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Welcome back to the Rate of Change with York Wealth Management. As advice as to some of

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the wealthiest families in the country, the Rate of Change is a podcast designed to help

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you in the pursuit of building long-term wealth through the insights of some of the brightest

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minds in asset management. I'm your host Murdoch Gaddi and in today's broadcast we're

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speaking with Jason Edwards, CEO of January Capital about venture debt and the unique

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database Alternatives.pe, which is used by roughly 80% of Southeast Asia's VC firms like

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Sequoia, Tiger Global and more. If you're familiar with private lending like many Australians

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are, and you often wondered how to both generate income from say lending to 10 to 15 million

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dollar high growth B2B SaaS companies and also participate in the potential upside,

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then I think you're really going to enjoy Jason breaking down venture debt and their

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funds strategy. Quite literally have your cake and eat it too. If you're not familiar

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with venture debt, well it's a form of lending to startups, senior secured debt, earning

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income day one backed by institutional investors with the unique ability to participate in

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the company's growth success via warrants. January Capital has a capital call structure

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for Australian investors. The feeder fund has a two-year lockup with redemptions quarterly

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after this period ends. Regarding returns, the fund will be paying 12% current yield.

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Then when the warrants kick in, they expect that investors will be getting closer to something

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like 17 to 19% total return per annum net of fees. You're probably wondering maybe what's

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a warrant? What's venture debt? Why Singapore? And how does it all work? Well, best join

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us and let Jason add color to this canvas. Before we get into the conversation, please

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remember this podcast is made for entertainment purposes only and not to be construed as any

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form of advice. I encourage you to listen to the disclaimer at the end of the broadcast

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and to keep your feedback coming. You can reach me at mgatty at ywm.com.au. So with

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that being said, I hope you enjoy this conversation as much as I did. So sit back, relax and enjoy

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it.

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Jason Edwards, January Capital. Welcome to the Rate of Change with York Wealth Management.

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It's great to be here. Thank you very much.

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Jason, one, we start off as always and tell everyone a little bit about yourself. And

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why I'm very interested in this, I was doing a bit of a good old fashioned stalk book on

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you know, who you are and you're a lawyer. How is a lawyer ended up in the investment

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world?

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Lucky, I guess, like a lot of lawyers glad to get out of it. It's a bit of a grind. So

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I started working in Australia, Clayton Utes for about six and a half years and like a

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lot of Australians at that time, really wanted to see a bit of the world. And so convinced

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some of my best friends to sort of get on a plane and you know, go off and work in London.

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And so they all quit their jobs, got got great jobs overseas. And just before we were about

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to leave, I got approached by a recruitment company who said, bakers in Hong Kong, which

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was the largest law firm in Asia at the time, want you to come up and interview and I said,

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I've never applied for the job. And they said, Oh, yeah, but we sent you CV. And I was it

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was a bit strange. So I said, Look, they convinced me to take this trip. You know, I've never

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been there and all expenses paid. So I went. And so in the end, I ended up changing my

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mind and going to Hong Kong and all my friends are like, but you told us we're going to London,

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we're all going because of you. So they all went had a good time. But I ended up in Asia.

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And I thought I'd be away for two years. And that was about 24 years ago. And I guess no

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one goes overseas with the sort of view that I'm going forever. And I still think I'm coming

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back in a couple of years. But you probably talk to me in a few years. And I'll say the

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same thing. You get sort of involved. So I spent a few years in Hong Kong, and it was

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really exciting. And then the Asian financial crisis came. And so it was incredibly busy

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as a lender up until that point. So we would also finance lawyer, we were doing a lot of

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work. And it just stopped. Everything stopped. And so we had about 800 people in the Hong

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Kong office, it was big. And they fired 40 lawyers in one day. It was just so the guy

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on the left to me, the guy on the right to me, and they could speak Mandarin and Cantonese

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being with the firm five years packing up. And then the three three of the head partners

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come into my office. I'd only been there, you know, nine months. Like, okay, and they

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said, you know, that the Thai office of bakers, which is the biggest law firm in Thailand

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really needs some foreign help because they don't have any foreigners. And they all borrowed

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US dollars. And practically every public company is insolvent. And they have never had an insolvency

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of a public company. And they've just got no laws to deal with it. And they said, Would

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you like to go and help them for a year? And as I watch all these people packing, I try

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to negotiate. Yeah, I can go but I, you know, I have to be able to come back and I have

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to be paid in Hong Kong. In the end, they said, Look, that's all fine. We'll send you

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off. So I went down there and for a year and I stayed for seven. And Thailand is an interesting

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place. And when you work there, there's a lot of good things about it. It's frustrating

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because they have a very different view of life, very laid back the tides. So working

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in a law firm trying to get things done for Western clients was challenging, but the lifestyle

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was amazing. And so from there, one of my clients had set up a special sits fund in

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Singapore. And when they got to half a billion AUM, they asked me to join them. And I thought

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that was if I didn't move, I thought I'd be in Thailand forever wouldn't be the worst

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thing in the world. It's not a bad place, but it wasn't sort of the intention. So I

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moved to Singapore in 2005. And spent eight years with that fund Clearwater Capital. It

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was a multi we built it up to about two and a half billion dollars. And it was special

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sits lending to companies across Asia or buying distress debt and trying to get the money

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back. And so that's pretty interesting when you're trying to get the money back from borrowers

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in places like Thailand, China, India, Indonesia, where the rule of law is, let's just say quite

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different. And where the the court systems are, let's just say much less predictable

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and far slower. So we learned a lot, you know, what works, what doesn't work. But after that,

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I set up a VC fund called Qualgrown with two partners doing sort of B2B investments across

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Southeast Asia and Australia. And that did really well. And I they were doing later stage,

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I wanted to do seed stage, because I thought that was the most exciting stuff. Best risk

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return. And I wanted to be very data driven. I was building a data business. My other two

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partners didn't want to do that. So that's when I joined up with the team in January

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capital about four and a half years ago. And we launched another fund here in Singapore.

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So what we do is seed stage investing in B2B businesses in Southeast Asia and Australia,

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very data driven, we use data defined, basically, when startups are incorporated, and then filtered

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by the quality of the founders. And more recently, what we've started to do is venture debt for

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growth stage technology companies in Southeast Asia, in Australia. And that's where we are

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today.

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I love the journey. Never a straight line. I have these conversations regularly now. It's

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never a straight line. And one of the ones I find fascinating is, you know, if you didn't

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go through that crazy path, you wouldn't be where you are today. Absolutely. So where exactly

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are you are today? What is and who is January capital?

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Yeah, so I'm in Singapore now been here for a long time since 2005. So January capital

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is a venture capital fund. And we believe we're the most data driven fund in Southeast

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Asia. So we've got a team of five data scientists, software engineers, and our affiliated company,

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which is called alternatives.pe is now subscribed to as in thousands of dollars a year in subscription

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fees by 80% of the VCs in Southeast Asia, Sequoia, Tiger Global, you name it, they pay

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to get our data. Because we built this unique database that pulls the regulatory filings

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across Southeast Asia, Australia, for every startup every day, to show every company and

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to show every valuation. And in Southeast Asia, we can show all the financials. So it's

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doing something people didn't think was possible. And again, if I wasn't a lawyer before, I

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wouldn't have realized that was possible. So we knew what was possible. It was just

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whether or not it was practical, but it turns out it was.

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Right. Okay. The one thing I found fascinating when I met you guys is you the fund operates

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in a lending space, but it also has the benefit to, you know, participate in the upside, you

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know, if the company does well, do you mind shining a bit of light and then explaining

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exactly how that works?

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Yeah, sure. It's an asset class in the US that's quite established. It's called venture

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debt. We like to call it a growth stage credit. But venture debt is the asset class that it's

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known by in Europe and the US and it's about $35 billion a year over there. So it's a form

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of lending to startups that are backed by institutional investors, where you get interest,

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which is high, high rates of interest fees, and you get warrants to participate in the

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upside. So the idea is you come in and you're senior security fix the floating charge. So

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you're top of the cap table. If there's ever a problem, you get paid before anyone else.

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You're getting money from day one interest and usually amortize in your loan over two

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to three years. And then you've got these warrants that are set at a price, usually

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at the price of the company or the valuation when you invest or make the loan. So you hold

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onto those warrants for six or seven years. So that when the company goes to an exit point

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of view, you can convert the warrants back at the valuation seven years ago on a cashless

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conversion and then you can participate in the exit and get the equity upside. So we

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predict it will give about a third of the return through the warrants and two thirds

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through the interest and fees.

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So for people that aren't familiar with warrants, there's probably a lot of people on here that

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are acutely aware of how they operate. But for people that are not really familiar with

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the warrants, what is a warrant?

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Yeah, so a warrant, it's the same concept in a public company. It's where you have a

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right with that warrant to convert it into shares on agreed terms. So you could have

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warrants that are issued as penny warrants where you can convert them into shares without

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paying anything. You can have warrants that convert at an agreed price. So it's a way

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to get people to invest in different structures and also to incentivize people. For example,

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lenders, you can say, well, I'm not going to pay 25% interest, but I'll pay you 15%

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and I'll give you warrants at the valuation of the company today. And then if the company

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goes 5X in value, you can convert the warrants and offset your strike price and get a 4X

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return on that warrant piece. So that's how it works.

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So this is very interesting. I really would like to dig into this because Australia has

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seen ever since COVID this boom and interest rates being so low of the private lending

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market.

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Mainly in the private lending market.

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Yeah, you can't walk down the street with someone offering you a private lending deal.

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It's paying you really, really good money.

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But what I find you do quite interesting is this ability to have the equity upside. But

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you mentioned there's not many players in Australia. How many firms are you familiar

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with in Australia that actually offer this? And then secondly, how you have a fund that

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does it? Do you want to give a bit of color around the fund that offers this, the mechanics

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of it, how it all works, the types of companies? Because the other thing you were explaining

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is the large caps or larger caps. It's not necessarily in the tiny end of town as well.

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That'd be great.

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Yeah, that's right. So in Australia, you've got a few more players in sort of a larger

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space, Partners for Growth, One Ventures, a couple of family offices. You've got banks

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like HSBC bought out part of Silicon Valley Bank and they want to do big deals, 50 million

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plus, which is very few and far between. And then Southeast Asia, you've got a few players,

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but they're all doing the small stuff, two to three million dollar checks. And so where

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we saw the opportunities, there's no one doing the sort of 10 to 15 million dollar checks.

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And that's where the best risk return is and you've got no competition. So we wanted to

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get the best team. So we took the most experienced team that was existing in Southeast Asia like

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a spin out. It was a joint venture between Tomasac, the sovereign wealth fund in Singapore

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and UAB Bank called Innovent. So the CEO, the first employee, CEO for seven years joined

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us and we're hoping to get a few more of the top analysts join us as well. And with that,

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having the best team to execute. So yeah, we're looking to do late stage companies.

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If you're lending to an early stage company, of course, people say, well, look, aren't

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you taking high risk, really equity risks? Series A company, failure rates are pretty

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high. We can give you the stats on that in Southeast Asia at least and Australia now.

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It's a 30% sort of fail before they get to the next round. So you have a risk of not

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getting your money back. But once you get to series C, that risk drops to less than

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2%. That the risk of them not raising another round. And if they raise another round, you'll

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get your loan fully repaid with a minimum mid-teens return. Series D, it drops to less

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than 1%. There might be down rounds, but it doesn't matter. If they raise money, equity

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always comes last and there's a lender you're going to get paid. So that's why we're focusing

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on the very low risk, sort of series C and beyond. And if you do have the unfortunate

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circumstance where you pick a company that you lend to in that sort of 1% that does struggle

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to raise another round, they're amortizing the loan. So by the time that happens, you've

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probably got half your money back. And then that company, let's say it was worth half

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a billion dollars when you made your loan, you only need to sell that business for 1%

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of the original value to get your money back. Now, series A companies will go to zero pretty

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quickly. A half a billion dollar company has got IP, recurring revenue, or some infrastructure

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that someone says for 1% or 2% of that value, that's good for me and I'll pay it. So that's

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why we think the risk of any capital loss is extremely low.

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Yeah, that's quite interesting how that works. And how does that, like if someone's looking

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to allocate money in your family office or an institution, how does the mechanics of

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the fund work and what sort of return should you be respecting for that money?

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Yeah, so it's a fund structure. So we take a 2% management fee for the investment period

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three years, and that trickles down to 1.25% after the investment period. And then we get

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20% of the upside only after the investors have an 8% net return. So we align the interest.

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The investors have got to make at least 8% net before we get our performance fee. We

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are lending out now in the discussions with these companies, interest rates are sort of

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starting 13%, 14%. But you add fees on that, like the banks do and everyone else, fees

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at the front end, fees at the back end. The reason people do that, of course, is just

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to push up your IRR. And that gets you to around a bid teams IRR, 15%, 16% from your

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interest and your fees. From that, we're going to pay a 12% current yield because most of

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our investors are in Australia. And they say, what's important to us is we want to get a

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current return. So we're going to pay a 12% current yield. And then when the warrants

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kick in, we expect that we get closer to something like 17% to 19% net return. So you're getting

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12% current yield. And by the time you get all the money back, you're getting something

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like 12% to 17% net, net of fees. And the time for a credit fund is generally smaller.

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If you go into an early stage equity fund, you're locking your money up for 10 to 14

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years. And that's a significant time period before you're getting any cash. But the credit

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fund paying a yield, and then after the investment period of three years, all of the loan repayments

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we get after that point in time will return to the investors. So they get all the money

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back in the fourth year. So it's relatively short duration.

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So three year lock up for the money. Yeah, how much money is in the fund?

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So first close 60 million US and then we're going to do a few more closes over the course

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of this year, bring it up to 120 million US. So we recycle the principal. So that'll give

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us enough capital to do about 15 to 20 deals. Between five and 15 million is where most

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of the deals will be done. That was US dollars.

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Yeah, I was just about to say, so US dollars, 160 mil you kind of need and the money's being

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lent out in US dollars as well? Yeah, well, it is. So we just did our second

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deal from an SPV because the fund just got set up recently. So we did an SPV deal a couple

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of months ago. That was to Australian companies. So we did Australian dollars. We're actually

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looking to do an Australian sleeve now with one of the existing players in Australia,

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very well known, who's been doing venture debt for most of their career, but they want

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to part with someone to do a little bit bigger. So that will be Australian dollars only because

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for Australian investors, the majority of family office high net wealth would prefer

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to have Australian denominated investments. If they're a very big family office or a global

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investor, of course, US dollars is going to be fine. But we're going to do a specific

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Australian dollar only later in the year. There's a lot of lenders running around or

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a lot of venture capital running around that operate in a capital call structure, which

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has its pros and cons. Is there a capital call in this or money just goes into the tin

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and then it sits there until it gets used? Or how does that work?

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We do have a capital call. And we need that to be capital efficient because if we pull

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in the tin on one day, we won't deploy it. We'll deploy it over a two year period on

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average. So you don't want it sitting there on a fixed deposit dragging down the fund

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IRR. So we try to be very respectful of drawdowns. People don't want to get them every couple

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of months. So about two to three a year is what we would do over a two year period. And

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for the Australian investors, we've got an Australian feeder. So we actually have a redemption.

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I mean, it's another thing the Australian investors said we really want. We want to

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be able to get our money out. We'll probably never use it. We want to know if we if we

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have to we can pull it out. So for Australian investors only, we have an Australian feeder

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where we have a mechanism that, you know, within a three month period, they can say

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after the first two years, they can say I want to get my money out now and they can

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get their money out. Okay, so there's an Australian feeder that

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currently exists that if you stick it after two years, you got the capacity to get out

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on a quarterly basis. Yes.

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Well, you can't blame them. The markets have been volatile. But we also but also look a

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lot of Australian high net wealth families understand that, you know, if you, you know,

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head to the lifeboats, as soon as something happens, and you're going to be in there for

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three months, it might not be exactly the right fit. And maybe you shouldn't have gotten

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that boat to begin with. So this is kind of very important. And I think what we really

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should dig into here is what exactly are these businesses that you're lending in and then

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they have the ability to have the warrants. Are there any, they are B2B. So there's probably

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a number of names that people are familiar with. Are there any names that potentially,

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you know, Australians may be familiar with? Yeah, we just did in Australia a few months

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ago was a company called Fluent Commerce. And what that is, again, in our businesses,

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a lot of them are B2B. And so they're not consumer facing. So it's not sort of the most

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well known like, like an Uber, for example. But Fluent Commerce is one of the leading

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software enables, what it does, it works with retail businesses that have more than 100

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outlets. So it works with people like Adidas, Louis Vuitton, providing the software to manage

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inventory across stores, click and collect, people buying online, everything so you can

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actually have the ability to do that at scale. And there's only a couple of other very large

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players that do this well. And they're really legacy built, you know, built before the cloud.

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So we think it's a really exciting company, growing very fast. And, you know, a typical

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Australian SaaS business, most of the revenue comes from the US and Europe, and Europe,

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because you get to a certain point in Australia, and the Australian founders who are very good,

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know you've got to, you know, expand and they expand out to typically the US or South East,

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US or Europe, we're trying to get them to think Southeast Asia. And they're like, it's

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a big market, but it's not the US, right. So we're not going to necessarily run there

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first. Other companies, we've done this,

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let's continue here, because I find this quite interesting. And then you know, how the relationship

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with you and the founders work, because you offer us in offering the deck component with

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the capacity for the upside, so you get an interest to make sure and see how this works.

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And with this particular business, this is essentially the bedrock of the entire operating

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system if someone, you know, purchase fast fast moving consumables, correct?

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It's sticky. It's sticky. It will take you three years to change that software. It's

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really a process. To get out of that, even if you want to, it would take years. So it's

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very sticky product. And it's got a very high APU, you know, Louis Vuitton, it's big market

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clients. It's not like millions of clients playing a small fee on a SaaS. It's big clients

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paying hundreds of thousands of dollars a year for software. So that's what we really

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like about it.

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So it's a third party provider with the operating system that a lot of these major brands are

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using on their day to day business.

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Exactly. Yeah.

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So one question we've ever seen the NASDAQ, we had the Fed out last night, you know, put

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markets and whole so interest has a whole sample that sample the Aussie, you know, markets

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up, I believe today. But that's been largely, you know, due to AI, right, artificial intelligence.

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So one thing I still find fascinating, and especially with people like yourself, they

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get to see these transactions, what I'm hearing is a lot of the venture capital deals or companies

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coming through the they say they're AI. But as you pointed out, there's a lot of large

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legacy businesses that tried to bring in AI and not actually AI orientated businesses.

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I really wouldn't mind hearing like, how do you work, say, with this specific company,

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as you said, it takes three years to get rid of them to bring in a in a competitor. If

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you see something like artificial intelligence coming in approving everything, how do you

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work with say that particular firm to either I don't know if it's already there to improve

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their business so that I get kicked out in a couple years time. I'm just curious because

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this is this is the yeah, I find this fascinating.

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Yeah, you know, it's interesting. And what you say that AI three years ago, almost every

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pitch deck we got on the equity side, had, you know, this has found us pitching to us,

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they would mention machine learning, right? They just thought everyone's gonna put it

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in there. Now, you have so many pitch decks mentioning AI, right? They've got some form

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of AI that they're using. So it's just one of those catchphrases that I think founders

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often think that they've got to mention this because everyone's using it. And it is changing

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things pretty quickly in many areas. You know, we were looking at some really amazing businesses

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in sort of low code, no code, you know, the ability for you to come in and make your own

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apps for your business, etc. And all that stuff without getting developers and it's

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incredible because you can do so much. But then AI come in. And all of those businesses

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are probably going to really struggle because AI is going to take that away. So it's changing

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a lot. We like to think with this business in particular, the fluid, we don't think it's

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it's because it's not an AI trying to solve things. It's a software helping to really

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do the practical of the inventory management for hundreds of thousands of SKUs, hundreds

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of stores or thousands of stores across countries, continents, currencies, etc. So we don't think

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that's really an AI focused problem. Ask me in 10 years and maybe I'll change my mind

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because AI is evolving pretty quickly. So in that one, we're not so concerned about,

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but we do have other businesses where for sure AI is either going to make it much better

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or it's going to be a real threat and just sort of compete with it to a point where it's

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going to be hard to survive. The reason why I ask with fluid is what I'm

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saying, especially with my job is AI may directly impact or may indirectly impact or improve

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that particular business. Right. So what I'm wondering is, is do these systems as an operator

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system, does it improve the efficiencies to ensure that, you know, in three years time,

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it doesn't get kicked off because there's a new player coming in that offers a better

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product. As you said, you know, it takes three years to remove a particular business. A lot

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of people are wondering, okay, you know, how does that work with these large operating

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systems? It's a lot to do with the, the stickiness

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is a lot to do with the, when you take these systems on board, it's the training, it's

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the integration with all of your other existing software. It's getting it rolled out across

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countries around the world, different stores. And that, that's a huge process. I think AI

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is going to do a lot in a hurry. I don't think it's going to solve those things because it's

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really training people. How do you use this? How does this system work with what we've

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got here already that we need to keep? And if you want to then say, well, okay, I want

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to go to one of the other three or four big competitors, it's like, okay, that means we

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need to change this every person who's at the storefront, who's at the warehouse, they'll

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need to understand how to operate this. That's the challenge of changing these big systems

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that are integrated across global companies. AI will have huge effects. I don't think it's

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going to affect that for the next five to 10 years. But again, it's moving so fast.

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You never know. The reason why I was bringing it up, I remember

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one of my first ever jobs at David Jones when I was in country road. And I swear to God,

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they had something that was, you know, you know, when Tom Hanks, you know, went up in

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Apollo 13, it looked like that, like that, that tech had been updated, you know, for

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20 years. And it was horrendous. And it just, it just reminds me of, you know, things should

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get updated, they should be fixed. You know, we don't want tech to go the way of Nokia.

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Like I love CSL as a business, because they stick 10% of the money in R&D every single

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year to improve. I suppose I'm just asking you dealing with these companies at a particular

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level, you're funding them for growth. I'm just really quite interested to, you know,

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what's happening with the R&D to assure that these companies are at the very, very top

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so they don't end up losing that particular contract. That's where that question is coming

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from. Oh, look, yeah, that is absolutely critical.

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And just on the AI, where I think it really could help that business is in the ability

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for adding on to all the data they pull from the software. So you can see every transaction

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on a very detailed basis across the world every day. But then AI, you can use that to

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help you think about how can we improve costs? So do we need to have stock prepared and delivered

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to these stores at this time when we can see now very accurately and use AI to understand

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what the demand flow probably really is, so we can get our infantry at the right level

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and not be too big? How do we, you know, predict where sales are going? I think AI is going

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to do a lot to help us in that on. But yes, you're absolutely right. I think in all tech

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businesses, it's, you know, you can never be complacent. You can't say, okay, I'm one

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of the top sort of businesses in this area and we're growing fast. I'm just going to

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spend on business development and stop spending money on improving the tech because you can

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be sure one of your competitors is going to be putting a lot of money into improving the

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tech and just making the better experience. So there's always a significant part of the

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budget on the IT done on engineering about how do we make this better? And it's constantly

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evolving. It's constantly improving. And it's taking the feedback from customers, like what's

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working well? What really do you think you would value if we were to add or do more?

349
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What's not working? And if you don't address that, yeah, again, your competitors will.

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So you've got to constantly be improving it and using tools, whether it's AI or something

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else. And maybe it is incorporating the AI element to say, right, all this data, here's

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now the new sort of module for AI to be using the data we have for your own operations to

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help you then come up with output that's going to give you insights about where you can improve

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it and improve efficiencies. So I think that's where they need to be moving more in the future.

355
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Blows my mind what's happening. What's another company you've helped? And I suppose, because

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you've got the lens on and you have the warrants, what's the company that you've helped go all

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the way or the closest to having the warrant component play out? Learn more about that.

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Another one we did last year was a company called A-Commerce. It's a company in Southeast

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Asia. It's the largest e-commerce enabler. So what does that mean? It means when you're

360
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in countries, particularly emerging markets, global businesses want to have a footprint

361
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everywhere, right? So they can sell more, they can create awareness. So companies like

362
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Nike, companies like Sephora or Anadets. So if they want to go into Indonesia, Thailand,

363
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Vietnam, Philippines, it's like, okay, so we need to, if we really want to do this,

364
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if we want to be able to provide online shopping, you need to have the warehousing, you need

365
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the logistics, you need to have a in-country website with local language and you need to

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modify that to the people and the culture of that country. And then you need to make

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all of that work. And then you want to do it in like 200 countries or you just go to

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an e-commerce enabler and say, okay, so you cover all of Southeast Asia, you will do everything

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you think and you will build the website, you will do the marketing, you will do the

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advertising, we will just give you the goods and you'll run it for us. Oh, that's easy.

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We can get up and running very, very quickly with very little costs. So that's what they

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do, work with 200 global brands and basically they do everything for them. So they've done

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it so much when someone new comes, they say, look, here's our process. Obviously, we work

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with you on the marketing and everything else, but we need to make sure it's done for the

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local and how to get it out there. We do the warehousing, we do the logistics, we do the

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fulfillment, we deliver it right to the person's door, everything. So we did a deal with them.

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Again, loans, interest rates that were pretty attractive, sort of 13, 14%, lots of warrants,

378
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minimum guaranteed return on that to bring up a really good return for us. Senior secured,

379
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the company's raised 125 million of equity. So we see a top of that. Investors like KKR

380
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below us. So a lot has to sort of happen for the valuation has to really collapse like

381
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95% before you sort of have a risk of your loan being less than the security value. Now

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profitable. Usually we would lend to companies when they're not profitable because if they're

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profitable, they'll try and get lower cost of funding from a bank. Usually banks, especially

384
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in Southeast Asia, but Australia could be the same, they want to see before they provide

385
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million dollar loans, they want to see three years of profitability and they typically

386
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here want to see real estate. They want to get hard assets of security. So if you're

387
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a startup that's burning $40 million a year and you've got no real estate, you're not

388
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going to get a look in for a bank and that's why we have a good place to play. Not that

389
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we want to back companies burning that much, but if you're burning five or 10 million,

390
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typically the banks, if you haven't got that hard asset security won't give you a loan.

391
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Well that's the reason why there's been such a rise in the private lending space. But absolutely

392
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for that exact reason. It just makes no sense. Like what was it? These Australian banking

393
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laws were created what from the 87 crash crash? Was it wasn't it? Skates fault? I heard someone

394
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maybe over a you know, a beautiful lunch one day, someone told me that it was all skates

395
00:33:29,360 --> 00:33:33,600
fault and his mates fault. They were leveraging up to the heel with all the you know, doing

396
00:33:33,600 --> 00:33:36,480
these businesses and getting loans from the banks and said, but there was nothing to back

397
00:33:36,480 --> 00:33:41,640
them out when when a particular crash was it come over to 87 or what year was maybe

398
00:33:41,640 --> 00:33:46,040
the 90s when it all came undone and the banks were standing there, they didn't have any

399
00:33:46,040 --> 00:33:51,420
collateral. So like a line was drawn in the sand, you know, irrelevant of who you are.

400
00:33:51,420 --> 00:33:55,180
If you want to, you know, get a loan from us, you have to have property. But now it's

401
00:33:55,180 --> 00:34:00,680
gone so far one particular direction that if you aren't an employee, like I've got

402
00:34:00,680 --> 00:34:05,200
mates that have $10 million in an Australian trading account, better traders than I've

403
00:34:05,200 --> 00:34:09,080
seen a lot of people and just happy to run their own lives. They can't get a house loan

404
00:34:09,080 --> 00:34:16,680
for a half a million dollar apartment. No, it makes no sense. It makes me so broken.

405
00:34:16,680 --> 00:34:21,960
It's not funny. So it's nice that you guys are around. But it's just so broken. I think

406
00:34:21,960 --> 00:34:26,640
the pinnacle of all that back in the 80s was Alan Bond, right? So Alan Bond, maybe it was

407
00:34:26,640 --> 00:34:31,080
born in our skies or whoever it was. You ever read the book, you know, it's incredible what

408
00:34:31,080 --> 00:34:34,560
he did. Like after he won the America's Cup, he said, well, look, I'm going to have it

409
00:34:34,560 --> 00:34:39,800
over in Perth. He bought this land that was pretty shitty. And he actually apparently

410
00:34:39,800 --> 00:34:44,280
because he was a painter originally had the beach painted to look like gold and yellow

411
00:34:44,280 --> 00:34:48,520
because it wasn't gold and yellow. And then started to flog off this real estate to people

412
00:34:48,520 --> 00:34:53,160
all over the world and say you can buy a place where this America's Cup is going to be. So

413
00:34:53,160 --> 00:35:00,600
he was he really set a new level of what could be done. And it all worked for a while until

414
00:35:00,600 --> 00:35:05,040
it didn't, I guess. But yeah, I think you're right. So what you have is lenders being,

415
00:35:05,040 --> 00:35:09,640
especially in Australia, like the banks are making still record profits while the average

416
00:35:09,640 --> 00:35:15,960
homeowner I was at the ABCJ conference in Sydney a couple of weeks ago when we met in

417
00:35:15,960 --> 00:35:21,080
Sydney, and they had the top economists from the Commonwealth Bank speak and very interesting.

418
00:35:21,080 --> 00:35:26,760
And what he said was that the average Australian was spending 48 percent of their disposable

419
00:35:26,760 --> 00:35:32,480
of their income that they had on housing. That's extraordinary. That can't go any

420
00:35:32,480 --> 00:35:37,120
higher you would think. It's extraordinary. So and that's because banks are making so

421
00:35:37,120 --> 00:35:43,840
much money that do they need to do the hard work to say, OK, you don't have a real estate

422
00:35:43,840 --> 00:35:48,840
or you don't have a traditional type of income? To your point, we know people who make lots

423
00:35:48,840 --> 00:35:53,920
of money in lots of money. They can't get from their own business. But because they

424
00:35:53,920 --> 00:35:58,040
make it in different ways that the banks don't understand and they're not getting a salary

425
00:35:58,040 --> 00:36:04,740
as such, the banks are like, no, I have my requirements. You give me the tax return,

426
00:36:04,740 --> 00:36:09,160
you give me your salary slips so I can go back and say tick, tick, tick. But if you're

427
00:36:09,160 --> 00:36:13,560
saying, no, I've got a business and it's sort of lumpy, but I'm making a lot, they're like,

428
00:36:13,560 --> 00:36:18,880
it doesn't tick this box. So there are non-traditional lenders that fill that gap like us, but ones

429
00:36:18,880 --> 00:36:24,480
that will lend to individuals. But the sad reality is they charge a premium to lend to

430
00:36:24,480 --> 00:36:29,720
people who are probably much lower credit risk. These people are very unlikely to default.

431
00:36:29,720 --> 00:36:33,640
And these guys are like, yes, but we don't have the cost of capital like a bank. The

432
00:36:33,640 --> 00:36:39,280
bank gets the benefit of having all this money that they get from people in the bank accounts.

433
00:36:39,280 --> 00:36:43,760
And no one else has cost of capital that low. So yeah, I think you're right. The things

434
00:36:43,760 --> 00:36:48,320
changed, it's broken, the pendulum always swings too far. And it's going to be some

435
00:36:48,320 --> 00:36:52,480
time before it swings back to a position where it gets a bit normal.

436
00:36:52,480 --> 00:36:56,360
I think with the young generation coming through now, being forced to work from home, you get

437
00:36:56,360 --> 00:37:01,200
RFK coming in over in the States, pushing boundaries, shaking things up. I think people

438
00:37:01,200 --> 00:37:05,960
are just sick and tired of essentially being a two-party system in most countries. You

439
00:37:05,960 --> 00:37:09,600
have to take the left or the right, they're just over it. And I think the other thing

440
00:37:09,600 --> 00:37:14,560
which I'm really enjoying coming through now is there is this, they call it the agrarian

441
00:37:14,560 --> 00:37:19,880
age. I believe it was the 1700s, 1800s, where 85% of people that moved to the West, they

442
00:37:19,880 --> 00:37:25,240
left because they wanted to run their own lives and run their own businesses. And it's

443
00:37:25,240 --> 00:37:29,200
gone so far the other direction now that I don't even know what the statistics are the

444
00:37:29,200 --> 00:37:33,640
people that run their own business, but it's going to be low. But what we're finding now

445
00:37:33,640 --> 00:37:41,320
is a lot of young people are all couch entrepreneurs with a laptop. It's so quick to essentially,

446
00:37:41,320 --> 00:37:45,520
as you said, I find this fascinating chatting to people like yourself, Jason, as you said,

447
00:37:45,520 --> 00:37:50,040
I could sit here in Australia, I don't know, make some particular product or even knock

448
00:37:50,040 --> 00:37:57,080
something up on Canva, set up a Shopify account. And then, as you said, I've got no idea about

449
00:37:57,080 --> 00:38:02,640
Thailand or Vietnam, but I want to sell into that market and I can just essentially, if

450
00:38:02,640 --> 00:38:08,360
I'm at scale, have a conversation with the what was the name of the company? The enabler?

451
00:38:08,360 --> 00:38:14,640
A commerce, a commerce, a commerce, I can have a conversation with a commerce, not speak

452
00:38:14,640 --> 00:38:20,360
any of Southeast Asia languages, and have essentially a direct access point into that

453
00:38:20,360 --> 00:38:26,760
entire market for a particular price from your couch. It blows my mind. And at a cost

454
00:38:26,760 --> 00:38:31,840
that's a fraction of what it was before 20 years ago, it would cost you 10 to $1000 to

455
00:38:31,840 --> 00:38:36,560
have a business set up with a company, with the accountants, with the first employees,

456
00:38:36,560 --> 00:38:40,480
all that kind of stuff. Now you can do it under a thousand bucks. And with a website,

457
00:38:40,480 --> 00:38:43,960
all that stuff would cost 10 to thousands. Now you can build your own website at home,

458
00:38:43,960 --> 00:38:48,160
even if you're a novice like myself. It's easy. Everything is there for you, all the

459
00:38:48,160 --> 00:38:51,320
templates. You can get all that up, you can have a company set up, you can get all the

460
00:38:51,320 --> 00:38:54,560
infrastructure, you can get the software to run payroll and everything else under a thousand

461
00:38:54,560 --> 00:38:59,920
bucks and you can be running. And here's where you can go further. I mean, you can hire people

462
00:38:59,920 --> 00:39:05,720
anywhere in the world. So for our data business, we're hiring people in India, Indonesia, Sri

463
00:39:05,720 --> 00:39:11,400
Lanka, and we're getting university graduates. And this you will find hard to believe, but

464
00:39:11,400 --> 00:39:15,800
they're coming out at 400 US a month. So say it's Aussie 600 bucks a month.

465
00:39:15,800 --> 00:39:17,600
400 US dollars a month.

466
00:39:17,600 --> 00:39:22,120
Yeah. And I tell you, and then you don't, there's no medical, there's no super, there's

467
00:39:22,120 --> 00:39:23,120
no nothing.

468
00:39:23,120 --> 00:39:24,720
Because they're all private contractors.

469
00:39:24,720 --> 00:39:29,000
They're all private contractors and there's no rent. Right? Because they're on their laptop

470
00:39:29,000 --> 00:39:32,880
at home because they're in different countries. So the second, the biggest cost for most companies

471
00:39:32,880 --> 00:39:38,120
is capital is people. Second biggest cost for most companies is rent. So if you can

472
00:39:38,120 --> 00:39:42,600
find a business where you don't need someone in an office and many people you don't need,

473
00:39:42,600 --> 00:39:48,240
COVID taught us that you don't need to be in an office for many things, right? Zoom,

474
00:39:48,240 --> 00:39:52,400
work from home. Everyone loves it. That's why the commercial real estate and the org

475
00:39:52,400 --> 00:39:56,640
and other places is crashing because they're completely, San Francisco is a ghost town,

476
00:39:56,640 --> 00:40:01,680
right? Everyone's worked from home. They're not coming back. So if you can get your rent

477
00:40:01,680 --> 00:40:04,880
down and you can get your people cost down and then you can build all this stuff with

478
00:40:04,880 --> 00:40:09,400
the software, like you said, my son came home the other day because I said, you know, what

479
00:40:09,400 --> 00:40:11,600
are you going to do? You're going to start, you know, getting to pocket money. You're

480
00:40:11,600 --> 00:40:15,120
going to start to think about how you're going to do this. He's a bit entrepreneurial. I

481
00:40:15,120 --> 00:40:18,640
think you got to work for something. See, I could do that dad. But then he's got a presentation

482
00:40:18,640 --> 00:40:22,680
on the TV PowerPoint. So what's this? He said, dad dropped it. And I said, okay, I know a

483
00:40:22,680 --> 00:40:26,560
little bit about it. He goes, okay. And he thought it through 20 slides. And I kept saying,

484
00:40:26,560 --> 00:40:29,560
how are you going to do this? What are you going to do this? And he just researched and

485
00:40:29,560 --> 00:40:32,640
said, let's see, you do it. He said, no, I need to start that. I just need a bit of money.

486
00:40:32,640 --> 00:40:37,920
And I said, oh, here we go. What do you need? He said, I need about $300. I said, okay.

487
00:40:37,920 --> 00:40:42,080
I thought about it. I thought that sounds like, you know, even if it's just a complete

488
00:40:42,080 --> 00:40:46,120
write off, if it's someone going to be to your point, you can really get a business

489
00:40:46,120 --> 00:40:50,640
up, whether they succeed or not. But at least you can get the capital that used to cost

490
00:40:50,640 --> 00:40:55,960
before was prohibitive for most people to say, I want to start this. Now that's not

491
00:40:55,960 --> 00:41:00,160
the case. You can set up a business on the weekend. You can test it. You can even test

492
00:41:00,160 --> 00:41:04,160
whether the business works without having anything. You can have the website set up

493
00:41:04,160 --> 00:41:08,640
before you have the products. So if you're Tim Ferriss, you would have heard of him,

494
00:41:08,640 --> 00:41:12,640
the four hour work week, right? Well, he's best seller in New York. That's what really

495
00:41:12,640 --> 00:41:17,960
made him famous. Talked about before you even launch a business, test whether it works by

496
00:41:17,960 --> 00:41:22,640
demand. So have the product that you want to sell even before you started to manufacture

497
00:41:22,640 --> 00:41:26,880
or pay for it, build the website, do some marketing where you think you're going to

498
00:41:26,880 --> 00:41:31,680
get success. And then if people say, yeah, I want it, then say to them, oh, sorry, we're

499
00:41:31,680 --> 00:41:36,700
now at us out of stock. We'll get back to you very soon. So that you can gauge whether

500
00:41:36,700 --> 00:41:40,800
or not you've got sufficient demand to make it a successful business, which is a great

501
00:41:40,800 --> 00:41:45,120
idea. And then if you think there is, you've got all these people who are potential customers

502
00:41:45,120 --> 00:41:48,680
because they're trying to buy it from you, then go and, you know, fill up the backend

503
00:41:48,680 --> 00:41:53,440
and get it made before you incur the cost of saying, I'm going to develop all this.

504
00:41:53,440 --> 00:41:56,480
You could never have done that, you know, 30 years ago, you'd have to build something

505
00:41:56,480 --> 00:42:01,760
to get the product made. You'd go to the storefront, you'd put it out there and you take your chances

506
00:42:01,760 --> 00:42:07,200
on you get staff, insurance, everything else. And you don't know what they're going to sell.

507
00:42:07,200 --> 00:42:11,640
But now you can do everything without even having a product to test it.

508
00:42:11,640 --> 00:42:15,360
It's brilliant because as you just mentioned, there's two ways of starting a business. You

509
00:42:15,360 --> 00:42:20,160
start a business with potentially a product, no overheads. And then if you have demand,

510
00:42:20,160 --> 00:42:25,600
you roll into it. But the old way of doing it is, and honestly, let's take a step back,

511
00:42:25,600 --> 00:42:29,720
ask the question, why is a business set up the banks way? Because if you go the bank

512
00:42:29,720 --> 00:42:34,560
way and you get a storefront, how much does it cost to purchase that asset? And where

513
00:42:34,560 --> 00:42:39,120
do you go? You go to a broker, broker gets fees. Okay, now I have to set that up. Everyone

514
00:42:39,120 --> 00:42:43,000
else gets paid. There's 250, half a million bucks just for, I don't know, a bakery or

515
00:42:43,000 --> 00:42:47,320
some of that. Then you get staff and then hard premises. There's just an entire system

516
00:42:47,320 --> 00:42:51,520
before you know it, you could be out of pocket, a million dollars in debt before you sold

517
00:42:51,520 --> 00:42:58,520
your first muffin. Exactly. And look, I really like, is your son, you were mentioning, I

518
00:42:58,520 --> 00:43:03,360
love what he's doing because there's a gentleman called Mr. Beast, the best YouTuber, you know,

519
00:43:03,360 --> 00:43:08,400
that everyone follows and there's dropshippers anywhere, which is great. And there's a particular

520
00:43:08,400 --> 00:43:16,280
TikTok order he does where he bets his mate, he gets two mates and he gives one a Shopify

521
00:43:16,280 --> 00:43:21,280
account and goes and gives one a hammer. And he goes, which is faster, setting up a lemonade

522
00:43:21,280 --> 00:43:26,880
store or setting up a brand new shopfront with Shopify, the guy on Shopify one. Yeah,

523
00:43:26,880 --> 00:43:31,400
amazing. Absolutely. And the other thing I love about it is these people are happy to

524
00:43:31,400 --> 00:43:35,520
share content because what happens they share, they get more business, more followers. Plus,

525
00:43:35,520 --> 00:43:39,560
there's the revenue coming from the watching side. But the other thing which I've been,

526
00:43:39,560 --> 00:43:42,680
I've been writing a couple articles, I've been doing so much research on is have you

527
00:43:42,680 --> 00:43:47,920
ever studied the difference between Rockefeller and the Vanderbilt's? No. So the funniest,

528
00:43:47,920 --> 00:43:52,840
the most interesting thing there is the Vanderbilt's kind of not really exist anymore, to an extent,

529
00:43:52,840 --> 00:43:57,840
whilst the Rockefeller's are 300 odd people strong and practically control the world.

530
00:43:57,840 --> 00:44:02,360
The one of the one of the key psychological differences is the ability between giving

531
00:44:02,360 --> 00:44:09,200
family members access to money to start a venture compared to just giving them money.

532
00:44:09,200 --> 00:44:13,440
Have you heard about this, the behavioral psychology behind it? So what happens if you

533
00:44:13,440 --> 00:44:20,120
give someone money, then essentially they didn't strive for it doesn't mean as much.

534
00:44:20,120 --> 00:44:25,160
Yeah, absolutely. Yeah, there's no there's no there's no Oh, thanks, dad, you know, oh,

535
00:44:25,160 --> 00:44:28,440
look, I want to go to the movies, cover 100 bucks. There's no you don't know what that

536
00:44:28,440 --> 00:44:34,160
value means you don't do anything for perceived value. But you say to your son as an example,

537
00:44:34,160 --> 00:44:38,120
300 bucks, fantastic. I'm really respect the fact that you know, here's this 20 page slide

538
00:44:38,120 --> 00:44:42,320
about drop shipping. You know, how about I also you know, return the favor and educate

539
00:44:42,320 --> 00:44:46,160
you about how the real world works. If you want 300 bucks, not a problem. What we're

540
00:44:46,160 --> 00:44:49,200
going to do is I'm going to show you how a contract works. This is this is what I do

541
00:44:49,200 --> 00:44:53,360
for work. And I'm going to give you a very short contract $300. And what we're going

542
00:44:53,360 --> 00:45:01,200
to do is we're going to make the interest rate 1%. And then the whatever, whatever it

543
00:45:01,200 --> 00:45:05,240
is, how it all works, but just something is simple. And he said, What do you mean your

544
00:45:05,240 --> 00:45:12,840
stack? I said, I'm paying for it. Yeah, yeah, it's just it's just blew my mind. Because

545
00:45:12,840 --> 00:45:16,000
like the one thing they use with the Rockefellers is say like the guy wants a million bucks

546
00:45:16,000 --> 00:45:20,040
to go to I don't know, Thailand and have a good time or you know, buys Ferrari that he

547
00:45:20,040 --> 00:45:23,740
wants or whatever it is, it's not a problem. So what we can do is we can give you access

548
00:45:23,740 --> 00:45:28,240
to the family bank, cheap credit, you go find the land, you get the project, you get everything

549
00:45:28,240 --> 00:45:31,760
up, we'll give you one chance. But you know, if you get a project, we'll back it where

550
00:45:31,760 --> 00:45:35,360
you won't get the money from the bank as we just found out, you know, from the conversation

551
00:45:35,360 --> 00:45:40,160
we had before, but we'll give you family money access, building an entire thing. But whatever

552
00:45:40,160 --> 00:45:44,200
profit you pull out of that, you can go and buy a Ferrari. That there is a difference

553
00:45:44,200 --> 00:45:48,480
between the and that's the reason why that's the Rockefellers around the world. And the

554
00:45:48,480 --> 00:45:52,960
Van Bels empire is not as big as it used to be. It's fascinating. Yeah, it's interesting.

555
00:45:52,960 --> 00:45:57,200
And the reason why I'm discussing this is you you operate in the entrepreneur space.

556
00:45:57,200 --> 00:46:01,240
And we've seen like, you know, subreddits like indie hackers, and I'm all for this because

557
00:46:01,240 --> 00:46:05,080
the more innovation we have in the world, the more brighter minds we have in the world,

558
00:46:05,080 --> 00:46:13,080
you know, no one knows where we're working go fully on must stop. Absolutely fascinating.

559
00:46:13,080 --> 00:46:16,560
And then you finance them. So that's that's enough of my rant.

560
00:46:16,560 --> 00:46:21,920
Yeah, no, but I completely agree. Right. If you if you if you give something to someone,

561
00:46:21,920 --> 00:46:25,800
the perceived value is just not there. And so we see that in startup businesses about

562
00:46:25,800 --> 00:46:29,960
trying to get, you know, it's the freemium model and how do you how do you pitch this

563
00:46:29,960 --> 00:46:34,880
right. And it's really important not to give away too much because once people think they've

564
00:46:34,880 --> 00:46:38,800
got it, they just don't see this value to pay for it later. So it's the same thing,

565
00:46:38,800 --> 00:46:44,160
you know, you give someone money, if you incentivize them in different ways, the psychology is

566
00:46:44,160 --> 00:46:48,560
very different. And it's different in terms of the output in terms of how they approach

567
00:46:48,560 --> 00:46:54,160
it and then try to make the success. So I think that's really key.

568
00:46:54,160 --> 00:46:57,720
What are the opportunities you currently seeing in the market? Because we discussed what you

569
00:46:57,720 --> 00:47:02,560
currently doing. Where do you you're in a unique position. Normally when I ask a lender,

570
00:47:02,560 --> 00:47:05,480
you know, you know, we're opportunities saying they just they said, Look, we're not in the

571
00:47:05,480 --> 00:47:08,520
business of taking risks. So as long as they pay their money, we're okay. And then you

572
00:47:08,520 --> 00:47:11,960
ask someone the offense in the town, it's all about, you know, here's the globe. You're

573
00:47:11,960 --> 00:47:16,240
in this beautiful place where you're both lending and you want the equity upside. So

574
00:47:16,240 --> 00:47:19,720
I find you know what you're seeing and you get in the data is completely data driven.

575
00:47:19,720 --> 00:47:24,360
So I would love to hear your thoughts on where you see the world going and the opportunity

576
00:47:24,360 --> 00:47:25,360
currently.

577
00:47:25,360 --> 00:47:29,520
Yeah, look, in terms of what we see in Southeast Asia, I think to Australia as well, growth

578
00:47:29,520 --> 00:47:35,520
stage investors went a bit crazy a few years ago. And we saw a huge amount of money coming

579
00:47:35,520 --> 00:47:42,680
into companies that sort of series B, CD, at really inflated valuations, which we knew

580
00:47:42,680 --> 00:47:46,720
was not sustainable. But we're you know, we were on the equity side seed stage. So we

581
00:47:46,720 --> 00:47:54,080
were seeing our multiples on our investment going up very nicely, but not sustainable

582
00:47:54,080 --> 00:47:59,840
at all. And of course, then the music stopped and NASDAQ fell down. And all of a sudden,

583
00:47:59,840 --> 00:48:05,040
the multiples or that people were paying or to invest in series B, C companies dropped

584
00:48:05,040 --> 00:48:12,800
by 40% or more. And the large investors were a bit shell shocked and started to pull back.

585
00:48:12,800 --> 00:48:17,920
So a couple of years ago, you had new investors coming in from all places around the world,

586
00:48:17,920 --> 00:48:22,280
or just new investors in general investing at late stage. That capital has gone back

587
00:48:22,280 --> 00:48:27,760
a lot. So what you're seeing is the same number of companies are still raising, but there

588
00:48:27,760 --> 00:48:33,440
are the rounds are much, much smaller. But you really seeing only the quality companies

589
00:48:33,440 --> 00:48:39,480
getting the bigger rounds away. So what does that mean for us? It means that it's always

590
00:48:39,480 --> 00:48:43,760
good to be a provider of capital and capital is scarce, right, because it's supply and

591
00:48:43,760 --> 00:48:49,640
demand. So we're seeing those companies that were going out raising $50 million equity

592
00:48:49,640 --> 00:48:55,000
rounds three years ago, that's not happening now. But those ones who really feel that they

593
00:48:55,000 --> 00:49:00,680
should be raising 50 million, the equity investors are like, maybe I'll give you 30. And so they're

594
00:49:00,680 --> 00:49:04,400
like, but hang on, I've got a gap. So it's great for us. So we say, look, we'll come

595
00:49:04,400 --> 00:49:08,880
in and maybe fill that gap. We'll give you 20 million of the venture debt alone. You've

596
00:49:08,880 --> 00:49:13,560
got your 30. And we're happy with that because the 30 sits underneath us, that gives us extra

597
00:49:13,560 --> 00:49:20,880
buffer of security. And so there's more demand for growth stage venture debt now than there

598
00:49:20,880 --> 00:49:25,320
has been in the last 10 years. And I think you're seeing the same in Australia. It's

599
00:49:25,320 --> 00:49:30,400
just the larger sort of rounds, you know, you just I think you're seeing that pull back

600
00:49:30,400 --> 00:49:35,360
across the board. Surprisingly, though, the NASDAQ, of course, has gone back up. But valuations

601
00:49:35,360 --> 00:49:41,920
at startups, you know, sort of up into pre IPO have not tracked that. So I think that's

602
00:49:41,920 --> 00:49:46,800
an interesting when the NASDAQ drops, the multiples fell pretty quick. But the multiples

603
00:49:46,800 --> 00:49:51,280
on early stage companies didn't bounce back up with the NASDAQ where it is. And I think

604
00:49:51,280 --> 00:49:56,560
it's going to be a slow march before they do. So in short, we're seeing a huge amount

605
00:49:56,560 --> 00:50:01,680
of demand, which is good for us, and also good for pricing. So people like really want

606
00:50:01,680 --> 00:50:05,320
it. And, you know, people look at what we do and say that, you know, you're getting

607
00:50:05,320 --> 00:50:09,960
interest rates, 13, 15% fees, and then you're getting warrants. It's like, you know, your

608
00:50:09,960 --> 00:50:14,640
cost of capital is 20% plus. That's really expensive. And then we say, but if you're

609
00:50:14,640 --> 00:50:18,800
growing really fast, equity is going to be more expensive. Right. That's that's what

610
00:50:18,800 --> 00:50:23,120
it is. So if you are really growing fast, you can do the math in different ways, then

611
00:50:23,120 --> 00:50:26,840
your cost of capital of equity is like, No, no, I don't want to give the shares away.

612
00:50:26,840 --> 00:50:31,120
I believe I'm growing fast on that. I'll pay your 15% interest and you can have your back

613
00:50:31,120 --> 00:50:33,840
ended warrants and I'm still going to be better off.

614
00:50:33,840 --> 00:50:38,840
Yeah, that that's fascinating, because we've been studying this as well, because the market's

615
00:50:38,840 --> 00:50:44,000
just so high. But I've been to a number of conferences with other fund managers. And

616
00:50:44,000 --> 00:50:47,560
they're all like, well, the, you know, some of these smaller companies can't even catch

617
00:50:47,560 --> 00:50:53,080
a bid. And what's very fascinating about this is the point you made was before Codemac

618
00:50:53,080 --> 00:50:55,920
COVID, or, you know, the funny money came in, you know, people were just throwing money

619
00:50:55,920 --> 00:51:00,360
at anything. Everyone felt rich, but now everyone feels poor, a little bit hurt. But now is

620
00:51:00,360 --> 00:51:04,640
the best time to do some of these deals, like some of these deals are a bit of valuations

621
00:51:04,640 --> 00:51:08,440
than a lot of people have actually seen. And I was speaking to another gentleman the other

622
00:51:08,440 --> 00:51:13,080
day, and he actually pointed out that in his particular space and say value investing,

623
00:51:13,080 --> 00:51:18,200
whenever he sees deals and M&A activities start to occur in any particular asset class

624
00:51:18,200 --> 00:51:23,800
in value investing, that he's indicating the bottom of the cycles in people, there's

625
00:51:23,800 --> 00:51:28,560
consolidation, you know, that that turn, it might take two years, but that turn starting

626
00:51:28,560 --> 00:51:33,280
to come. Do you think that we're at the bottom and this turns happening from what you're

627
00:51:33,280 --> 00:51:38,280
saying? How long do you take for small caps in the value side of the market to get back

628
00:51:38,280 --> 00:51:39,280
going?

629
00:51:39,280 --> 00:51:44,800
Yeah, I completely agree. You know, that the saying goes be greedy when others are fearful.

630
00:51:44,800 --> 00:51:50,120
We're seeing we think valuations have come back maybe too much. We're seeing great opportunities.

631
00:51:50,120 --> 00:51:56,320
So we're also doing something else now. It's like a third strategy. We call it value investing.

632
00:51:56,320 --> 00:52:00,560
Some people might call it distressed investing on the on the venture space. We don't use

633
00:52:00,560 --> 00:52:05,400
that term. It's growth stage companies that are growing and they're doing reasonably well,

634
00:52:05,400 --> 00:52:09,200
but they're struggling to raise the next round because they've had investors come in at growth

635
00:52:09,200 --> 00:52:13,320
stage who know that they pay too much and they're like, oh, we can't go and this is

636
00:52:13,320 --> 00:52:17,640
scarcity of capital. So we're looking at these businesses like, you know, they value three,

637
00:52:17,640 --> 00:52:21,600
four hundred million dollars in the last round. They've, you know, grown their revenue by

638
00:52:21,600 --> 00:52:26,880
30 or 40 percent year on year. It's still going reasonably well. And we're saying, OK,

639
00:52:26,880 --> 00:52:32,360
we'll fund you. But in a different sort of structure where we're going to be senior secured,

640
00:52:32,360 --> 00:52:36,520
maybe not venture debt, but we're going to put in a convertible loan. We get a minimum,

641
00:52:36,520 --> 00:52:41,600
you know, two X if you exit two to three X, if you exit in three years. If you raise another

642
00:52:41,600 --> 00:52:45,520
round, we converted a 50 percent discount. You pay us an eight percent coupon through

643
00:52:45,520 --> 00:52:50,600
the way. And we're getting lots of interest with companies like, you know, I don't have

644
00:52:50,600 --> 00:52:56,000
a lot of option right now. So I think that's, you know, and that gets them to profitability.

645
00:52:56,000 --> 00:52:59,480
So then they're stable and they can move on the exit. So we see a lot of opportunities

646
00:52:59,480 --> 00:53:04,160
like that. Growth stage companies that really just there's not as many investors around.

647
00:53:04,160 --> 00:53:09,760
I think that where we are now, that the valuations did come back a lot. They were too high. I

648
00:53:09,760 --> 00:53:14,400
think they've gone too low. As you say, pendulum always just goes too far. But I think it's

649
00:53:14,400 --> 00:53:20,760
going to be the problem is interest rates. You know, it's a strange thing. High interest

650
00:53:20,760 --> 00:53:27,000
rates are normally difficult and problematic for equities. Well, you look at the S&P and

651
00:53:27,000 --> 00:53:32,600
you'd say, well, that's not really proving the case right now because we're at record

652
00:53:32,600 --> 00:53:38,320
highs and on multiples we're at such a high space. And we've got interest rates that have

653
00:53:38,320 --> 00:53:42,200
been high so long. And as lucky you mentioned earlier today, they're going to hold the rates

654
00:53:42,200 --> 00:53:47,000
and they probably will for a while. Eventually they will pull it back. And, you know, I don't

655
00:53:47,000 --> 00:53:51,080
think it's going to be in a hurry. But then I think you'll start to see generally the

656
00:53:51,080 --> 00:53:54,600
obviously public markets get even sillier. But I think that'll follow on through to the

657
00:53:54,600 --> 00:53:57,960
private markets. So I think now is a pretty good time. I don't think it's going to go

658
00:53:57,960 --> 00:54:02,440
any lower in terms of multiples for private companies and especially in the tech space.

659
00:54:02,440 --> 00:54:06,600
But I do think we are going to start to see it edge up and ledge up much faster as the

660
00:54:06,600 --> 00:54:09,960
rates come down.

661
00:54:09,960 --> 00:54:15,880
Yeah, that's that's fascinating. I'm hearing it everywhere now. And it's interesting that

662
00:54:15,880 --> 00:54:24,400
hearing it now from a firm that does the lending and participated in the upside. That's interesting.

663
00:54:24,400 --> 00:54:30,120
And there are still one of the if anyone's ever read, what's the lies poker, the book

664
00:54:30,120 --> 00:54:35,480
lies poker, I just remember the deer. That's a fantastic book. You know, when everything

665
00:54:35,480 --> 00:54:40,080
was burning, you know, Babylon gardens were coming down and the bloke steps in and buys

666
00:54:40,080 --> 00:54:44,040
right at the death note and they just steps away and you know, teaches baseball and then

667
00:54:44,040 --> 00:54:48,340
what's it all go up. It also reminds me of Buffett's deal which he did with what American

668
00:54:48,340 --> 00:54:52,400
Express right when it's about to go on the ground did that doesn't have to work again

669
00:54:52,400 --> 00:54:59,080
for a day in his life. It's Yeah, you know, but look, just I really appreciate the time

670
00:54:59,080 --> 00:55:04,520
we've had today. Your insights are so so interesting. If anyone wants to learn more about

671
00:55:04,520 --> 00:55:07,720
General Capital, how can they find you?

672
00:55:07,720 --> 00:55:12,800
Well, they can they can reach me at Jason at January dot capital, or they can go on

673
00:55:12,800 --> 00:55:18,080
the website and reaches that way. Always love to talk to people who are looking for capital

674
00:55:18,080 --> 00:55:23,160
but just great, great entrepreneurs or people who just want to share views and collaborate

675
00:55:23,160 --> 00:55:28,480
were always very transparent and looking to sort of meet with other people. Murdoch has

676
00:55:28,480 --> 00:55:33,360
been fantastic talking to you. Really enjoyed being on the podcast. Thank you so much. It's

677
00:55:33,360 --> 00:55:34,360
been awesome.

678
00:55:34,360 --> 00:55:38,560
Fantastic. Alright, Jason, have a great day and we'll catch you soon.

679
00:55:38,560 --> 00:56:05,160
Thanks for the time. Bye.

680
00:56:05,160 --> 00:56:11,720
Buying listeners should head to www.moneysmart.gov.au to find more information on obtaining financial

681
00:56:11,720 --> 00:56:39,080
advice. To get in touch with York, head to our website www.yorkwealth.com.au.