Ali Hamed & Jeremy Giffon
The Trenches of Firm Building
Video Transcript
Hot Takes from the Trenches of Firm Building
Ali Hamed & Jeremy Giffon - Main Stage, Main Street Summit
Moderated by Brent Beshore
Introduction
BRENT BESHORE
I couldn't be more excited about these two guys coming on stage. I've known both of them for quite a while now. These are the guys I call when I'm bored and I want to know what the real scoop is—my secret pipeline of information.
ALI HAMED
[Laughing] And then we just lie.
BRENT
Exactly. So, a lot of people in the audience are entrepreneurs, and we've been talking about product-market fit on the entrepreneurship side. But on the investment side, I feel like people think, "Hey, I want to be an investor," without really considering product-market fit for what they're trying to do. Both of these guys have started their own firms in very unusual spaces. Jeremy, why don't you kick us off—what do you actually do and why did you become an investor?
Starting a Firm
JEREMY
Let me provide a little context. I've just launched my firm—I raised a $60 million fund focused on venture buyout in the last year. So I'm brand new at this. Ali has been doing it for 10-12 years and has three billion under management. We're kind of at opposite ends of the spectrum.
ALI HAMED
[Laughing] Jeremy's a good investor. I'm a bad investor. That's what he means by opposites.
JEREMY
Gathering assets and investing are two different things. Starting a firm is interesting—I come from a startup background, and the zeitgeist doesn't really apply "founder" thinking to starting a fund. It's not necessarily as challenging as starting a company, and the effort is much more front-loaded. Empirically, if you can raise a first fund, you're very likely to raise a second fund. That dynamic is very different from building a company.
The motivation is different too. People start funds because they want to invest and feel constrained or unable to do it the way they want. It's a top-down decision—one day you're like, "I should have a fund," and you go do it. Great companies, by contrast, often come from solving a problem organically and bottom-up.
BRENT
Ali, what's been your arc? You got into the investment business right out of school.
ALI
My version was a little odd. I started the firm when I was a senior in college, building software applications for people. I hired a software development team, and we started building software for equity in startup companies. Those companies ended up being fintech businesses that needed debt capital to make loans.
We found a problem in the market: asset-backed credit is traditionally done by regulated balance sheets that need rated assets. But tech companies are good at financing assets that can't be rated for structural reasons—like a two-week loan. You can't rate something in two weeks. So you could offer a really high interest rate for a loan that's not that risky.
I didn't have a track record. At Cornell, I was the student they'd bring around to alumni saying, "Give us more money because of students like this guy." So I emailed all those people and raised money one by one for specific deals.
My advice is: just get started. Don't wait for the perfect structure. If I found a good transaction, I'd just do it. Raising money deal by deal as a new manager was super useful—it's a terrible way to live because you're committing capital without having raised the money yet. But it works.
I started the business with another guy who was 22. We called ourselves "Tweedle Dee and Tweedle Dum." We'd run around offering $50 million at a time to people even though we didn't have it, then we'd go raise it. After five years of that, I gave all my LPs a fee discount if they collapsed their SPVs into a fund. Once you have a five-year track record, people start to believe you.
Raising New Funds
ALI
I really wanted to start a venture capital fund because I always loved venture capital. My pitch was terrible: "I'm running a credit fund. I want to do a venture fund. I've never really done it before. I'm not even going to do fintech deals—I'm going to do whatever I want. But I'm really enthusiastic, and I hired a guy who worked at JPMorgan for one year. He's really great." [Laughter]
But I'd made people a lot of money, so I basically said, "You owe me—you have to give me money for this fund." That's how we raised the venture capital fund. The first fund went really well, so we were able to keep raising money from much more prominent institutions.
Then we raised a hybrid fund—stretch loans, quasi-corporate and quasi-asset-backed loans, structured equity. Same pitch: "You still owe me." We raised $500 million for that fund one from people we knew.
Hybrid Investing
BRENT
I was scrolling the Wall Street Journal a couple days ago and I see Denny's is getting taken private. I'm flipping through the list of people and I'm like—wait, is that Ali? You're taking Denny's private? Would you call it a "grand slam" of a deal?
ALI
It's still public, and it's been announced that we are involved. Someone's got to do it.
BRENT
Don't you screw up Denny's, man. If Denny's sucks now, it's going to be your fault. Talk us through—maybe not that deal specifically—but broadly, how do you think about deals in that hybrid space?
ALI
In hybrid investing—and we're not the only ones who do this; Apollo has Hybrid Value, Blackstone has Tac Ops, Carlyle has their version, Sixth Street has the TAO fund—it's really a reaction to how private equity has evolved. In the beginning, PE bought companies from founders. Now PE mostly buys companies from other PE firms. Not all founder-owned companies want PE ownership yet.
We made an investment in a company where the founder hadn't been CEO for nine years. The company was doing well into nine figures of revenue, well into eight figures of profit, but he wanted liquidity. We came in with a minority stake through a structured instrument. We feel protected like credit investors—we're definitionally below 50% loan-to-value because we're not buying the whole thing—but we get equity upside.
We go to founders and say: "You may or may not agree with the market on your valuation, but we can all agree on what returns the market wants—a low 20s IRR. Let's contractually agree to that through something that feels like structured equity rather than debt."
The other version is venture companies that were high-flying, growing like crazy, then when interest rates came up, maybe they were overvalued. We don't want to tell them what the value is. We just say, "We'll give you $50-100 million, and we contractually want this level of return." We protect our downside by being the senior security, maybe giving up some upside, but we've agreed with the founder on the rate of return.
It's a better business than fighting with founders. Being the first person to tell a Y Combinator alum that they're not a billionaire anymore is a bad business—there's a lot of YC hubris. As lenders, you've got to be a good partner and find someone realistic. We joke that we're never the reason someone went bankrupt. The reasons are running out of money, not finding product-market fit, customer acquisition costs too high, tariffs, whatever. I'm just the guy who has to tell you you're bankrupt, which sucks. Part of it is trying to avoid those conversations.
Hiring
BRENT
Jeremy, you recently wrote a post that got like five million views on a job application. How are you thinking about hiring for your firm?
JEREMY
Job descriptions are these business talismans—written to be generic, never read by anyone. They just exist. Someone wants to see the existence of a job description but won't read it or learn anything from it. So I thought: maybe you can write a job description that's actually interesting or attention-grabbing.
In social media, you can afford to be polarizing because you want to sort quickly. So I wrote traits I'd want in a person—traits that if you had them would really resonate with you, and if you didn't would make you angry.
I wrote about being unapologetically money-motivated. About maybe working in PE but actually caring about multiple on invested capital, or working in venture and actually caring about return on invested capital, and getting frustrated by the lack of focus on that.
It went really well—I got 300-400 applicants in 48 hours from amazing firms. The lesson is: the more you can say, "This is actually the person I want," with characteristics that are not universally viewed as good or promising, and it should make people a little angry.
I wrote another one: "Ideological minority at a top-10 school." What's great is you're free to decide what a top-10 school is. A lot of people were clearly not at top-10 schools but were asserting they were—I thought that was awesome. People angry about the mere suggestion was great. "Ideological minority" was widely interpreted. If you can make something that really grabs someone, even if you're pissing off five people to do it, that's super useful.
Firing
BRENT
Ali, you're the big bad wolf now. Talk about how you've gone about restructuring.
ALI
Our portfolio companies have had restructurings from time to time. We've generally grown each year, but we have had to let people go. Each year the firm gets bigger, so you can pay better and hire better people. Firing well is easier than hiring well—it's really hard to get to know somebody through a case study, a handful of interviews, and references. On-list references are the funniest thing in the world. Why would you call somebody you were recommended to call?
At our offsites—we have about 40 people on our team—we always say: "If you had the most important thing you were being asked to do this week or month or year, and you were going to the hospital, having a kid, going on a honeymoon—you couldn't be around—who would you trust to do the work for you? When you need an accurate answer quickly, who are the five people at the firm you would send that request to?"
Then I say: "If you're not in anyone else's top five, you're probably not going to be here for very long." [Laughter]
Not everyone's my target audience. My target audience is the overperformers. Being able to do investing is a blessing—I think it's the coolest job. Being the fourth member of Blink-182 would be the coolest job ever, but other than that—and being on the Dodgers right now—being an investor is the coolest thing. You have total context in the companies you work with. You get to look at new stuff every day. You get paid well. It rocks.
If people don't take it seriously, we're looking for people where being an investor is part of their personal identity. The challenge is a lot of people are perfectly fine. It's hard to describe why they're not a fit. I used to have to convince people they should also agree that they're bad.
Instead, I've learned to say: "We just don't agree. I think you're bad, you think you're good. We could spend another hour talking about it, but we don't have to agree. I'm in charge. The fact that we don't agree is sort of the point." [Laughter]
That's been an unlock. And we're super nice to people on the way out. We let them stay around, say they work here for another six months, pay them really well. I'm a softy—it doesn't sound like it, but I really am. I find it so much easier to fire people when I know I'm going to pay them for another six months. If I'm only paying for four more weeks, I'm thinking, "Oh my god, it's going to mess up their life. How are they going to find another job?" So that's been an easier way to just do it.
Alternative Investment Areas
BRENT
If you couldn't be doing what you're doing now, what areas of the economy or investing would you be most interested in?
ALI
In Arizona and Utah now, you can own a law firm without being an attorney. I'd probably build what Dial did for investment firms, but for law firms. Go in, take a minority stake, work them through a generational transition, apply AI to get rid of all the inefficiencies.
JEREMY
I'd be doing effectively YC for GPs, for investors. The staking business is where venture capital was in the early '90s. People should be taking way more risk on much younger people for investing, so they don't have to run around doing horrible SPVs for 10 years before getting their firm off the ground.
Funds are amazing businesses. There's ways you can structure these things with effectively no downside and lots of upside. We figured out that to be a founder, you don't need to work at Hewlett-Packard for 15 years—that's not actually a requirement. That idea still very much exists in investing. In some ways you're sort of born a stock jockey, so we should be backing people a lot earlier. There should be more dynamism and risk in that area. Tremendous rewards to be had. It's very much a cottage industry right now.
Overrated Investment Areas
BRENT
What areas would people assume are good investment areas that you'd say are overrated?
ALI
Probably the older the asset class, the worse it gets over time. Auto loans—you think you get paid 4-6% yield for that? That's pretty bad. What happens is: you do a new thing, everyone loses their mind—"It's new, it's risky, how could you ever finance this?" Then you do it for a while and they say, "It's been working for 30-40 years, so it's never going to break."
Equity investors don't do a good enough job looking at the past—they're very narrative-driven, maybe not rigorous enough on numbers. Credit investors basically just assume the entire future is the same as the past, and that's where they fall off the cliff.
It's riskier to not get paid for risk and think you're bulletproof than to get paid a lot for risk you're taking. If you're only getting paid 100 basis points over SOFR, you've got to be right 100% of the time—otherwise your whole thing goes up in smoke. The tighter the risk, the less you can mess up. There should probably be more humility in finance.
MCAs and short-duration loans are another one. People say, "It's so short duration, I don't take interest rate risk. It's easier to predict 90 days than 5 years." But during COVID, if you had a 5-year consumer loan and they missed three payments, you still got 57 out of 60 payments back. With a three-month merchant cash advance, you were screwed—zero dollars back.
Short-duration assets mean your entire book is correlated to itself. When things go wrong, they go wrong fast and it's easier to commit fraud. All the double-pledging with Firsthand and Tricolor—there's a lot of stuff. Closed-loop systems are another issue. Tricolor's pitch was they do subprime auto lending, and if consumers don't pay, they repossess the car and put it on their own lots. That's where fraud usually happens—when there aren't third-party systems in place.
JEREMY
I look through a lot of venture portfolios—that's where we find companies to invest in and buy. One notable thing after studying hundreds of venture portfolios line by line, from great brand-name firms to random small regional firms: most venture capital is just really bad.
Venture was invented to fund high capex, low probability of success, huge outcome businesses. But the average company in a venture portfolio doesn't hit any of those criteria. It's low capex with a medium chance of success for a medium outcome. That's really bad for venture. It doesn't work. That's why we're able to do what we do.
For LPs in VCs: one interesting evolution is that when people start, they take way too little risk in venture. They own 15% of something reasonable at market price. What you really want is 5% of something a little insane and unreasonable but with a real chance of being a giant business. It's notable how few actually have that. If you're not really pushing far out on the risk curve in venture, it's a really bad asset class—all the negatives of private equity with very few of the upsides.
Hot Takes: AI
BRENT
Hot takes. Where are you guys on AI?
ALI
Obviously it's magical and incredible. The sad part about AI is—you know, Brent, you and Patrick attract all these people trying to come up with contrarian, interesting, niche ideas. I've met a bunch of you with these bizarre, awesome, cool, quirky businesses. And the trade was just to YOLO into the momentum stocks. You know how much that sucks? We spend so much time trying to be creative and interesting, and the best thing we could have done is just YOLO into OpenAI.
My LPs always ask what they should do. Just buy a consensus basket—go buy Anthropic, OpenAI, Anduril, Databricks, whatever. Don't try to have alpha in the names you pick. Have alpha in how you size your portfolio. It's probably risk management as much as money generation. If your Mag Seven exposure is a huge percent of your endowment, you should hold 150-200 basis points of AI companies as a hedge.
That sucks for my job—I'm in the cool new idea business—but I think it's fine to just own the consensus stuff.
JEREMY
Sometimes the most contrarian thing is being way more bought into the consensus view than most people are. That's been the AI story.
ALI
You also have to invest in mega-TAM ideas because you're not going to convince founders that valuations should be lower. They're super high right now. The only way to combat high valuations is mega growth to grow into the valuation, mega TAM, and a long enough hold period.
Thrive is so good at this. They have a longer hold period than everyone else. They've realized there aren't that many great compounders anymore, so they've made themselves the most likable firm in the world. They're contrarian in that they think the TAM is bigger than anyone else thinks. Once they do it, it expands everybody's mind about the TAM. They've built a whole product around that.
And then you have a whole venture ecosystem copying Thrive without really knowing how to do it well. The problem in investing is: in every other business, you want your competition to suck because you build a better widget. In investing, when your competition sucks, it makes your life harder. They overpay for stuff, do stupid things, tell founders what founders want to hear when you're trying to be honest. It's a weird business that way.
Hot Takes: New York
BRENT
You guys are both New Yorkers. You had an election yesterday. What's your hot take on the future of New York City?
JEREMY
It's going to be fine. There's going to be more crime, and it's going to be annoying for a while, but it's going to be fine. I'm Canadian—Americans love to do this "I'm going to move to Canada" thing. They never, ever do it. And that's more than true for New Yorkers, if you control for the transient nature of the population anyway.
Crime is going to get worse. It's going to be annoying. But nothing big is going to happen. If there's even a slight blip in real estate, it's probably a good time to buy.
ALI
I root for him. I don't agree with the things he said, but he's running the city and I really hope he does a good job. I remember when Trump was elected, I had friends who went into the administration and their kids would be mad at them. They'd say, "Do you want me to just yell from the outset, or try to be part of the solution?"
Look, I think some of it is insane—I don't want my grocery stores run like the DMV. But there's a lot of socioeconomic disparity in New York. It works for me and my cohort of fund managers, and it sucks that people are feeling pain. I root for him. I hope he listens to the other side.
JEREMY
The reason this happens is because people like you say, "Yeah, I hope the best for him," and they're like, "We hate you." There's a little bit of asymmetry.
ALI
See, I said I'm a softy.
Closing
BRENT
On that note, let's move on. Thank you guys so much for doing this. We really appreciate it.
ALI
Thanks. I'm sorry for everything I said.
