Limitless: An AI Podcast

Josh:
Right now, if you want to invest in the hottest companies in the world,

Josh:
SpaceX, OpenAI, and Anthropic, you really can't.

Josh:
It's normally an activity reserved for the ultra-wealthy who are accredited

Josh:
and involves a lot of jumping through hoops.

Josh:
Well, this week, there's a fund that enables you to invest in all three and more.

Josh:
And it seems like a pretty awesome deal, but the internet has some skeptics

Josh:
and questions about how it works.

Ejaaz:
Well, the good news is we have the GP of the fund here, Ankur Nagpal,

Ejaaz:
on the show to answer all these questions. Ankur, what's up, dude?

Ankur:
What's up? Excited for this. It's been a really, really fun week and yeah,

Ankur:
looking forward to digging in.

Ejaaz:
Okay, so the headline I keep seeing everywhere is with this investment vehicle,

Ejaaz:
now the average show can invest 500 bucks in their favorite company before they go public.

Ejaaz:
So if you have 500 bucks, you can invest in Anthropic and OpenAI.

Ejaaz:
But I want to take a few steps back because I think people are missing the wider

Ejaaz:
story as to why this makes sense now and why you're doing it.

Ejaaz:
So that's my first question.

Ejaaz:
Why does USVC exist at all? And why is now the right time for this?

Ankur:
So if you look at where most of the money is being made in private technology

Ankur:
companies now, Now, it's been happening before these companies go public.

Ankur:
Businesses are taking so long to get out there. And the result of that is the

Ankur:
average person misses out on that wealth creation.

Ankur:
So the goal with USVC is to build a vehicle for people to invest in the future

Ankur:
of American technology.

Ankur:
Now, it's easy to look at, you know, OpenAI, Anthropic, and all of that.

Ankur:
Those are the names we have today.

Ankur:
But a big part of this fund is investing in the companies of the future.

Ankur:
So it's not just late stage private tech of which, you know,

Ankur:
there are other products as well, but it's also backing the smaller companies

Ankur:
starting today that will be relevant three, five, seven years from now.

Ejaaz:
Okay. And how does USVC specifically solve this problem? Can you like walk us

Ejaaz:
through like if I'm someone that's investing 500 bucks today,

Ejaaz:
what is exactly happening with my money?

Ankur:
Yeah. So historically, the way investing in private startups work,

Ankur:
and this is kind of bizarre.

Ankur:
In the U.S., historically, you have to be something called an accredited investor,

Ankur:
which means you need to have a net worth of millions of dollars in order to invest in a startup.

Ankur:
And there's different opinions on why it exists, but it's a bit ridiculous when

Ankur:
you think about, you know, you can invest in any sort of derivative crypto product

Ankur:
without that. I can go gamble.

Ankur:
I can go bet on Polymarket on how long Donald Trump will shake his hand for.

Ankur:
But investing in Enthropic or OpenAI is illegal for the average person.

Ankur:
So the goal with US VC and, you know, we're SEC approved to do this is to offer a registered fund.

Ankur:
Again, you know, people should understand that this is investing in venture capital.

Ankur:
It is still a speculative asset class. We always say with VC,

Ankur:
only invest what you can afford to lose. It is an illiquid investment.

Ankur:
Like, do not think of it comparable to investing in the stock market.

Ankur:
However, if you're someone that otherwise has a balanced portfolio,

Ankur:
it could make sense to allocate, you know, 3%, 5%, 7%, something like that to

Ankur:
this basket of high growth technology companies and effectively own a piece of the future.

Josh:
Awesome. So I'm investing in this. I see a price on the page that says the NAV is $19.95.

Josh:
And I have a little bit of PTSD, right? There was a company that launched,

Josh:
or an ETF that launched a few weeks ago that went up like 10x in one day and

Josh:
then it crashed back down.

Josh:
But I understand that that's because the NAV was actually much lower than the

Josh:
company was trading for.

Josh:
I believe USVC is handling this a bit differently. So when I see the price $19.95

Josh:
on the screen, what is that getting me and how do you handle the pricing?

Josh:
Is it subject to that fluctuation?

Josh:
How would you explain NAV to a person who doesn't really understand?

Ankur:
That's a really good question, because ultimately, US VC is a fundamentally

Ankur:
different product from all the ETFs.

Ankur:
I believe there is, you know, Fundrise has an ETF called, can't remember the

Ankur:
ticker, Robinoot has an ETF as well.

Ankur:
And while these are trying to give the average investor access to private companies,

Ankur:
they're fundamentally different products.

Ankur:
And the reason for that is, their price is sort of divorced from the underlying

Ankur:
value of assets. So even right now, the Fundrise ticker VCX,

Ankur:
for instance, it's trading at roughly four times the price of the underlying companies.

Ankur:
And if you're an early investor, that's great. You're opting the money and it can work really well.

Ankur:
But in down markets, this can also sort of trade not in lockstep with the underlying companies.

Ankur:
So you could, as an example, buy this ETF, the companies could do well,

Ankur:
but you could still lose money because the pricing is sort of divorced from

Ankur:
the underlying value. Now, USVC is a different structure.

Ankur:
It is not an ETF, so it is not easily tradable. However, the price is determined

Ankur:
by the price of the underlying companies.

Ankur:
So the NAV that you see only changes if and when one of the underlying companies

Ankur:
has an updated valuation.

Ankur:
So it's a slower sort of moving NAV.

Ankur:
Now, in turn, you may wonder, okay, this is well and good, but if it's not tradable,

Ankur:
how do I actually get my money out?

Ankur:
And the way this works is quarterly, the goal of this fund, and we caveat it

Ankur:
with like, look, we aim to do this just because according to your perspective, it's not guaranteed.

Ankur:
But if we are to do our job well, we have to meet a quarterly redemption of

Ankur:
up to 5% of the fund at the actual NAV.

Ankur:
Now, that doesn't mean each investor is limited to 5%. it means 5% of the entire

Ankur:
fund will be made available for redemptions every single quarter.

Ankur:
So as an example, if we have 100 million in assets, we'll do 5 million every

Ankur:
quarter that'll be available to investors on a pro rata basis.

Ejaaz:
On the point of redemption, I understand that the shares obviously aren't listed, right?

Ejaaz:
So redemptions are quarterly, like you mentioned, but there's a cap.

Ejaaz:
I think it's like 5% of NAV at the board's discretion.

Ejaaz:
So a two-part question that I have for you is, in a real panic,

Ejaaz:
like what actually happens to someone who wants to get out of this vehicle, right?

Ejaaz:
Has the board already pre-committed to offering the tender every different quarter or can they skip?

Ejaaz:
Like what are people liable for? Who's liable for here?

Ankur:
So ultimately we or the board reserves the right to skip.

Ankur:
However, it is in our best interest. Our interests are aligned.

Ankur:
If we are a fund that is skipping tender offers, it becomes a less attractive

Ankur:
investment product and it ultimately hurts us quite a bit.

Ankur:
However, it's still important to anyone listening. Like, again,

Ankur:
this is venture. It's a different asset class.

Ankur:
Like, think about a venture fund. It is a highly illiquid investment.

Ankur:
This does have tender offers, which is typical, which is better than a venture

Ankur:
fund. In a venture fund, your money is locked up for 10 years.

Ankur:
You have nothing you can do about it.

Ankur:
However, like, you know, we're kind of repeating, this is an illiquid product.

Ankur:
Think about it like, you know, like similar to how you think about a venture fund.

Josh:
So there is a lot more stability than something that we saw with BCX.

Ankur:
Absolutely. Yeah. The upside is, look, like you're actually owning something

Ankur:
close to the underlying asset, which the ETFs, I think, are really fun.

Ankur:
I mean, I, you know, dabble in it myself, but I think of it almost like a speculative

Ankur:
ticker to kind of trade the sentiment on these names more so than anything else.

Josh:
So you mentioned owning the underlying asset. I guess I'm curious,

Josh:
how close are we to that underlying asset?

Josh:
And the question there is, I understand some of these are SPVs.

Josh:
They're not directly on the cap table.

Josh:
SPVs generally come with fees, which has been a big thing that I've seen people

Josh:
on the internet talking about is the fee structure, what you're paying for as

Josh:
a premium in order to access this.

Josh:
Could you speak to the fee structure a little bit here? Yeah, absolutely.

Ankur:
So our strategy is multifold. One of the tenets of our strategy is when it comes

Ankur:
to early stage investing, like pre-seed and seed, it's very hard for us to keep

Ankur:
track of what are the most promising companies.

Ankur:
So there, our goal is to find the most promising GPs that run these specialized

Ankur:
pre-seed and seed funds and be their source of capital.

Ankur:
The benefit of doing this is when they want to write a follow-on check,

Ankur:
like a series A or a series B check, we can be their source of capital. In terms of how we're

Ankur:
This is a very small seed portfolio. We'll hopefully be announcing a lot of new investments soon.

Ankur:
The early investments are largely through a single underlying fund.

Ankur:
However, moving forward, a lot of investments that are planned are direct on the cap table.

Ankur:
And this is important because if it's direct on the cap table,

Ankur:
it means there's no management fee.

Ankur:
But also because this type of registered fund doesn't charge carry,

Ankur:
there's no carry as well, which makes it very, very competitive from a pricing

Ankur:
and fee perspective for any of those direct investments.

Ejaaz:
Wow, that's great if you're getting the direct investment on the table.

Ejaaz:
But just to kind of step back for a second and kind of walk through maybe an

Ejaaz:
example, like I know a lot of the companies that you're investing in right now aren't public.

Ejaaz:
They're meant to, they're very highly valued. They've been valued maximally

Ejaaz:
over the last couple of months, especially in the AI world.

Ejaaz:
If we stepped back, say, a year ago, right, when OpenAI was worth a couple hundred

Ejaaz:
billion dollars or even a hundred billion dollars, let's say this vehicle existed back then.

Ejaaz:
Can you walk us through an example of if I'd invested a thousand dollars in

Ejaaz:
here, how much would I be up right now?

Ejaaz:
How much could I have taken out? Are you able to give us a kind of walkthrough?

Ankur:
Yeah, let me, we can try and work through this live, right?

Ankur:
So again, this fund took us a while to set up and we sort of don't control the

Ankur:
market conditions and they are what they are.

Ankur:
But theoretically, every time there's a markup, what happens is you look at

Ankur:
what that company size is a percentage of NAV and that markup is reflected in NAV.

Ankur:
And so that goes up and you could theoretically start redeeming quarterly based

Ankur:
on that sort of inflated NAV value.

Ankur:
Even now, part of our strategy is we believe there are opportunities to come

Ankur:
in and buy out certain positions at discounts.

Ankur:
These could be secondaries in funds, secondaries in companies.

Ankur:
And the benefit there is as a company raises a new brand of financing,

Ankur:
that's a little, that's a markup to NAV, which theoretically could benefit people.

Ankur:
Working backwards, it's tough to model out exactly what this is because

Ankur:
There's a huge sensitivity on position size and fund size, right?

Ankur:
Because as an example, if we own a SpaceX position that is 20% of our fund,

Ankur:
but then our fund grows, our position effectively gets diluted unless we're

Ankur:
kind of buying more to keep up with it.

Ankur:
And that sort of makes some of this math a little bit more complicated.

Ejaaz:
One thing that kind of stood out to me when I was digging into this and I tweeted

Ejaaz:
about this, you responded to me because you were like, some of these management

Ejaaz:
fee estimations are wrong, is this is happening on AngelList.

Ejaaz:
Now, AngelList is a widely successful platform, but why is it particularly suited

Ejaaz:
for this particular product?

Ankur:
For people who don't know about this, AngelList has been around for 15 years.

Ankur:
They're sort of, you know, at this point, they've had multiple sort of generations

Ankur:
of leaders and employees come. And, you know, it's been around.

Ankur:
It's been a fixture since...

Ankur:
I've now built and sold two companies and they are how I raised money for my

Ankur:
first company over 10 years ago. So they've been around for a very, very long time.

Ankur:
But the benefit of the AngelList platform is they are where the majority of

Ankur:
early stage investing happens.

Ankur:
They are the fund manager of choice for a lot of early stage investors.

Ankur:
They are the SPV tool for most companies.

Ankur:
And as a result, their platform has really good exposure to all of these early

Ankur:
stage assets, which is a very good vantage point for us if we're like,

Ankur:
hey, you know, we want to go acquire a stake in Anthropic.

Ankur:
Let's see, you know, there's a lot of Anthropic investors on AngelList.

Ankur:
We know who to reach out to.

Ankur:
So that makes it a very attractive sort of very logical institution to start a product like this.

Ejaaz:
So when I think about I saw someone explain this on X, there was a lot of activity yesterday.

Ejaaz:
So if you understand, right, the walkthrough, I put in 500 bucks and the way

Ejaaz:
I outlined it in my explanation yesterday over here was there's a 3% management

Ejaaz:
fee in total aggregated, not 1%.

Ejaaz:
It's a double layer vehicle. So you go at USVC at the top, you're paying them

Ejaaz:
a management fee. There's no carry.

Ejaaz:
So there's no necessary incentive for you guys to maybe like work on the or

Ejaaz:
like hold particular positions.

Ejaaz:
But then at the bottom, right, the layers that you guys are investing in where

Ejaaz:
these GPs are actually like putting in chunks on the cap table on L1 SPVs,

Ejaaz:
they then take a 220, right?

Ejaaz:
So in my mind, that made sense as 3%. But you clarified over here,

Ejaaz:
you said our management fee is actually 1% and the total expense ratio right

Ejaaz:
now is 2.5%. I think that's really important and people don't understand that.

Ejaaz:
Can you, would you mind like explaining how exactly you get to that?

Ankur:
Yeah, absolutely. Yeah, that's a, it's a nuance that matters to people closer to this.

Ankur:
What investors care about is their expense ratio but that's different from a

Ankur:
management fee you know the idea because a 2.5% management fee looks like 2.5%

Ankur:
going into our pocket the reality

Ankur:
is the expense ratio which is the net percentage investors are paying

Ankur:
is 2.5% right now.

Ankur:
And the mechanics and the scare to some people is it's really right now 3 point something percent.

Ankur:
We subsidize it out of our pocket to make it 2.5%. Now you may wonder,

Ankur:
why are we doing it? Why is it so high?

Ankur:
The reason is when you start funds like these, they're pretty expensive to start.

Ankur:
So all these funds will have very high expense ratios up front because there's fixed costs, right?

Ankur:
And when you have like 10 or 20 or 30 million in assets, those fixed costs are really high.

Ankur:
However, we think the 2.5% is very competitive because again,

Ankur:
you know, if you compare this to a Vanguard fund, you'll be like,

Ankur:
this is like why 2.5%, that's crazy.

Ankur:
But venture funds typically are 2%. And Drees and some other funds are 2.5%.

Ankur:
However, if you're a venture fund of funds, which we partially are,

Ankur:
those are typically 3% if you include the underlying.

Ankur:
So this 2.5% cap, I think makes us very competitive, especially when you factor

Ankur:
in, we don't charge carry. Now, some of our investments are in funds and they

Ankur:
underlying have their own carry.

Ankur:
However, all the direct investments don't have that and there's no carry on our end.

Ankur:
The combination of that, I think, compared to the world of venture products

Ankur:
makes this very competitive.

Ankur:
And a big part of why even, you know, you're like, okay, why is it even two

Ankur:
and a half is when you try and distribute a fund like this to retail,

Ankur:
there's just operational fees that really add up.

Ankur:
But from a management fee perspective, I mean, you know, we were looking at 1% or 100 bps.

Ankur:
And within that, we're, you know, have to do sales and marketing and a lot of other stuff.

Ankur:
And right now, we're honestly subsidizing most of it.

Josh:
Awesome. Okay, so we understand why this works. The fund structure.

Josh:
Now, let's talk about the portfolio of what you actually get when you invest

Josh:
in this thing. I see XAI on there, Anthropic, OpenAI being three of the larger ones.

Josh:
And particularly when I see the largest holding, I mean, 20 and a quarter percent is XAI.

Josh:
Now, as most people know, XAI has been acquired by SpaceX on February 3rd at

Josh:
one and a quarter trillion dollar valuation.

Josh:
So that position now is functionally pre-IPO SpaceX.

Josh:
Is that kind of how you think about it internally? and are the people investing

Josh:
in that acquisition price or is this a higher markup closer to what it's looking

Josh:
like as it IPOs this year?

Ankur:
Yeah, so I think the most recent mark on this, and I think we've shared this,

Ankur:
was a few weeks ago based on some internal documentation. It's not the IPO price,

Ankur:
right? That's speculative. That hasn't happened. We don't know when that is.

Ankur:
My general caveat with all of this is like, look, some of this may look super

Ankur:
opportunistic. You can get in before certain marks and all of that.

Ankur:
I don't encourage that type of thinking in general. I think you should think

Ankur:
about this as a long-term investment.

Ankur:
Are you long-term bullish on venture as an asset class? If so, great.

Ankur:
I think these positions are great. I obviously like these companies.

Ankur:
However, this is such a small percentage of what we will and plan to do.

Ankur:
And something you'll see soon is we're going to be very public with our investments.

Ankur:
Hopefully as soon as next week, we'll announce newer positions.

Ankur:
And so people can kind of see the portfolio evolve in real time.

Ankur:
But my general guidance is like consider

Ankur:
investing in this if you're generally bullish about the asset class

Ankur:
you want to own a piece of the most important technology companies in

Ankur:
the future you can withstand the

Ankur:
lack of liquidity and the fact that it's a speculative asset class and do it

Ankur:
for that don't do it because you really like the SpaceX position or the Anthropic

Ankur:
position these are great companies we wished we owned more of them but right

Ankur:
now we've added a lot in cash these positions have effectively gotten diluted

Ankur:
and we think the future is not just these companies,

Ankur:
but the companies that everyone will talk about three years from now and five years from now.

Josh:
Awesome, so yeah, notably in the portfolio, 56% of the holdings,

Josh:
if you purchase today, are cash.

Josh:
So you're buying basically this potential upside opportunity for whatever the

Josh:
fund decides to invest in.

Josh:
How do you consider allocating that and what is the velocity people can expect you to deploy that?

Josh:
I found a lot of people were kind of mentioning they don't want to invest in

Josh:
something that's half cash.

Josh:
So what is the plan to deploy that and kind of how quick?

Ankur:
Totally. I mean, our goal is we'd want to ideally hold close to

Ankur:
10 to 20 percent somewhere or maybe even a little bit less in cash and cash

Ankur:
equivalents and again the reason we want to do that is we have to quarterly

Ankur:
tenders right like if all your dollars are invested in venture that's very illiquid

Ankur:
and quarterly tenders become a little bit difficult so

Ankur:
ideally we would like to keep some kind of buffer in either cash or public equivalents

Ankur:
where we can go make our tenders however we intend to be deploying these dollars

Ankur:
quite aggressively and aggressive doesn't mean we're going to index all of late

Ankur:
stage private tech but you know we're going to be backing a lot of early stage fund managers,

Ankur:
a lot of companies directly on the cap table,

Ankur:
buy out some kind of fund positions as well.

Ankur:
There's a lot I can't talk about because these are deals in progress.

Ankur:
But again, we've been very active on the social so far and we will continue

Ankur:
to be when we announce each new position.

Ankur:
And what's cool is for a lot of these companies, they're pretty small.

Ankur:
So they will also announce it to their community and it could be a great way

Ankur:
to activate their community to own a small piece of the business.

Ejaaz:
A very important nuance that you've described several times on the show so far

Ejaaz:
is this isn't trading like a public stock, right? The VCE game,

Ejaaz:
venture game is very, very different.

Ejaaz:
It is more asymmetric. Deals are

Ejaaz:
kind of like aggregated and dealt with within a very few set of actors.

Ejaaz:
And these rounds of valuations can mark up pretty massively.

Ejaaz:
So it takes time and it's a long haul thing.

Ejaaz:
I get that. You mentioned like, it's the long game, right?

Ejaaz:
Three to five years is what you said. In three to five years,

Ejaaz:
or maybe even a decade, what's the best outcome for USVC?

Ankur:
So the best outcome for us is if you look at the data, venture capital as an

Ankur:
asset class has the potential to outperform public markets while also being

Ankur:
somewhat uncorrelated.

Ankur:
So if we can sort of index that, right, like I can't commit to an IRR, I can't commit to that.

Ankur:
But if we can effectively outperform while not being fully correlated,

Ankur:
that's sort of, that's why endowments invest in venture, right?

Ankur:
Like it's two things. It's the alpha and the lack of beta.

Ankur:
And that's sort of the goal here as well.

Josh:
Awesome. Well, thank you. Sadly, we are out of time. I wish we had more time

Josh:
to chat about this, but I very much appreciate you coming on the show to join

Josh:
us to kind of explain the perceptions around it, to give some clarity to this fund.

Josh:
Any final thoughts for anyone on kind of the steps they should take if they're

Josh:
interested in participating or just learning more?

Ankur:
Yeah, look, I mean, usvc.com is our website. At this point, you know, we've been,

Ankur:
the response has been phenomenal and it's honestly blown every expectation so

Ankur:
it's gone from like oh you should invest in usvc to all the reasons people should

Ankur:
you know be careful and think about liquidity and you know what they can afford

Ankur:
to invest and stuff but no check it out at usvc.com and thanks for having me guys

Josh:
Awesome we really appreciate the time thank you so much thanks.