The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch

20VC: Altimeter's Brad Gerstner on Why Supercycles and the Powerlaw is the Most Important Thing In Investing, Why Portfolio Diversification is the Opposite of Risk Mitigation and The #1 Question Brad Asks All New Recruits

Oct 10, 2022

Brad Gerstner, Founder and CEO of Altimeter Capital, shares insights from a career that includes over 100 IPOs. He discusses the critical role of power laws in investing and how they shape decision-making. Gerstner emphasizes that true investment success relies on identifying 'super-cycles' rather than short trends. He also reveals the key question he poses to new recruits to gauge their hustle and how market timing impacts investments. With a rich background in finance, his practical wisdom offers a fresh perspective on navigating complex market landscapes.

01:08:46

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Episode guests

Brad Gerstner

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Podcast summary created with Snipd AI

Quick takeaways

Focus on high-conviction ideas over diversification for wealth creation.

Adapt investment strategies to market conditions for sustainable returns.

Balancing fund size impact in VC by strategic scaling and portfolio concentration.

Deep dives

Focus on High-Impact Investments

Brad Gerstner emphasizes the importance of concentrating investments on high-conviction ideas rather than diversifying for risk mitigation. He stresses that diversification may preserve wealth, but it is not an effective strategy for wealth creation. By allocating maximum resources to top opportunities, like the early investments in Snowflake and Modern Treasury, Altimeter aims to generate significant alpha and achieve strong returns.

Is the Power Law the Single Most Important Thing?

01:40

The Practice of Essentialism

01:21

Is Yiming the Winner?

01:32

Is Your Cost of Capital Going Up?

01:21

Intro

4min

From Childhood Dreams to Silicon Valley Success

5min

Navigating Investment Supercycles

20min

Navigating Valuations: Strategies for Managing Investment Books

2min

Navigating LP Dynamics in Venture Capital

19min

Lessons in Humility and Legacy

15min

Future Vision: Sustaining Culture and Values in Expansion

2min

Admiration for Authenticity and Insights into Investment Resources

2min

Brad Gerstner is the Founder and CEO of Altimeter, a life-cycle technology investment firm that manages public and private portfolios. Brad has personally participated in more than 100 IPOs as a sponsor, anchor, and investor. Brad’s notable deals include Snowflake, Mongo, Bytedance, Gusto, Unity, Okta, dbt, Modern Treasury, EPIC Games, Hotel Tonight, and Zillow. Prior to founding Altimeter, Brad was a 3-time co-founder where he sold all three businesses (to IAC, Google, and Marchex), a founding principal at General Catalyst; a securities lawyer, a former Deputy Secretary of State of Indiana, and a pilot.

In Today's Episode with Brad Gerstner We Discuss:

1.) From Humble Beginnings in Indiana to 100 IPOs:

When did Brad realize his original love of finance and entrepreneurship?
What one single question does Brad ask all potential new recruits to determine if they have hustle?
What does Brad know now that he wishes he had known at the beginning of his career?

2.) The Power Law and Supercycles:

What is a power law? Why is it the single most important thing in investing?
How do the best investors in the world build a framework around supercycles?
How does Brad approach market sizing? How does Brad think about market creation when aligning that to his thesis of investing in power laws?
How does Brad determine if a large opportunity is a "super-cyle" or a short, time-stamped fad that is unsustainable? How does Brad assess the importance of market timing?

3.) Building Anti-Fragile Portfolios:

Portfolio Construction: Why does Brad disagree that the answer to risk mitigation is portfolio diversification? How many companies is enough companies for a diverse portfolio?
Price Sensitivity: How does Brad reflect on his own relationship to price? How does this process and mindset change on re-investments? What is needed for Brad to re-invest?
Time to Exit: How does Brad analyze when is the right time to exit a position? What are the single biggest mistakes people make when it comes to timing their exit?

4.) The Venture Landscape: Today, What is Happening?

Why does Brad believe what has happened over the last 24 months is a great disservice to founders?
What are the biggest examples of a complete lack of investor discipline?
Why does Brad believe that for all positions valued over $500M, we should apply a 20% discount?
Is today's pricing actually just the new normal? How has the public market pricing impacted the deployment of growth stage checks? How will this play out in the next 12 months?
Why does Brad believe there is "not blood on the streets yet"? How does the speed of interest rate change impact our ecosystem so dramatically?

Items Mentioned in Today's Episode:

Brad's Favourite Book: The Snowball: Warren Buffet and the Business of Life

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The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch

20VC: Altimeter's Brad Gerstner on Why Supercycles and the Powerlaw is the Most Important Thing In Investing, Why Portfolio Diversification is the Opposite of Risk Mitigation and The #1 Question Brad Asks All New Recruits

Episode guests

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

Focus on High-Impact Investments

Adapting to Changing Market Conditions

Balancing Scale and Impact in Fund Management

Lessons in Timing and Essentialism

Cultural Values and Long-term Vision

Is the Power Law the Single Most Important Thing?

The Practice of Essentialism

Is Yiming the Winner?

Is Your Cost of Capital Going Up?

Remember Everything You Learn from Podcasts