Aman Verjee, Founder and General Partner at Practical Venture Capital, shares his view of how venture capital has evolved over the past two decades and why secondary markets now play a critical role in the ecosystem. Drawing from his time at PayPal, eBay, and Sonos, Aman explains how companies today stay private far longer than they used to, what that means for early investors and employees, and how thoughtfully structured secondary transactions can reduce friction and misalignment on the cap table. He also challenges popular narratives around tech bubbles, walking through historical examples to explain why today’s AI-driven market looks fundamentally different.
Aman Verjee, Founder and General Partner at Practical Venture Capital, shares his view of how venture capital has evolved over the past two decades and why secondary markets now play a critical role in the ecosystem. Drawing from his time at PayPal, eBay, and Sonos, Aman explains how companies today stay private far longer than they used to, what that means for early investors and employees, and how thoughtfully structured secondary transactions can reduce friction and misalignment on the cap table. He also challenges popular narratives around tech bubbles, walking through historical examples to explain why today’s AI-driven market looks fundamentally different.
In this episode, you'll learn:
[01:11] Aman’s journey from Wall Street to Practical VC
[03:40] What made the early PayPal team exceptional
[06:32] Follow the customer, not the original plan
[10:44] Why are startups staying private longer today?
[11:17] What secondary transactions actually are
[18:41] How founders should handle secondary requests
[26:11] Are we in a tech bubble today?
The nonprofit organization Aman is passionate about: AYSO (American Youth Soccer Organization)
About Aman Verjee
Aman Verjee is the Founder and General Partner of Practical Venture Capital, a secondary-focused fund providing liquidity to early investors in late-stage private companies. Before launching Practical VC, Aman spent over a decade in finance and operations roles at PayPal and eBay, joining PayPal in 2001 before its IPO and witnessing its transformation from a money-beaming mobile app to the dominant payment platform for eBay. Earlier, he worked in investment banking in New York after studying economics at Stanford and constitutional law at Harvard Law School. Aman was recruited to PayPal by Peter Thiel and worked directly for David Sachs during the company's pivotal early years. Now partnering with Dave McClure, he focuses on Series C and D investments in SaaS and FinTech companies with $200M+ in revenue and clear paths to liquidity within 5-7 years. He's also writing a book on the history of financial bubbles and co-hosts the Trading Places podcast, analyzing private company valuations.
About Practical Venture Capital
Practical Venture Capital is a secondary-focused venture firm that provides liquidity solutions for early investors, employees, and funds. Operating with a 7-year fund structure instead of the traditional 10-15 years, Practical VC targets 20-40% discounts to last-round valuations in Series C and D companies with $200M+ in revenue and clear paths to exit. The firm specializes in SaaS and FinTech but has made exceptions for exceptional opportunities like SpaceX, now their biggest winner despite violating their typical investment criteria. Founded by Aman Verjee and Dave McClure, Practical VC evaluates roughly 50 companies at any given time, making 5-10 investments annually. The firm also offers SPVs for deals that don't fit their main fund and covers LATAM opportunities through an operating partner in Argentina. Their approach recognizes that modern venture capital requires new liquidity solutions as companies like SpaceX (23 years private), Airbnb (17 years), and Palantir (20 years) redefine what "patient capital" means.
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We shouldn't allow anyone to sell. And I'm like, what do you mean? He's like, well, if we don't get to sell, then they don't get to sell. You know, they wanted to be, they wanted the ROFR, they wanted first dibs. And I remember sitting down with the partners and saying, look, somebody wants to sell. But it's, it's the COO of the company. It's an employee. He wants to sell one fourth of his shares. Oh. Why does he wanna sell?Doesn't he believe? I think he believes, but he wants to buy a house in Santa Barbara. You know? That's all. Oh, okay. But if I have to offer to him, then I have to offer to everybody. Okay, so how about we offered everybody, not everyone will take you up on it, but you'll let the people out who want out, and you'll bring people in who wanna be in.
[00:00:40] Gopi Rangan: You are listening to The Sure Shot Entrepreneur - a podcast for founders with ambitious ideas. Venture capital investors and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision. Welcome to The Sure Shot Entrepreneur. My guest today is Aman Verjee. Aman is the founder and general partner at Practical Venture Capital.
[00:01:11] I've enjoyed collaborating with him over the years. We're gonna talk to him about the venture capital industry, how he sees it, what's exciting for him. He has some spicy takes on what's happening today, especially with respect to bubbles that have happened over the years. We're gonna talk about very interesting themes that are evolving like secondaries in venture capital. That was new a few years ago. It's now become a prominent part of the ecosystem. We're gonna talk about that. But first, let's welcome Amman. Amman. Who are you? You were born in Nairobi, but you grew up in Canada and you've been living in Silicon Valley for many years now.
[00:01:48] Aman Verjee: Yeah.
[00:01:49] Gopi Rangan: But let's start with who are you?
[00:01:51] Aman Verjee: Other than, that journey, which we can talk about all of which has shaped me. I kind of think of myself as just someone who's been very interested in finance and analytics and economics for a long time. As a teenager growing up in Toronto, that's really what I wanted to do.
[00:02:04] I wanted to be in finance and work on Wall Street, so I did that for a number of years in New York. And then I went to law school even though, that might seem like a weird detour for somebody who is interested in finance and numbers, but I love the law and jurisprudence and how it's taught and what it means about rights and obligations and how that translates into business and constitutions and litigation. So I studied constitutional law at Harvard Law School and then came out and was gonna go back into investment banking, but I had been an undergrad at Stanford studying economics, and there I had met Peter Thiel and Peter on my way outta Harvard Law. Peter's like, "Hey, I just started this new company. It's called PayPal. It's gonna do great things." And so Peter hired me at PayPal and I found a home at PayPal on the finance team 'cause that's ultimately what I like to do. And then I was there for 10 years. I've been a finance operator and now an investor.
[00:02:56] I'm also the father of two kids, 12 and 15-year-old daughters. So I try to be a lean in father I coach their soccer teams and try to be very involved with who they are and what they're doing. And so those are just some of the things that make up what I do and who I am.
[00:03:09] Gopi Rangan: You were a consultant and you were an investment banker at one point, and you were in private equity and then you spent many years in FP&A finance in those roles, 10 plus years in eBay and PayPal.
[00:03:23] You have now entered into the world of investing, more active investing. You started your own firm. You have seen a lot over the years in Silicon Valley. Can we talk about the 10 years at eBay and PayPal? Like quickly summarize how that world was at the time. Why are those two companies important?
[00:03:40] Aman Verjee: Yeah. I joined PayPal before they went public. So 2001 was the first time I took a full-time job there. Peter Thiel had offered me a job in 1999 while I was at law school, and it was before the company was making money, it wasn't profitable. They didn't really have their business model figured out.
[00:03:57] To me that all felt very uncertain and kind of squishy. Right? And the management team was terrific. I had Peter Thiel, Elon Musk, Roelof Botha was the CFO at the time. He went on to be the head of Sequoia for many years. David Sachs was the COO. He was actually my first boss at PayPal.
[00:04:12] He's now the AI crypto czar, I guess, for the Trump administration and a very successful fund manager at Craft Ventures. Lots of other folks you know, who were at that early PayPal went on to do great things like Max Chen and Reid Hoffman and Keith Rabois. So part of what made PayPal very magical, interesting to me but also just important was the confluence of talent that they brought together for a company that before they even went public, had put together just this a plus roster of folks. I thought it was the greatest team I'd ever been on. It was product oriented. It was very fast moving, very decisive, using data and information to make good decisions.
[00:04:47] Gopi Rangan: They went on to do great things later, but what was a plus about them at that time?
[00:04:51] Aman Verjee: Even at that time I thought it was an A plus team. The way that we were able to operate, raise money, make decisions, figure out what was working, what was not working was exceptional and you could see it from the top down.
[00:05:03] I've really not been around a team around that talented team. David Sachs was just incredibly intuitive and good on the product side. He was able to determine what was working but wasn't working. This as an example, Peter and Elon a little bit. Peter pitched me initially on the first product, which you may or may not know or remember.
[00:05:19] The first idea of PayPal was beaming money to a friend. It was all mobile. It was very forward looking. He was like you take a mobile device and you beam money to a friend when it's gonna replace cache. And this is before the advent of wireless technology.
[00:05:31] And really before the widespread adoption of consumer technology. People didn't have iPhones, didn't have smartphones. It was a handful of people with Blackberries. That was really the extent of the mobile population. But the company knew that that was gonna be how people wanted to transact and send money around.
[00:05:44] And it didn't work because the technology was limited to blackberries even when they launched it, nobody was using it. It was too complicated to use. They sort of, kind of built a haphazard web interface and then left it alone. And I remember David Sachs talking to me around 1999, 2000 saying, "the mobile product isn't working. I don't know why it should, it oughta work. If it feels great, looks great. Cash is dirty. Cash is not safe. It's infected with bacteria and viruses and every dollar bill's got cocaine on it." Anyway shared all these stats about why money won't last and then, "hey, the mobile product isn't working and I don't know why, but the web interface is flying. Something is working on the web interface. We need to understand what it is. Can you help me figure out using analytics and data, who all these people are using the web interface." And we began to dig and dig and dig and it was like, oh, people on eBay are using PayPal to send money back and forth. We didn't know that was happening.
[00:06:32] We didn't market to them. We're not even sure how they're logging on. It looks like they're putting their names and listings on eBay. Some of that is authorized, some of that is not authorized, but let's just double down on that. And within about a three week period dropped the whole mobile payment product, went right to where the users were very, very quick to adapt. So it was just this example of good decision making based on data analytics, following your customer, forgetting about stuff that doesn't work. Just having a short memory and not being wedded to a business plan and/or a technology. And going right to what works for the customer. And then it began to work and then they made money and then it became the way to pay on eBay and it totally changed the business and the whole company rallied around that. So a very good lesson I think for founders and entrepreneurs in terms of following your customer and not being wedded to prior ideas even though they aren't working, using the data and analytics to look at your customer history.
[00:07:22] Gopi Rangan: Looking back, it makes a nice story, but I remember that I was one of the early users at PayPal, and I remember the times when eBay had stamps and coins. It was a crazy time to be so bold about the internet, about money and how people's behavior would change.
[00:07:39] And it was a visionary set of people who actually went out and built these things. It's truly amazing what they did. I'm delighted to see that you were part of that group making the future happen. When you look at where we are today with the technology trends and the investment trends in Silicon Valley and beyond as well, which is now spread all over the world, what's the big difference you see?
[00:08:00] Aman Verjee: Between now and like the 20 years ago?
[00:08:02] Gopi Rangan: Yeah, the 1990s internet.com style entrepreneurship innovation versus 2025. The innovation and technology trends that we see. What's the big difference?
[00:08:13] Aman Verjee: Well, I think it's more similar than different. Back then maybe the big difference is the technology wasn't as broadly understood.
[00:08:20] Uh, In the valley. It was the people in the valley who were using palm pilots and who were open to the early adopters for technology, the web interfaces and using it. They were very forward thinking in terms of how, where this was going. They were very comfortable using technology.
[00:08:34] I remember after PayPal, I left and I went to Sonos, a consumer electronics company. I was a chief financial officer at Sonos. Now it's a public company, but back then it was a hundred million in revenue. And we had a real debate internally about the physical controller on how you control these wireless sound systems.
[00:08:49] And we were building and shipping these hardware controllers. It's like a remote control where you have it. It's a physical controller, you use it to control your Sonos system, the volume, the station, and selecting music and all that. And our CEO was another visionary guy and he was like, we should stop making these controllers.
[00:09:05] 'cause within, five years everyone's gonna have a smartphone. And I was like, what are you crazy? People are gonna have a smartphone in five years? People are gonna be walking around with these like computer, you know, these iPhones in their pocket? That doesn't sound like a smart bet?
[00:09:16] This is back in 2010 or so. And they'll download what's a soft controller, like a software app on your phone. And that will be the app and will be a highly controlled Sonos. So all this hardware we're building is so 1999. We're not Bose. We're Sonos. We're 2020 and he saw the future. It was incredible.
[00:09:32] When I spent time with him and even that early PayPal team, they were doing things that now seem routine, but they were thinking like in five year increments on how stuff would change. That was very challenging. And I still think the Valley does that but now when you talk about AI, you talk about some of the more cutting edge stuff, I think it's better understood that technology is inevitable. It's gonna be world changing. Everyone feels like they have to get in on it and wanna use it to some extent. So the adoption of these technologies, I think, is now much broader, more socially acceptable, better understood. Schools are teaching it. My kids here in Palo Alto are learning about ai, learning about technology. That just wasn't happening in the late 1990s. I mean, eBay as a marketplace was revolutionary but that generation of people didn't have the internet.
[00:10:13] We didn't grow up on computers. They were buying things on eBay. They were sending checks and money orders, or cash through the mail, or going through Western Union. We wouldn't even think of it doing that today. So the customer is very different now. And so the customer experience and the problem solving, I think, is the biggest difference.
[00:10:27] Gopi Rangan: There are many more startups. Entrepreneurship is much more favorable. A lot of people wanna start their own companies. It's a lot easier to start companies. The barrier to starting a company is way lower than it was in the 1990s thanks to cloud and many other infrastructure solutions. Raising money is a lot easier now compared to a long time ago.
[00:10:44] And also startups stay private longer and longer. What used to be a cycle of innovation for seven, eight years is now 10 plus years, sometimes even longer than that, 15 plus years. As a result, the early investors, early employees, angel investors and those kind of people, they are stuck and they're illiquid for a long time.
[00:11:03] And as a result there's a new trend of the secondary market to create liquidity that has happened. And that's a place that you focus on. Before we dive into details, how do you define secondary? What does secondary mean and why is this important today?
[00:11:17] Aman Verjee: That is a significant difference in the venture landscape for sure, versus 20 years ago.
[00:11:21] So a secondary transaction just means you are an existing investor in a company and you're selling your shares to someone else. A primary issue is when the company sells. So the investors like investing directly in the company. You're on the cap table and your counterparty is the company. In a secondary transaction your counterparty is another investor, a prior investor. And you might ask, why do investors want to sell if you own shares in SpaceX or OpenAI? The answer really does come down to, I think, what you said before, because companies are now able to stay private a lot longer.
[00:11:52] So back in 1998, PayPal was founded. PayPal was public in 2002, and so we were, within four years, we had gone from founding to a public offering.
[00:12:02] Gopi Rangan: That is unheard of these days.
[00:12:03] Aman Verjee: Yeah, it never happens today, but back then, that was the standard, like Amazon was public in four years, five years. EBay was founded in 1999.
[00:12:10] Gopi Rangan: What was the revenues required for companies to go public around that time?
[00:12:14] Aman Verjee: There were companies going public with single digit revenues. 5, 10, 15 million. Then the bubble happened and it burst. And after 2000, 2001, the market took a long time off and no IPOs got done for most of 2001 and really the first half of 2002.
[00:12:27] After that 18 month window, PayPal was the one that broke through the ice. We were something like over a hundred million in revenue when we went public, but we were between 150 and 200 on a run rate basis and just were getting profitable. And for us, it was like one and a half billion dollars initial public offering. That was for valuation at the IPO, one and a half billion.
[00:12:45] So PayPal's now worth 70 billion in the public markets. So 69/70th of all the value created at PayPal was in the public market where you and me, but also my mom and pension funds and everyone can participate in those public offerings. And now SpaceX is a great example of a company that was founded in what, 2003?
[00:13:02] They've been around for 23 years, and they're still private. And they're able to raise money seemingly whenever they want to. Airbnb was private for 17, 18 years. Palantir was private for almost 20 years. So all these successful IPOs are taking much longer to go public. They're much more valuable when they do go public, and there's a good reason for that.
[00:13:20] They're all able to raise money now in a way that just wasn't possible in the private markets 25 years ago. But the downside of that is if you're an early investor in a company like Airbnb or Uber you could be locked up for 15 years before you get your money back. And a lot of investors can't tolerate that. Especially family offices, high net worth individuals, they can't be illiquid for 15 years. They didn't plan on that. That wasn't their game plan. They don't have infinite patience. They have tax bills to pay. If you're family office, maybe there's a death or divorce in the family, you've got liquidity needs.
[00:13:48] And so they may wanna sell their shares before the IPO. And so they'll come to an investor like us and they'll say, "Hey, can I sell you my private company shares, illiquid shares? Gimme an offer." I'll take a 20% discount to the last priced round or a 30% discount to the last priced round because money now is better than money later.
[00:14:05] And so that's what we do. We provide liquidity to those early investors and limited partners and funds, and we aim for these 20-30-40% discounts to fair value.
[00:14:13] Gopi Rangan: At Practical vc, you primarily focus on secondaries?
[00:14:18] Aman Verjee: Yeah.
[00:14:19] Gopi Rangan: What are some specific themes you like and what kind of secondaries are your focus areas?
[00:14:25] Aman Verjee: So we like to say our primary business is secondary, and our secondary business is primary or whatever else we wanna do. We have a little money set aside for special projects. A lot of those are about exploration and learning and understanding opportunities that work.
[00:14:38] For the other 80%, we have a pretty strict criteria that we follow. My partner, Dave McClure and I have been around SaaS and FinTech for a long time. So the first is like the category. What's the category that we like to shop in? We'll focus on those areas, plus a little bit of real estate technology or maybe some other areas that seem interesting based on just knowing the business category, knowing how those companies make money and compete, and knowing how to assess the technology. That's one screen.
[00:15:04] And then a second screen will be things like, how long has the company been around? What is the potential path to liquidity? We have a seven year fund. Most VC funds are 10 year terms, and then you can extend them. And so they're really 12 to 15 year funds and we've got a seven year fund, so we try to get our money back to investors long before the typical VC cycle. So we have to get into a company and we have to be thinking, when is this company gonna be liquid, an acquisition or an IPO. If it's 15 years out and it's not a real business making money or the prospects are a little uncertain, that's probably not for us. That might be in our secondary bucket or we'll do it on our own dime. Or maybe we'll like watch.
[00:15:40] The primary businesses have gotta be five to seven years really to an IPO. So typically if you're a SaaS business, it's a couple hundred million in revenue and growing 30, 40, 50% a year. Good unit economics, good retention. And at least the ability to make money if not actually making money. If it's a company in a category that's like crypto Web3.0, decentralized finance, we might look at that stuff, but then the bar is higher because that's a category that I think is just gonna be more speculative.
[00:16:07] I think AI's attracted a lot of money, a lot of attention but again at valuations that are pretty extreme and a lot of these businesses don't have recurring revenues and profitability. So if it's something like that, we probably won't look very hard at it.
[00:16:20] But if you're SaaS or FinTech, you're looking at workflow, workflow improvement, you're using AI as a capability to generate revenues and profitability, that's really where we like to. Shop and hunt. And then the last is like, Hey, is it a good deal or not? Is it a good valuation? Do we like the people who set the last price? Can we trust their homework? Is it a discount that, or at least a valuation that we like? Can we get a good discount? Can we get a good deal? Maybe we can use some structure in the deal to protect downside are all those things on the table, and then that's how we assess our portfolio.
[00:16:47] Gopi Rangan: You mentioned that the fund cycle is seven years. What happens at the end of seven years when you're still holding private stock?
[00:16:54] Aman Verjee: Well, in our case, what we would do is if we've done our job right, then the companies at the top of our portfolio will be SpaceX or Canva. Those are the two biggest winners in our portfolio right now.
[00:17:05] Or it'll be one of these decacorns or large companies that we think is a potential IPO, if not already. If the company does go public or gets acquired, easy decision. We take those shares, we give them right back to our LPs and we're done. We don't seek to hold companies once they go into the public domain.
[00:17:21] My partner Dave has a bit of advanced theory on whether you should sell or hold and under what circumstances you would buy or buy/sell or hold. Generally it comes down to, if it's something like SpaceX or Canva, like a well understood company, we don't have board seats. We don't have special information rights. We usually just distribute that. If the company is still private, but they're doing tender offers every six months, like Canva or SpaceX are, we might participate in a tender offer. We'd go to our LPs and talk to 'em, but we might participate in a tender offer, take money off the table, give the cash back to LPs. And for the rest of the portfolio, we would probably go to the LPs and say, here are your options. We can extend the fund and we can continue to hold. If you want private shares in some of these companies now we can get that to you. Or if you want to sell your position, we can facilitate a secondary trade, take you out, put somebody else back on, do some kind of a continuity vehicle. that's probably how it goes at the end of the fund.
[00:18:10] Gopi Rangan: Thank you for that explanation. It's fascinating to understand the nuances of how secondaries actually work. So let's take a scenario. There's a startup that's doing well year four, year five, year six, sometime then.
[00:18:21] Aman Verjee: Right?
[00:18:22] Gopi Rangan: And early investors like, I'm beginning to think about selling. I was in it for the long haul, but I have some personal situation or something like that. And now they go to the CEO and say, Hey, can you find some secondaries? What's your advice to the CEO and to the investor? How do they plan for this?
[00:18:38] What can they do to prepare for a conversation with you?
[00:18:41] Aman Verjee: Yeah, let's start with the CEO advice. I think that's often the more difficult one. The advice to the investor is a little bit more straightforward. But let's say I'm the CEO of a great company. Company's doing well. I've got all these shareholders, they're all happy.
[00:18:53] Every day I'm focused on building value in my company, right? I got customers, I got employees, I got competition. I have a conference to go to. I'm on a webinar. The last thing I want is to have to deal with one little investor who comes to me and says, I need to sell my shares you know, just because. I have a situation or maybe, you know, I wanna take my money off the table. What can you do for me?
[00:19:12] CEOs generally don't like to have that conversation. Importantly, most US startups have a complete right to prevent anyone from trading outta their cap table. Like if you actually read the documents, when you buy into a private company, you'll see that they have restrictions on transfer.
[00:19:28] They have a ROFR (right of first refusal). So if you try to sell your shares, they can offer to buy you out. They can simply block it if they don't like you or the new investor. All good reasons why they wanna control the cap table. But it can be very frustrating, I think, for the investor.
[00:19:41] And a lot of CEOs, at least until recently, haven't really wanted to deal with it. I don't think that's a good practice. I think the CEO should be thinking about what's in the best interest for their shareholder because you don't really want squeaky wheel unhappy shareholders on your cap table. They can make your life difficult. You may not think they can, but they might be able to, especially if there are a lot of them. It could result in bad publicity. It just could result in shareholder votes don't go the right way. It's also bad if your shareholders are misaligned on your timing and they're not happy. Why Do you really want them on your cap table?
[00:20:12] Many years ago, before secondary became a thing, it was just standard practice to, for CEOs not to offer secondary liquidity and investors had to deal with it. When I was at Sonos, we did one of the very first tender offers as a secondary trade. My biggest investor was KKR. I remember KKR telling me "we shouldn't allow anyone to sell." And I'm like, "what do you mean?" He's like, "well, if we don't get to sell, then they don't get to sell." They wanted the ROFR, they wanted first dibs. And I remember sitting down with the partners and saying, look, somebody wants to sell but it's the COO of the company. It's an employee. He wants to sell one fourth of his shares.
[00:20:42] Why does he wanna sell? Doesn't he believe? I think he believes, but he wants to buy a house in Santa Barbara. You know? That's all.
[00:20:49] Oh, okay. But if I have to offer to him, then I have to offer to everybody. Okay. So how about we offer to everybody? Not everyone will take you up on it, but you'll let the people out who want out, and you'll bring people in who wanna be in. So, it's a little bit like that, uh, Hitchcock movie Lifeboat, where it's about people are floating the ocean in World War ii and you have a lot of people in lifeboat and the people who are not happy on that lifeboat made it very difficult for the people who were left.
[00:21:12] So you don't want that. I think you wanna give people an off ramp and let people sell, especially when you're locking 'em up for 15 years. But do it in an organized way. Do it in a fair way. If one person wants to sell, make sure everyone has a chance to sell. Offer them the same price. Just do it in a thoughtful, fair way. Come to an investor like us. What we'd like to do is we will talk to the investor and offer them a fair price. And we'll be very transparent with the company. Here's the price we're offering and here's why. It'll be a discount your last round. It may be above or below your last preferred round, but we'll do it in a way that doesn't compromise your accounting, doesn't compromise your 409A, treats this investor well while giving similar terms to anyone else who wants to talk. We're open to those conversations.
[00:21:47] Don't try to hide it. Don't try to do it under the covers. And make sure you're consulting your auditors and your finance team because this will affect your 409A valuations, your stock option grants and everything else. So that's the advice to the CEO. Just be thoughtful about your shareholders and do it the right way. There's a way to do it and we can walk you through it.
[00:22:03] To the investor it's like, "Hey, if you wanna sell for whatever reasons you want, you should." And I would just tell the investor, here's the price we're gonna offer. It may not be the price you thought the company was worth. You should talk to other investors, see what they think. If someone's gonna beat at our price, you should do that. Like do your homework and make the best decision for you. And that's typically how we try to do business.
[00:22:20] Gopi Rangan: At Practical, how many new secondary positions do you initiate in a year, roughly, and how do you build that position?
[00:22:29] Aman Verjee: We've probably got a funnel of about 50 different companies we're looking at at any given time. Over the last year, we've probably done between five and 10 investments. We've done some of them out of our.
[00:22:37] Second fund, we're just now fully deployed, a number of them out of our third fund, which we're deploying right now. In some cases, we've actually found companies that we thought were a little bit of a stretch for the fund that we were launching. The company's interesting, but either because of the category, the valuation, just the amount available, it's not a good fit for the fund, or the fund's gonna be over allocated.
[00:22:56] So we give it out as an SPV to other investors. And once a quarter we've made available like through SPV shares and companies like we've done a couple more recently. There's one SPV in a company called Quick Node, but there's a blockchain, API company, FinTech. We liked that one a lot and we had a lot more allocation that we could take down with the funds who open that up to new investors.
[00:23:17] So we have a couple of funds and then these sidecar vehicles to be used to make the investments. And the funnel really just comes from sitting and talking to fund managers, entrepreneurs, mostly here in the valley, but a little bit outside. We have an operating partner in LATAM. She's in Argentina and she covers our LATAM business.
[00:23:34] And so we just talk to companies that we think are in a good position that fit our criteria based on category growth valuation. And then is there a willing seller? And a lot of that is just beating the bushes and talking to existing investors that we've been co-investing with for the last 25 years now in the Valley.
[00:23:49] Gopi Rangan: What's the sweet spot for you? What's the good company? What kind of metrics would be ideal for you to consider?
[00:23:56] Aman Verjee: For me, I think series A and B are a little bit over overpriced right now, given what we're looking at. We prefer to be a little bit later stage. The A and B when I say they're overpriced, I mean just the valuations are at a level where given the revenue and the potential for liquidity dynamic, it's gonna be a long time to get your money back.
[00:24:14] So you really have to be a 10 to 15 year patient investor to be a series A and B investor, which may be a great strategy, but we're aiming for half of that. So we're trying to skip the J curve and cut right to the C'S and D's. So the perfect company for us probably is five to seven years from a liquidity event, or shorter.
[00:24:29] So that's probably series C, D and maybe a little bit beyond. It probably would be a company that could get public in the us which probably now means $500 million in revenue or more at the time of an IPO. So the company would have to be hundreds of millions in revenue.
[00:24:42] The category is also important. As I said before, we like SaaS and FinTech so I can walk through all the metrics and all the ways to value SaaS, FinTech, and what we like and don't like. As it turns out, the best company in our portfolio now, the big winner is gonna be SpaceX, which is not SaaS and not FinTech, and when we got in it was not profitable and violated all the rules that I just laid out.
[00:25:01] But it had one really good thing going for it, which is it had Elon Musk as CEO, and both Dave and I worked for Elon. And it was a Founder's Fund investment where both Dave and I worked at. So, sometimes you just have to relax your criteria a little bit and go for the exceptional opportunity which is rare. But it turned out that one I think worked.
[00:25:18] We'll look for companies that meet those criteria. Typically we don't spend a lot of time with the founders or the management team. By the time we get into it, it's far enough along that it's either working or it's not.
[00:25:26] In the case of SpaceX, it had a great team, but some of the companies we've invested in, we've not even met the management team. I haven't spent time with them. It's more about the financials and the metrics. And for a SaaS company, I would look at revenue growth, ARR, net dollar retention. We would probably look at the customer base and, and customer concentration. We would probably look a little bit certainly at the unit economics and at the ability for the company to generate recurring revenue and growing its wallet share. Those are probably the primary metrics we look in a SaaS company, for example.
[00:25:54] Gopi Rangan: Now we talked about how venture evolved since the internet days to where it is today. We talked about why secondaries are important and what's the right way to look at secondaries and how to prepare for those conversations with someone like you. I wanna talk about something that's top of mind for a lot of people. The bubble.
[00:26:11] Aman Verjee: Right.
[00:26:12] Gopi Rangan: You have studied the history of bubbles over the years, over decades. And you're gonna publish a book soon. It's coming out. And you also believe that today we're not in a bubble. I'm gonna challenge that a little bit because everybody's talking about bubbles. But before we do that, can you talk about the history of bubbles over the years?
[00:26:30] Aman Verjee: Yeah, so they, in the book, I go through the 10 biggest financial bubbles of all time. I started with the Amsterdam in 16 36/37.
[00:26:38] Gopi Rangan: That's the tulip bubble.
[00:26:39] Aman Verjee: That's right. That was the tulip bubble. And then I go through the South Sea Mississippi Company in the 1720s, and I go through Japan in 1984 to 1989, and to talk about the 1929 and 2008, 2009. The UK had a railway mania in 1845. So I do all these bubbles and a few others, and I end in 2021, which was, I call it the everything everywhere, all at once bubble. It was a multi-asset multinational, but first time in global history, we had this highly correlated march of upward valuations.
[00:27:08] And my definition for a bubble is like an unsustainable rise in valuation. So over like a two year period, you have a big upswing in valuations and asset prices. And then over a similar time period, it all goes away. It all gets reduced to zero in effect.
[00:27:22] I studied the causes and consequences of bubbles. A lot of it's on economics and understanding pricing action, but a lot of it too is just history and political drama. Like, why did the Tulip bubble happen in Amsterdam? Why not in London or Paris? Why did it happen around tulips? Why didn't it happen around, I don't know, sugar or cinnamon or real estate or stocks?
[00:27:44] And so a lot of that is just social and political context. A lot of the answer, by the way, of the tulip bubble in Amsterdam it comes to religion. They were a very puritan culture in Amsterdam. There was a lot of money that happened very quickly. They didn't have a lot of places to spend 'cause in the, in the Puritan culture, there was just very limited social, socially acceptable places to spend money.
[00:28:03] In Paris, you would travel in Paris, you could tell who the rich were and who the poorer, who were the members of that A league class. You could tell by the silks, by the clothes, you could tell by the horses and the carriages they were using. There were stories in the 1630s of English travelers in Amsterdam who come back and say, "I couldn't tell the richest man in town, you know, the Dutch shipping merchant. I couldn't tell him from the baker, the candlestick maker. They're wearing the same clothes, their wives look the same. So where do you spend your money if you're a Dutch puritan. Well, your house, your garden. What goes into a garden?
[00:28:32] Tulips beautiful flowers. That became the place where the money went. So I go into all these different dynamics of the bubbles and I point to a few recurring factors and just talk a bit about what makes these bubbles unique, and then why they repeat, and why they continue.
[00:28:44] And based on that, I don't think we're anywhere near valuations today that are the things that bubbles are made of.
[00:28:49] Gopi Rangan: So there's a big portion of behavioral finance that influences the creation of, of bubbles. So in your mind, you have identified a set of things that need to come together to create a bubble.
[00:29:00] When you see the market today, you see that it doesn't check the box on some other things. What are they? Right. Why do people talk about bubble then? It feels like everybody's interested in talking about bubbles, so there's some indication that people are worried about, but you're not worried about it.
[00:29:17] Aman Verjee: Yeah, I think it's fun to talk about it. I think there's a bit of a bubble and bubble talk. It gets clicks, I guess it gets advertising. Maybe it, it gets people to read your stuff when you use that word. I'll give you some differences now. Let's take the most recent bubble that might be applicable.
[00:29:32] The tech bubble in 1997 to 2000. I'm old enough to have lived through the tail end of it. I was at PayPal at the end of it, so I lived through some of it. But let's compare the market today to the market then. So the NASDAQ 100 in 1999, 2000, peaked at a price earnings ratio of 73 to one.
[00:29:49] The company at the center of everything back then was Cisco. They were building the internet. They were doing the routers and all the technology and the switches. They built the internet. And in 2000 they were at a 200 price earnings multiple. In their biggest year, they made one and a half billion dollars in profit in 2000. Then they lost money in 2001. And so they peaked at a 200 PE ratio.
[00:30:08] Fast forward to today. Today the Nasdaq 100, 60% of it, by the way, is the Mag seven and Broadcom, maybe a couple of others, but that whole NASDAQ 100 today is about 26, 27, 28 times earnings. So not 73 from before, but 26 times earnings.
[00:30:24] So we're nowhere near the valuations where we were in 1999 first of all. The company, the middle of everything now is Nvidia. They're the probably the only company in AI making money, and they're building a lot of the technology that is the AI infrastructure or all the GPUs that they're selling, and they are at about 24 times fully taxed earnings for next year.
[00:30:42] So the difference, again, in valuation compared to Cisco, which is 200 times earnings, NVIDIA's had 24 times earnings. So just the valuations aren't the same for one.
[00:30:51] For two at the height of the bubble in 2000, the center of the bubble was the telecom. The telecom industry, they were laying fiber. 97% of it was dark, meaning they were building fiber optic cable that was connecting people through the internet, but only 3% of it was being used at the time. So there were building supply in a head ahead of demand and financing it with a lot of debt. The telecoms at the time had $300 billion in debt, net debt on their balance sheets. Fast forward to today, every GPU that Nvidia sells as like whatever they roll, whatever they build on their assembly line, it rolls off the next day. It lights up the next day. There's no dark fiber in 2026. In fact, I bet Nvidia could double their production of GPUs and they would still sell out. Now they can't because they're constrained by like silicon and other components. But this is a demand led boom, it's not a supply led boom.
[00:31:42] So those are two big differences between then and now. And then the telecom companies back then, as I said, $300 billion in net debt. They were the major customers of Cisco. Who are the major customers of Nvidia today? It's meta, it's Microsoft, right? It's Amazon. It's basically the hyperscalers. And if I just look at those hyperscalers they have $350 billion to $400 billion in net cash on their balance sheet. They do have debt, but they've got far more cash in the balance sheet than debt. So they are profitable, they're kicking off cash flow, they're buying back stock, they're paying dividends.
[00:32:11] That was not the case in the 1998 to 2000 period. So for those reasons, I think this is a very different environment. The businesses are much better, they're profitable. It's demand led, it's not supply led. In both cases it's a very real technology, but I think what you saw in 1997 - 1999 was a lot more frothy and a lot more speculative than where we're at today.
[00:32:28] Gopi Rangan: Can it happen? Can the demand side reach a peak because we're building supply and the infrastructure? Can that become a bubble in the near future?
[00:32:39] Aman Verjee: Yeah, it could, I guess. I think what would have to happen is the demand could dry up all of a sudden. There are other bubbles I've gone through, maybe crypto is another example, which I didn't go into in depth in the book.
[00:32:50] But for a while there was a lot of demand for crypto, for real estate, for other assets. Japan saw this huge demand for real estate in the 1980s and within about a year or so, things happened that just changed the dynamic of the of demand.
[00:33:03] In some cases, it's like a increase in interest rates. In some cases, something falls outta favor. Crypto might be an example where a lot of things that were in favor one point just sort of fell outta favor the next year. And that's what you said before, it's behavioral finance. It's hard to know why and what happens. I've studied that a lot. This whim of the consumer and I still dunno how to understand it. John Maynard Keynes talked about it in 1936. He called it animal spirits, which doesn't mean anything other than, I don't know. I don't understand what it is about the economy and the wit and the wisdom of the American people, but we need to get it back.
[00:33:35] And he just referred to it as animal spirits as it's like a ghost in the machine. And then years later, Alan Greenspan gave a speech in 1996 or 60 years later, and he talked about irrational exuberance. Like at what point do I step in and do something as the head of the federal Reserve. He didn't know what to call it either. He just called it irrational exuberance. My daughter wouldn't know what to call it either, but she would just say, " it's a vibe, dad. Like it's vibes. It's vibes."
[00:33:57] What are vibes? "I don't know. I just know it when I see it." It's like, okay, okay, so what makes vibes go away? It could be that all of a sudden the demand for AI just goes away. People lose interest. They think it doesn't matter. It's been overpromised. It's oversold, and maybe that's possible. We're in the middle of the valley, so I think we see real tangible benefits to ai, but there is a possibility it just goes away. It doesn't meet its promises. Another possibility is government regulation. If the government believes that a technology is real and it threatens the social or economic order, then they could pass laws that just put a moratorium. The worst case would be a moratorium on AI development or the AI infrastructure, in particular data centers or pieces that are really important. It could be that they regulate AI and just say, look, we're gonna force a licensing regime where we're gonna stop anyone from selling the AI until it goes through some kind of rigorous government test for safety and security and discrimination and all these other things that we care about. And so we're gonna gate it. And so maybe that causes the valuation to drop overnight. I wouldn't say it's impossible. There's certainly things that can foresee that would drop valuations overnight in a material way.
[00:35:02] Gopi Rangan: A lot of countries are thinking about, it used to be sovereign territory and it became sovereign data, and now it's sovereign IP, and many countries are thinking about that.
[00:35:11] That can also limit the pace at which software technology evolves. But overall, I'm feeling the vibes from you then reassured that we're not in a bubble.
[00:35:21] Aman Verjee: Right.
[00:35:22] Gopi Rangan: I wanna talk about something fun here. You started a podcast with Dave.
[00:35:25] Aman Verjee: Right?
[00:35:26] Gopi Rangan: Trading Places. What's the podcast about?
[00:35:29] Aman Verjee: It is the primary venture capital podcast for secondary transactions.
[00:35:33] That's probably how we started to market it. We wanted to talk to the market about venture capital, about secondary funds and trades and companies. We've broadened it a little bit. We just do an update on news overall, what's happening in venture that people wanna know.
[00:35:46] It's usually 10 or 15 minutes and it just highlights the 3, 4, 5 big stories, including stuff that affects the secondary markets and liquidity, IPOs. We'll then talk to a fund manager or we'll talk to a entrepreneur, somebody in the space who is close to it and has an interesting take. We've talked to the CEOs of Hive and Equity B. We've talked to people who are at PitchBook and at Carta, who are just in doing research to tell us about what they see in the market, trends we should be aware of things that might affect, investor, investor sentiment, companies, fundraising. And then we'll do a valuation corner where we'd pick one company and we just go deep on the company and we go back and forth on 10 minutes. Do we like it? Do we not like it? Are we buyers? Are we sellers? We break down stuff in our own portfolio. So SpaceX and Canva, were in Anduril. These are three of the more interesting ones that we did.
[00:36:35] As you can tell, we're probably very bullish on those 'cause we're talking our own book. But then we'll talk about ones that we don't like. So I took a look at Grayscale, for instance, which is filing for an IPO right now and thought that was way overvalued and kind of went through their whole S one and talked about why I thought their business didn't justify the valuation that we're talking about.
[00:36:51] And then Dave will go back and forth with me and he'll poke holes or will illuminate stuff that I go into. And ultimately we'll sort of make a buy, sell, hold type recommendation on a private company. We've done deal, we've done rippling, we've done ramp, we've done Waymo.
[00:37:05] We'll probably go back and do all the top 30 companies between now and, and the end of March and try to cover the universe and then we'll kind of broaden out to non-US companies as well.
[00:37:14] Gopi Rangan: I really enjoy watching the podcast. I learn a lot every time. You go quite deep in your analysis. I'm looking forward to more of it. Thank you for doing that podcast.
[00:37:24] Aman Verjee: Yeah.
[00:37:24] Gopi Rangan: We're coming towards the end of our conversation, and I want to ask you about your community involvement. Is there a nonprofit organization you are passionate about? Which one?
[00:37:33] Aman Verjee: That's a good question. What I do like a lot is here in Palo Alto, my daughters play soccer and they play soccer with AYSO, which if you have kids in Palo Alto is probably one that you're probably familiar with it, but it's the local soccer league.
[00:37:45] They've a rec league. They have a select league. I'm a coach in the program. It is so much fun when you get to see 10, 11, 12-year-old girl. This is girl soccer. When you get to see them play and form teams, learning teamwork, learning how to win, how to loose together, they compete in tournaments and they're running around, they're outside, they're in the sun. They're getting physical activity. It's just fantastic. I think our schools in the area are generally quite good. The one thing that does seem to just be missing in schools over the past 20 years is physical activity. They don't do it great. The phys ed periods have been shortening. They're not as rigorous as they used to be. The health and fitness levels of our kids is nowhere near what it was 20, 30, 40 years ago. I would encourage you all just to go and check out like videos of what it took to graduate from an American high school in 1950s when we, and we had a draft and yet you, there was a chance we'd go to Vietnam.
[00:38:27] It wasn't so much for the girls, but for the boys. They were doing pull-ups and pushups and they were calisthenics. Anyway, we don't do that anymore. And this is a great way for kids to get exercise running around. So I'm a coach in the program. That's one organization that I support with my time.
[00:38:40] I think that would be a great one especially for locals here to contribute to, or to spend some time with.
[00:38:45] Gopi Rangan: Aman, thank you very much for spending time with me today. Thank you for sharing a lot of insights or going all the way back to the internet bubble days to many other things over the past 20 years that is directly affecting how innovation happens in the world.
[00:38:59] And your insights on secondaries, insights on Bubble is just so fascinating. It's inspiring me to dig deeper and learn a lot more. Thank you very much for sharing your nuggets of wisdom. I look forward to sharing them with the world.
[00:39:12] Aman Verjee: Excellent. Thank you, Gopi.
[00:39:15] Gopi Rangan: Thank you for listening to The Sure Shot Entrepreneur.
[00:39:18] I hope you enjoyed listening to real-life stories about early believers supporting ambitious entrepreneurs. Please subscribe to the podcast and post a review. Your comments will help other entrepreneurs find this podcast. I look forward to catching you at the next episode.