit the account, but I'm excited for the next five years. No, I think, you know, it's interesting. We want the CEO that's thrifty and all, but

55:31 then at some point it's, if you find the right person, go hire them. Go get 'em. If you think this is gonna help spend the money, 'cause you do have access to money now. Yeah, no, and I think

55:42 that's where you and I really align. And we're columns head is too. It's like, okay, you've got cash. Now go get the best people. Yeah. You know, and let's go.

55:54 See you some good things in the morning. Oh man, awesome.