# Peter Thiel's 27-Year Partner on the AI Bubble, the Venture Capital Crisis, and the PayPal Mafia

Markdown copy of https://realalpha.app/v/4VjI-3FcHSg/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

Jack Selby argues venture can find better risk-reward outside Silicon Valley by backing ambitious founders at lower entry prices instead of chasing trillion-dollar AI outcomes.

- Show: How I Invest
- Hosts: [David Weisburd](https://realalpha.app/people/david-weisburd/)
- Guest: [Jack Selby](https://realalpha.app/people/jack-selby/) is a Managing director at Thiel Capital, early PayPal team member, and Clarium Capital cofounder.
- Published: Nov 4, 2026
- Length: 56 min

## The best minutes

- [32:21](https://realalpha.app/v/4VjI-3FcHSg/?t=1941) [Cheap capital left venture with zombie funds](https://realalpha.app/s/cheap-capital-left-venture-with-zombie-funds/) (6 min)
- [42:27](https://realalpha.app/v/4VjI-3FcHSg/?t=2547) [AI can produce strong returns without trillion-dollar exits](https://realalpha.app/s/ai-can-produce-strong-returns-without-trillion-dollar-exits/) (3 min)
- [18:36](https://realalpha.app/v/4VjI-3FcHSg/?t=1116) [Lower entry prices change the venture return math](https://realalpha.app/s/lower-entry-prices-change-the-venture-return-math/) (3 min)

## Also worth watching

- [6:48](https://realalpha.app/v/4VjI-3FcHSg/?t=408) [Silicon Valley's edge is capital access, not scarce talent](https://realalpha.app/s/silicon-valleys-edge-is-capital-access-not-scarce-talent/) (6 min)
- [38:46](https://realalpha.app/v/4VjI-3FcHSg/?t=2326) [Mega-funds and early-stage funds need separate benchmarks](https://realalpha.app/s/mega-funds-and-early-stage-funds-need-separate-benchmarks/) (3 min)
- [45:31](https://realalpha.app/v/4VjI-3FcHSg/?t=2731) [He screens local founders for venture-scale ambition](https://realalpha.app/s/he-screens-local-founders-for-venture-scale-ambition/) (3 min)

Skip the extended PayPal origin and hiring discussion, most of the venture-fund liquidity debate, and the closing Silicon Valley culture chat.

## Full analysis: Jack Selby says one-tenth entry prices change venture math

- Selby says Copper Sky could usually enter at about one-tenth of Silicon Valley's average Series A valuation.
- That discount may improve ownership math, but the regional strategy has not shown top-decile results.
- Track dilution, distributions and whether AI revenue arrives before infrastructure spending outruns returns.

Its 6 sections, what it means for you and what to watch are on [the page](https://realalpha.app/v/4VjI-3FcHSg/#analysis), free with an account:

- [19:06](https://realalpha.app/v/4VjI-3FcHSg/?t=1146) One-tenth entry prices lower the return hurdle
- [10:33](https://realalpha.app/v/4VjI-3FcHSg/?t=633) Copper Sky sells access beyond coastal hubs
- [20:48](https://realalpha.app/v/4VjI-3FcHSg/?t=1248) Selby sets a lower bar than trillion-dollar exits
- [19:56](https://realalpha.app/v/4VjI-3FcHSg/?t=1196) Low entry prices still need durable ownership
- [34:35](https://realalpha.app/v/4VjI-3FcHSg/?t=2075) Cheap capital left weak managers waiting out funds
- [44:43](https://realalpha.app/v/4VjI-3FcHSg/?t=2683) AI may shrink teams as its investment boom corrects

## Summary

Jack Selby is managing director at Thiel Capital and was an early member of PayPal’s founding team, where he led international operations before its acquisition by eBay. He worked alongside Peter Thiel for 27 years and co-founded Clarium Capital, a global macro hedge fund.

Selby argues that venture capital’s focus on coastal hubs and late-stage AI leaves lower-priced opportunities in the other 47 states. He says Silicon Valley’s main advantage is financial access, which Copper Sky aims to extend to regional founders, while lower entry prices make attainable outcomes more realistic than betting on a trillion-dollar company. Selby says weak distributions and long fund lives have left many VC firms as zombie funds, while capital concentrates in mega-funds and AI deals. He sees today’s AI investment boom as a bubble, even as he expects AI to help smaller teams build companies and says geopolitical volatility has improved the opportunity for macro investing.

### Minute by minute

- [1:19](https://realalpha.app/v/4VjI-3FcHSg/?t=79) **PayPal built a high-intensity team.** Selby says PayPal sold to eBay for around $1,500,000,000 in less than four years, and its executives averaged 26 during the IPO roadshow. Peter Thiel hired for smart generalists rather than payments specialists, and the original product sent money between PalmPilots. Selby says he met Thiel at 24, merged with Elon Musk’s company at 25, and has worked with Thiel for 27 years. Constant crises, including fraud attacks, made the work feel like a nonstop fire drill.
- [6:48](https://realalpha.app/v/4VjI-3FcHSg/?t=408) **Capital is concentrated on the coasts.** Selby agrees that roughly 90% of venture capital goes to California, New York and Massachusetts, leaving the other 47 states underfunded. He argues companies there can be more reasonably priced. He cites Carvana, saying Ernie Garcia Jr. had to fund it with family after Sand Hill Road firms passed, and that it later reached a $65,000,000,000 market cap.
- [9:57](https://realalpha.app/v/4VjI-3FcHSg/?t=597) **Silicon Valley’s edge is financial.** Selby rejects the idea that Silicon Valley’s network effect mainly comes from human capital; he says its advantage is access to money. He argues that founders move to Palo Alto because that is where the capital is, not because other regions lack smart people. He says Copper Sky can help regional founders hire executives, sell to major companies and approach Sand Hill Road firms without relocating.
- [13:02](https://realalpha.app/v/4VjI-3FcHSg/?t=782) **Copper Sky scouts founders beyond the coasts.** Selby says Copper Sky is sector agnostic and prioritizes finding exceptional founders over choosing a particular industry. He compares the work to talent scouting and argues that noncoastal regions have enough capable entrepreneurs for more venture capital. He says regional investors could help keep some graduates local and cites founders who moved from Indiana to the Bay Area to raise money.
- [18:45](https://realalpha.app/v/4VjI-3FcHSg/?t=1125) **Entry price changes venture math.** Selby says Copper Sky’s first fund could invest at about one tenth of the average Silicon Valley Series A valuation. He says the firm can often buy 10%-20% of a noncoastal Series A company for an average ticket of $3,000,000, making its return math less dependent on finding the next Elon Musk. He says a $500,000,000 outcome is a more realistic threshold than waiting decades for a trillion-dollar company.
- [25:11](https://realalpha.app/v/4VjI-3FcHSg/?t=1511) **AI can make smaller teams more productive.** Selby expects AI to become as ubiquitous in business as the internet was in 2001. He says smaller, more efficient teams can build companies that produce strong venture returns, including outside traditional technology hubs. He argues that venture capital should not define success as finding a trillion-dollar company when the industry has struggled to return capital to LPs.
- [28:41](https://realalpha.app/v/4VjI-3FcHSg/?t=1721) **Work ethic and trusted hires matter.** Selby says PayPal’s round-the-clock work ethic grew from constant crises, and that Peter Thiel taught him to act quickly when a hire was not a fit. He also favors hiring people from trusted networks, including friends. Selby says his partnership with Jason Pressman lets them cover in 20 minutes what might take others two hours.
- [32:21](https://realalpha.app/v/4VjI-3FcHSg/?t=1941) **Venture funds are slow to die.** Selby says venture capital has done a poor job returning capital to investors over the past decade. He traces the oversupply of funds to years of zero interest rates, which pushed too much money into a small asset class; he says eight firms raised an estimated $70,000,000,000 earlier this year as remaining LP capital chased late-stage AI deals. Ten-year fund structures keep weak managers alive, and Selby says some are recasting portfolios as AI companies to seek liquidity.
- [38:14](https://realalpha.app/v/4VjI-3FcHSg/?t=2294) **Early and mega-funds need separate buckets.** Selby questions whether allocators should assess small early-stage firms and mega-funds as the same type of investment. He says the largest funds leave a gap for checks below $20,000,000 and argues that his noncoastal strategy resembles middle-market private equity, though it carries a greater chance of going to zero.
- [42:27](https://realalpha.app/v/4VjI-3FcHSg/?t=2547) **Selby sees an AI bubble.** Selby says today’s AI boom differs from the PayPal-era dot-com period because it requires heavy spending on energy, chips and data centers, which fuels storytelling and fundraising. He expects a correction that could wipe out tens, if not hundreds, of billions of dollars. He says the belief that there is no AI bubble has become the contrarian position.
- [45:09](https://realalpha.app/v/4VjI-3FcHSg/?t=2709) **Ambition matters beyond geography.** Selby says AI can help companies launch more cheaply, reach revenue sooner and generate good venture returns without becoming trillion-dollar companies. He still says his fund needs a minimum $500,000,000 outcome and looks for noncoastal founders with enough ambition as well as grit. He likes the model of entrepreneurs who learn from Silicon Valley and then return to places such as Phoenix, Milwaukee or Cincinnati.
- [50:55](https://realalpha.app/v/4VjI-3FcHSg/?t=3055) **Macro volatility creates new opportunities.** Selby says geopolitical volatility and shifting trade relationships have improved the opportunity set for macro investors, though the work is not easier. He says pod shops can be a starting point for a career but that top talent may eventually spin out to run a fund. Looking back, he says he avoided momentum markets and left money on the table, but prefers fundamental underwriting to trading.

## Transcript

How I Invest, hosted by David Weisburd, with Jack Selby.

From the transcript How I Invest publishes with the episode.

[0:00](https://realalpha.app/v/4VjI-3FcHSg/?t=0) You cofounded Clarium with Peter Thiel. You were one of the first 10 employees at PayPal. What are some lessons that you took away from there that's really driven you in your career? Work ethic more than anything else. You're just surrounded by people that were literally working twenty four seven. Like, you email Peter Elon at 02:00 in the morning, they respond to you within ninety seconds. Let's talk about the state of venture capital today. Where's venture capital at in terms of an asset class? I was essentially on the road every single week for the first six months of this year, and I took a very significant sample set of meetings with LPs.

[0:34](https://realalpha.app/v/4VjI-3FcHSg/?t=34) Here's the distillation of what I found. The industry has done a poor job of returning capital to its investors over the last decade, and we can talk more about why that's the case. Two, the mega funds. So essentially, eight firms went out and raised, I think, an aggregate of $70,000,000,000 earlier this year for whatever capital that was still positively disposed towards this asset class. Three, any capital that is left over that is... Remains positively disposed towards private technology, that capital is infatuated with shiny toy late stage AI deals. That's the entire landscape today. So 52% of top quartile funds end up being top quartile.

[1:17](https://realalpha.app/v/4VjI-3FcHSg/?t=77) I believe roughly 75% end up being in the top 50%, so above the medium. Do you think that's gonna continue to persist in this age of AI? It doesn't directly answer your question, but Jack, you were one of the first 10 employees at PayPal. You worked with Peter Thiel for more than twenty years. But I wanna start in the PayPal days. PayPal Mafia has produced... Seems like every year, there... There's one more additional person that that becomes impressive from the list, Elon Musk, Peter Thiel, Max Lachin, Reid Hoffman, David Sacks, Rolla Bota, Steve Chen, who founded YouTube, Luke Nosek, Keith Raboy, on and on.

[1:54](https://realalpha.app/v/4VjI-3FcHSg/?t=114) Do you think that's second of order effect of just being such a prolific project early on in in Silicon Valley, or were these people really that exceptional? I think it was a function of a couple things. So we we had a good outcome. We ended up selling the company to eBay for, I think, around $1,500,000,000, which I know in today's times feels like That's a seed round. That's chump change. But back then in 2002, that was, seemingly a real number. But the majority of our time during PayPal was actually after the dot com crash. And so it was it was a really difficult process, but at the same time, it was also relatively short.

[2:33](https://realalpha.app/v/4VjI-3FcHSg/?t=153) So from when we started the company to when the business sold to eBay, it was less than four years. So quite short, especially by today's standards. So I think for a lot of the folks, they kind of got a taste, and they really enjoyed that success, but they wanted more. And then on top of that, the average age of our executive team, like, when we went on the IPO roadshow, I think it was 26. So we got a taste. We're all still very young, but wanted more, I think, would be the most succinct way I could put it. It. A lot of people today, it's almost an overused term at this point, talent magnet. How did PayPal recruit this kind of gang of characters that ended up building some of the greatest companies in Silicon Valley?

[3:16](https://realalpha.app/v/4VjI-3FcHSg/?t=196) Peter's approach to hiring was very much kind of a best athlete approach. And so we weren't looking for someone who was necessarily, say, an expert in payments because we kinda stumbled into, you know, the ultimate product for PayPal, you know, emailing payments. I mean, our original product was beaming money between PalmPilots, and that's what we spent most of our entire series a round that we raised from Nokia because we were literally beaming money between PalmPilots and most importantly, trying to figure out how to encrypt that infrared beam between the two Palm Pilots. So it wasn't as if we were hiring for specific aspects of how the business looked at the time.

[3:50](https://realalpha.app/v/4VjI-3FcHSg/?t=230) We're just really looking for kind of the the best athlete, smartest people we could bring onto the team, and I think Peter did a really good job of that. And what was the trade off there outside of the domain expertise? Was there also cultural trade off in terms of if it's the best athlete, it doesn't necessarily have to be a culture fit? The culture just kinda coalesced naturally, organically. I ended up running the international operations. I was 25 years old. I mean, I didn't know anything about running international payments or international operations for a payments company. So like most of us on the team, on the executive team, we just kinda made it up as we went along.

[4:20](https://realalpha.app/v/4VjI-3FcHSg/?t=260) And so... And the culture just kinda coalesced. And if you fast forward today, like, we did a twenty year post IPO reunion party at Peter's house in LA a couple years ago, and, basically, everyone showed up. It was really cool. We had, like, 400 plus people there, and so we're all still really friendly and get along, quite well, which is, which is pretty amazing. There's a lot of turmoil around the company in terms of a lot of fraud and just these big issues that you had to solve. It was obviously a very stressful time. Did that help define your career in terms of that's where you started and there was, like, a second order effect?

[4:53](https://realalpha.app/v/4VjI-3FcHSg/?t=293) I'm still trying to double click on why everybody became successful. There was always a lot of stress. I mean, the analogy I would give you, if you're working at a successful startup, it's like you get on the treadmill, and it just goes faster and faster and faster. And if it starts slowing down, that's a problem. And so it was just a fire drill at all times. Like, on the fraud side, you mentioned, like, Max Lupshin, world class in helping figure out how to prevent all these attacks from these Russian mobster mafia types that were trying to infiltrate our system and steal money out of the PayPal, overall network.

[5:22](https://realalpha.app/v/4VjI-3FcHSg/?t=322) And that was just one of many, many, many issues that we were dealing with nonstop. But that was just... That was the kind of the normal business affairs on a day to day basis. So I think that probably forged us to be, I don't know. Maybe we... That left us stronger because of it, but it was a constant fire drill. Oftentimes, think about there's this meme now that you wanna find founders that have childhood trauma. So I wonder whether there's such a thing as an adult... Adulthood trauma that that leads to success. I mean, we certainly had a lot of turnover. We had to certainly had to let some of the senior staff go because they just ended up not being cultural fits or they just were underperformers.

[5:57](https://realalpha.app/v/4VjI-3FcHSg/?t=357) But for the most part, the team that was with us from the earliest days, that was the team that we basically left with when we sold the the company to eBay. So it was... Again, to Peter Zimmad's credit, he's a very, very, very skilled guy, and arguably his best skill for at least from the PayPal days was as a hiring manager. And you have the track record of being with Peter Thiel, I think, longer than any other human being in the world, close to twenty years. What did you learn from Peter Thiel that a lot of people don't know? I've actually... I met Peter twenty eight years ago and have been working with him for twenty seven years.

[6:26](https://realalpha.app/v/4VjI-3FcHSg/?t=386) So, it's been truly an incredible ride. I mean, my bad joke on this is that I met Peter Peter when I was 24, and then we merged with Elon's company when I was 25. And so if you had to replicate that in a laboratory of meeting two luminary types at such an early age, I mean, that... Replicating that experiment would be basically impossible. So I feel very blessed, very lucky, and just fast forward to today, still as a managing director at Teal Capital and having a kind of a foot in his world and the people I get to meet and the companies I get exposed to, it's really special. I feel very So let's talk a little bit about your thesis.

[7:01](https://realalpha.app/v/4VjI-3FcHSg/?t=421) So you're on your second fund, and it's quite contrarian, which doesn't come as a surprise to me. Today, roughly 90% of capital goes to three states, California, New York, and Massachusetts. Right. And in many ways, that's actually becoming more lopsided. It's getting closer to a 100% than it is to 80%. That's right. Why do you think that that's inefficient? Private markets. As the AI euphoria continues to hit new highs, venture capital continues to chase these AI shiny toy deals, and those deals are predominantly based in the three coastal states, so New York, California, Massachusetts. And that's just the reality of the market that we live in.

[7:43](https://realalpha.app/v/4VjI-3FcHSg/?t=463) And so the good news, though, if you will, glass half full with this dynamic, is that if you get away from those three states, if you go to the other 47 states, which is where 290 plus people live and where, you know, more than three quarters of our GDP economically come from, you can find deals that are much more reasonably priced. And, essentially, it's a bet that there are some smart, investable entrepreneurs that live in these other places, and that's the bet that we're taking at CopperSky. What's an example of a company that's outside of these three states that you felt were... Was mis...

[8:12](https://realalpha.app/v/4VjI-3FcHSg/?t=492) Mispriced? An example that I often give, you know, coming from Arizona, which is where I moved, after PayPal to get out of the get out of the onerous tax regime of California. So I've been a a proud Arizona resident for almost twenty five years. But example that I give is probably the most prominent example of a tech company coming out of Arizona is Carvana. And so Ernie Garcia junior was the same year at Stanford as my younger brother. So I've known Ernie for a long time in his executive team. And so when Ernie was trying to start Carmana back in the day, he and his dad went up and down Sandhill Road and tried to raise money from all the prominent VC firms.

[8:44](https://realalpha.app/v/4VjI-3FcHSg/?t=524) And they had no success because the VC perspective at the time that an online used car marketplace was not sufficiently tech for the the Silicon Valley Sandhill crowd to get involved. So Ernie's into... Ernie and his dad had to go back to Arizona and essentially fund the business from their own family. And fast forward today, Carvana is a $65,000,000,000 market cap company. And so I give you all this because as a frame, I think I can find the next Carvana. And the next Carvana should come out of a place like Phoenix or Milwaukee or Cincinnati or one of these noncoastal places. And in fact, with emphasis, the next Carvana should absolutely not be built in Palo Alto.

[9:20](https://realalpha.app/v/4VjI-3FcHSg/?t=560) That would be a very illogical place to build a company like Carvana. Why? Because the cost of living is higher. The quality of life is lower. The cost of human capital is higher. Carvana is a tech enabled, AI enabled business, but it doesn't need to be in Palo Alto. Now to give it balance, if you're building the next Anthropic, you should probably be based in Palo Alto. But if you're building almost any other type of technology company, AI enabled company, you can build that elsewhere because AI is not geofenced to just work in Palo Alto. Going back to where we started, this concept of talent magnet Mhmm.

[9:57](https://realalpha.app/v/4VjI-3FcHSg/?t=597) The the best argument that I have for starting in San Francisco and also New York and and Massachusetts is that you could amalgamate the very top talent much faster. In a world where you could have companies with 20 employees making 100,000,000 plus revenue, location becomes even more important. Why is that wrong? I completely respectfully disagree with that premise. And so people will often allude to this network effect that exists in Silicon Valley, and I think it's a false narrative. Here's why. So it is a network effect, but it's a different type of network effect.

[10:33](https://realalpha.app/v/4VjI-3FcHSg/?t=633) **Jack Selby:** It is not a human capital network effect. There are plenty of smart people that live in these other places.

[10:37](https://realalpha.app/v/4VjI-3FcHSg/?t=637) What is the network effect is that financial network effect because that's where the money Yes. That's where the capital formation has taken place, and then the argument becomes circular. So if there's no money in Milwaukee and you wanna build the next Carvana, you feel as if you have to move to Palo Alto, not because there are other smart people there that will help you build carbon. There are plenty of those types back in Milwaukee. You move to Palo Alto because that's where the money is. So you get stuck in this circular argument that's impossible to get out of. It's similar to the Thiel fellowship, which the Thiel fellowship, their whole thesis was, well, the reason all the smart people come from the Ivy League schools and graduate from there is because there's a signaling effect where you must go from that big...

[11:15](https://realalpha.app/v/4VjI-3FcHSg/?t=675) From those schools in order to to build something great. And the Thiel fellowship, their thesis was that we could posit that we'll give you that same signaling effect, and you don't have... Actually have to go to the university. So the education is not the necessary condition. It's the branding and the social proof that you need in order to become successful. I think that's right. And so this is actually part of my pitch when I meet an entrepreneur in one of these noncoastal places. And so to be precise, what I say to him or her is I say, hey. Listen. I can give you the advantage as if you were living in Palo Alto as you build your company without actually having to live in Palo Alto.

[11:48](https://realalpha.app/v/4VjI-3FcHSg/?t=708) So what do I mean? So for example, if you wanted to hire a c suite level person, I could help you do that. I could dip into my Rolodex from Silicon Valley and help you find that person. If you wanted to sell into one of the big public or private companies, Myer Network knows most of these people. We could help you do that. If you wanted to go open the doors with one of the Sand Hill Road firms, which otherwise is very hard to do, even if you lived in Palo Alto, much less if you lived in Milwaukee, I can help you do that. So the list goes on and on. So I bring the optionality, the bridge back to Silicon Valley, but again, without actually having to live there.

[12:19](https://realalpha.app/v/4VjI-3FcHSg/?t=739) Just to push a little bit more on this. So you mentioned Milwaukee. Let's just double click on that. Mhmm. How many Anthropic or OpenAI level engineers, let's just call it STR? They used to be called the 10 x engineers. How many even live in a metropolitan area like that? I don't know. And not to be flippant, but I don't care because I'm not trying to find you the next Anthropic or the next OpenAI. So you think unless you're doing fundamental research lab type type businesses, you don't need that level of talent? I am trying to find the next Carbona esque type company, and that's the vast majority of technology startups.

[12:54](https://realalpha.app/v/4VjI-3FcHSg/?t=774) Anthropic and OpenAI are in the vast minority, and again, I would concede those types of businesses should be built in Palo Alto, but that is less than one percent of the startup universe. So I'm not focused on that. Investing in those types of companies is a sandbox that is all about access. I don't have that access. I have no edge in that, and that is also an extremely expensive sandbox. So that is the polar opposite of what I try to do with CopperSky. So maybe we could define these Carvana type businesses. What exactly are you looking for? So we're sector agnostic. So we are looking for truly rock star entrepreneurs.

[13:26](https://realalpha.app/v/4VjI-3FcHSg/?t=806) So if I can wrap my liberal arts, classics economics major around whatever an entrepreneur is doing, then we'll take a look. The job is almost as if you're a talent scout. Like, you work for CAA or WME, and you do enough of the kind of the ten thousand hours of sitting across the table from aspiring actresses, musicians, whatever it may be. You get a sense of who has that kind of sparkle in their eye or that spring in their step. That's what I'm looking for. And what that actual person does is a secondary conversation if you can find that sparkle in the eye. Speaking of ten thousand hours, how does somebody become this world class entrepreneur in a noncoastal context?

[14:03](https://realalpha.app/v/4VjI-3FcHSg/?t=843) And I guess the distinction is, obviously, they are very high IQ, very smart people, but the premise is that they're not... They... Their LLMs, their personal LMs have not been trained on what greatness looks like. That... That's the premise. There's greatness in all these places. And so, again, there are plenty of talented entrepreneurs amongst this 290 subset population. So they're everywhere. And so the idea that they're getting less than 10% of the early stage risk capital is preposterous. So the the opportunity set... I mean, I I I refuse to believe that the opportunity set is not sufficient for more venture capital, and we could debate how much more that is, but it is so outrageously imbalanced.

[14:41](https://realalpha.app/v/4VjI-3FcHSg/?t=881) That's what we're trying to alleviate with Copper Scott. Just to kind of agree with you for a second. I think that, certainly, one one metric that you could go off of is top engineering talent in terms of undergrads. And, certainly, those three states do not have 90% of the top engineering students graduating from colleges and graduating from from these places. So certainly from an engineering standpoint, my concern is just on the training, is that you need that training in order to to become world class. Sure. You have universities like Carnegie Mellon. I was in Pittsburgh last week. You have University of Illinois where I think half of our founding engineering team at PayPal came from.

[15:18](https://realalpha.app/v/4VjI-3FcHSg/?t=918) And Mark Andreessen from University of The list goes on and on and on. Again, there are tons and tons of world class universities in these noncoastal places, but if there was more capital there, like one of my... I I've been an investor in Cleveland, for example. I won't mention his name, but he's very involved in the community. So the Cleveland Clinic, Cleveland Foundation, Case Western is his alma mater, and so my pitch to him and said, okay, if you participate as an LP in my fund, what percentage of your beloved alma mater, Case Western, what percentage of that graduating class can we keep in Cleveland?

[15:47](https://realalpha.app/v/4VjI-3FcHSg/?t=947) I'm not saying it's a 100%, but it's definitely not 0%. You're trying to prove the counterfactual, which is if there's a lot of brain drain going on in the area, what would happen to people the because otherwise, we can go back and forth, and it becomes a circular discussion. It's very difficult to disprove, which I would concede. So I'm not trying to be argumentative, but I guarantee you the number is not zero in terms of the number of the Case Western graduating class I could keep in Cleveland if there's more venture capital in Cleveland. I'll give you a case study. So very first company. I was inadvertently...

[16:14](https://realalpha.app/v/4VjI-3FcHSg/?t=974) Did the entire PreSeed round before PreSeed exists, and, actually, they were they were backed by Founders Fund for for their for their seed round. And was two guys, John Ramey and Zach Hassanein. I connected the two cofounders. They're both from Indiana. One went to Indiana University. One went to Purdue University. Yep. And they tried to raise money in Indiana. They tried to move... Raise money in Chicago. And then they moved to San Francisco out of desperation and to Birmingham, actually, to to the Peninsula. And then they raised from, you know, the best of the best, Founders Fund, DFJ, Brad Feld, all all these people.

[16:47](https://realalpha.app/v/4VjI-3FcHSg/?t=1007) So this is a very specific case study where they clearly were talented, clearly were ambitious, but they couldn't raise in their homegrown talent. Perhaps a much better example of that is Mark Zuckerberg. Mark Zuckerberg wanted to stay in Boston. He actually had an affinity towards Boston. He went to Harvard. And venture capitalists in Boston, which Peter Thiel has opined on, for whatever reason, would not fund him, and he had to move to to Palo Alto and and and the rest is history, as they say. There are quite few of counterfactuals of what would happen if those entrepreneurs stayed. No. I mean, your example of the entrepreneurs that had to move out to Burlingame is is spot on, and I see that all the time.

[17:24](https://realalpha.app/v/4VjI-3FcHSg/?t=1044) And this goes back to my point earlier that it's a it's a... It's not a human capital network effect. It's a financial network effect that is drawing. It is the magnet that is bringing all these people to Silicon Valley. So this strategy has been around in different forms, for probably twelve, thirteen years, I think. Originally, Steve Case from Rise of the Rest, I believe, 2014, tried to solve this problem. What did he get wrong? So I don't wanna speak negatively about anyone. Steve's a friend. He's a... An... Another luminary fellow. What was the... What was wrong with the concept as it was?

[17:57](https://realalpha.app/v/4VjI-3FcHSg/?t=1077) What I would have done differently is I think having connectivity back to Silicon Valley is really important. And so to put it differently, if you're trying to operate on an island in one of these noncoastal places without that connectivity, I think it makes the probability of success really, really low, if not impossible. So having that bridge... And I'm talking my own book, but I believe this to be true, this is why we have the strategy the way that we do. You have to have that connectivity. It's like I sit down with an entrepreneur, and I give them a blank piece of paper that is effectively like an a la carte menu.

[18:27](https://realalpha.app/v/4VjI-3FcHSg/?t=1107) And I'm like, here are the different options that I can bring to bear for you to help you with your company. You can choose out however many items you like off the a la carte menu. You can choose zero. Choose your own venture, but I wanna help you with your business, and oftentimes, it would require bridging back to Silicon Valley. And I think in the early days of a lot of the noncoastal venture capital op... Activities, that bridge was not sufficiently established. Empirically, in terms of valuations, do you have any data in terms of different geographies within The United States and and what the valuations are today?

[18:58](https://realalpha.app/v/4VjI-3FcHSg/?t=1138) What we saw with our first fund is that we could usually invest, at about between... Let's see. About one tenth of the average series a valuation of what you would see in Silicon Valley. One tenth. One tenth. Yes. So, yeah, essentially, 10¢ on the dollar. And how does that translate into portfolio strategy and and how you think about portfolio construction? So this is the core of it. And so I don't care about what what type of investing you do, but entry price matters. And if you can invest at 10¢ on the dollar versus what's going on in Powell today, that makes a huge difference versus, you know, if you're investing in thinking machines in a pre series a round at a $14,000,000,000 valuation, how does that work?

[19:40](https://realalpha.app/v/4VjI-3FcHSg/?t=1180) How does that math work? Is thinking machines going to be the next SpaceX? I don't know. Maybe. But it has to be for the venture math to work. Full stop. And people don't talk about this.

[19:50](https://realalpha.app/v/4VjI-3FcHSg/?t=1190) **Jack Selby:** So my math is very, very, very different because my entry point is so much less expensive.

[19:56](https://realalpha.app/v/4VjI-3FcHSg/?t=1196) I can usually buy between 1020% equity in a noncoastal series a deal for an average ticket of $3,000,000. Those are the brass tacks. I think that is something I can do with relatively good probability compared to Silicon Valley BC today, and very importantly, because I was lucky enough to be a series a investor in SpaceX, which by the way was almost nineteen years ago. So so much of Silicon Valley, the pitch today is like, I'm gonna go find you the next Elon Musk at age 24. That is a terrible pitch because the probability of that is basically zero. Peter can find the next Elon. Marc Andreessen can go find the next Elon, but the handful of folks that can do that in terms of true access is very, very, very limited.

[20:37](https://realalpha.app/v/4VjI-3FcHSg/?t=1237) That's one. Two, you pair that with an outrageously long extended duration. That's a poor parent. So what I think I can do is I have better odds because my minimum bar that I need to cross, that $500,000,000 threshold, is easier, it's more realistic, and importantly, I can get there more quickly than telling you I'm gonna find you the next Elon, and by the way, that's gonna take two two decades from a gestation perspective. Yeah. There's a joke. Three x over twenty years is not a good return. Well said. Certainly, it's not controversial what you're saying in terms of valuations are low outside the coast and apparently 90% lower, which is a bit surprising to me, but believable.

[21:16](https://realalpha.app/v/4VjI-3FcHSg/?t=1276) At which point does the arbitrage actually take place? In other words, at which stage for a company, revenue or fundraising milestones does a Carvana start to be treated like a truly Silicon Valley company? One thing I've learned from talking to hundreds of investors is that great investment firms aren't built on investment returns alone. The firms under are great at the things most people don't see, their operations, their relationship with LPs, and the quality of information they use to make decisions. And here's what AI has changed. Every firm now has access to the very same models, so the intelligence isn't the edge anymore.

[21:55](https://realalpha.app/v/4VjI-3FcHSg/?t=1315) The edge is what you could feed it. Firm with its fund operations and data in one connected record can actually put AI to work. A firm running on disconnected systems simply can't. That's why thousands of GPs run their funds on Juniper Square. Juniper Square puts your operations, data, and administration together in one connected record. That means less time managing disconnected systems and more time investing, working with LPs, and building your firm. This episode is brought to you by Juniper Square, the operations partner for private market GPs. Learn more at junipersquare.com/howiinvest. That's junipersquare.com/howiinvest.

[22:33](https://realalpha.app/v/4VjI-3FcHSg/?t=1353) Yeah. It's a good question. And I think, you know, if it was a KPI for what we're doing at Copper Sky, if you fast forwarded, say, five or ten years and you saw more coastal firms coming to the interior, to the middle market to quote unquote compete with us, I would view that as a successful outcome for what we're trying to do. Because the reality is right now, you know, essentially, a venture capitalist has two core jobs in my opinion. You're sourcing deals, and you're competing for deals. Do you know this joke about the further a VC is from their board, the the better the company does? I'm very well aware of this Yes.

[23:06](https://realalpha.app/v/4VjI-3FcHSg/?t=1386) It's an excellent joke. It's an expert... It's very spot on. Joke because it's actually empirical. And the reason it's empirical, there's different theories about it. Right? You could debate the causation. But the the official, I think, academic interpretation is that VCs, once they get to a certain level of success, they become lazy at the margin. And if you could go in your coffee shop in Palo Alto and meet a company versus go to Milwaukee, Wisconsin and then have to go to Milwaukee, Wisconsin in the next fourteen years, two, three times a year, then you're gonna be more likely to stay in Palo Alto.

[23:37](https://realalpha.app/v/4VjI-3FcHSg/?t=1417) And because of that, you're willing to pay up a little bit for for lifestyle reasons. Let me be fair. There is so much talent in the Bay Area that the top tier Sand Hill Road guys do not need to leave Santa Clara or San Mateo County to find amazing deal flow, in fairness. And so they don't need to get on a plane and fly to Milwaukee or Phoenix or Cincinnati. They just don't need to. And so... You know? And they get... Like I think you said, there's a degree to which they get a bit lazy, and they like to ride their bikes or at most Some some could argue efficiently lazy at the moment. And there's a degree of efficiency, I think, in the approach, but they prefer to ride their bikes or at most drive their cars to their board meetings and not have to get on their g five and fly to Milwaukee.

[24:16](https://realalpha.app/v/4VjI-3FcHSg/?t=1456) And that's fine, but therein lies the opportunity. You're obviously Jack Selby, and you have this reputation. You worked with Peter for all these years, and still... I feel like you still have to have these arguments day in and day out. What's the best counterargument to your thesis? The best counterargument is that no one has done this successfully in putting up solid top decile numbers yet, and that's what I'm trying to do. So it's difficult to disprove that. In other words, interesting theory, but show me the proof. That's right. And so no one has done it. This is hard. Raising money for a non coastal venture fund is hard.

[24:52](https://realalpha.app/v/4VjI-3FcHSg/?t=1492) There's a, you know, there's a phrase called the flyover states. It's pejorative. It exists. I'm acknowledging it. It is what it is, and I'm not saying all investment sentiment is dictated by the coasts, but I would be naive to say that it's not to some extent. And so when I sit down in a fancy boardroom here in Manhattan and I look across, you know, at the CIO and I try to convince him that there's some smart people that actually live in Milwaukee, I often get looked at as if I have three heads. That's the reality. But I acknowledge it, and it's just part of the job. Speaking of tropes, one of the biggest tropes today is in a post AI world, everything changes, and funding changes, strategy changes, hiring changes.

[25:34](https://realalpha.app/v/4VjI-3FcHSg/?t=1534) How does a strategy change or evolve in a post AI world? AI has become so ubiquitous, so pervasive. So even in the noncoastal geographies where I invest, I see it as an ingredient in the recipe of basically every single company I look at. And I'm pleasantly surprised by that. I mean, it's happened more quickly than I would have probably originally appreciated. But I think at some point, we're going to stop talking about AI as an independent dynamic or component. It's gonna... I think very similar to what the Internet was in 2001. It was just so pervasive at that point. Everyone just assumed the Internet was involved in almost every aspect of business, and in this case, your question, venture capital.

[26:12](https://realalpha.app/v/4VjI-3FcHSg/?t=1572) So I think if we're not there... We're there yet, I think we're very close. But in terms of team construction, so you could argue from both sides of it. You could say, well, because of AI, now the 10 x engineers are a 100 x, and now you have to be in San Francisco for the network density. Or you could argue the exact opposite, Mhmm. Which is now because you could build a $10,000,000,000 company with 15 people, there's certainly 15 great engineers in Milwaukee. Yes. And you don't even need anyone to move. I'm certainly in the latter camp. Right? And so I think you can build companies with more efficient rosters, smaller teams to be precise, and you can get to outcomes that still generate very good venture returns.

[26:58](https://realalpha.app/v/4VjI-3FcHSg/?t=1618) I'll give you an example. So I was speaking at some MIT event earlier this year, and the guy next to me, not to name his name, but he made a preposterous statement on stage. He said, you know, venture is going to evolve to finding the next trillion dollar company. And so there were gasps from the audience like, oh, wow. That's such a bold idea. It's a terrible idea because it is so self unaware about what has been going on in the venture capital industry. So to be precise there, what has been going on is that the industry has done an exceptionally poor job of generating returns, of actually getting money back to the pockets of their investors, DPI.

[27:32](https://realalpha.app/v/4VjI-3FcHSg/?t=1652) And so when you sit on stage at MIT and say, well, no problem. These billion dollar companies that we've been trying to build and get money back to, good news. We're gonna go find trillion dollar companies. And so is that more probable? No. That's even less probable. So this again goes back to the analogy of finding Elon Musk at age 24, and you think that makes the duration longer? You bet it does. So investors are gonna tolerate, again, the improbability of you finding the next Elon at age 24 and, what, wait thirty years to get money back? There is a level of absurdity here. I had sitting where you...

[28:01](https://realalpha.app/v/4VjI-3FcHSg/?t=1681) Or sitting, Matt Harris from Bain Capital Ventures. Mhmm. And they've had... I think they're on their eleventh fund, and they're almost always top quartile. But they haven't had a fund returner. They haven't had a power law outcomes. And several of their LPs are upset about this versus realizing kind of on a on a sharp ratio, it's it's a much better strategy than if you were relying on these kind of power law returns to to drive the portfolio. Yes. I'd be very happy, you know, speaking from my college endowment perspective, we'd be very happy with mass returns. I wanna go back to the early PayPal days.

[28:33](https://realalpha.app/v/4VjI-3FcHSg/?t=1713) I mentioned, you know, just the unbelievable people that are in the PayPal mafia. Sometimes when we work with somebody day to day, we just learn these lessons much more viscerally than you would from from a podcast or from from a clip or from a tweet. What are some lessons that you took away from there that's really driven you in your career? Work ethic, I would say, more than anything else. You're just surrounded by people that were literally working twenty four seven. You know? And it started at the top with Elon. That mean? Like, nineteen hours a day? No. You... Like, you email Peter Elon at 02:00 in the morning, they respond to you within ninety seconds.

[29:09](https://realalpha.app/v/4VjI-3FcHSg/?t=1749) And so Does that mean that they just slept with their phone by their It means they're working almost around the clock no matter what. So And I would do that because I was, you know, managing the international, operations. So I was often, you know, in our offices or Tokyo or in Singapore or London and so forth. And so I'd be emailing them at all different kind of crazy hours of the night depending on where they were, usually back in in California. And so it just... It enforced a mentality or a work ethic to just be on, so to speak, twenty four seven through 65. And so that might sound basic, but that was shared by essentially the entire management team.

[29:45](https://realalpha.app/v/4VjI-3FcHSg/?t=1785) And so... And this goes back to what we talked about earlier. Like, we were just dealing with different fire drills at all times. And so having that kind of manic energy of this is just... This is the default of how we have to do that if we're gonna be successful because there's a near death crisis at at every given moment. I think that has probably served me well over the years. What else? One of the management traits that Peter brought to bear is that if you find someone who's not a fit, you have to just rip the Band Aid off and move on. And so... And that's something I have not always been good at.

[30:17](https://realalpha.app/v/4VjI-3FcHSg/?t=1817) But having seen that with Peter and it's reinforced over the years, I think that's a very important lesson. How quickly immediately? Almost as soon as you know that it's not a fit, because you usually cannot reborn. Happens when it's within a couple weeks of hiring a person? Then it's unfortunate. You made a bad decision. And so when you do kind of the Monday morning quarterback about how you got to that hiring decision in the first place, then maybe you can learn something from it. But you just rip the Band Aid off, and you can't rip it off too quickly because otherwise, it's kind of a cancer.

[30:44](https://realalpha.app/v/4VjI-3FcHSg/?t=1844) It impacts in in a negative way, culture, and you just have to do it immediately. But it's hard, and it's hard, and it's not not my personality because I'm not a naturally, confrontational person. So it's something I've had to learn. I think I've gotten better at it, but it's definitely something I've learned from Peter. What about recruiting? I've had some top CEOs that both publicly and privately will confess that they have about a 50 success rate in in great hires, and it seems like, at least from the outside, PayPal was close to a 100%. What are some lessons that you took from PayPal in terms of recruiting?

[31:17](https://realalpha.app/v/4VjI-3FcHSg/?t=1877) So Peter leaned very much on kind of the organic network that he could bring to bear. So Stanford in particular, and then with Max and Luke coming from University of Illinois, they they relied on their alma mater as well. And so just hired amongst your friend group. People that you have worked with before. Yeah. I run Copper Sky with a guy named Jason Pressman. Like, he's literally my best friend. And I... He was the first guy that I met when I moved out to Palo Alto in 1999. You know, like, Jason's son is named Jack, not by coincidence, just to give you context. And so oftentimes, you know, adults will tell younger people not to work with your friends.

[31:53](https://realalpha.app/v/4VjI-3FcHSg/?t=1913) And I think that's literally terrible advice. Literally terrible advice. Because, like, in any relationship, you set up guardrails, of course. But then once you have that relationship within the guardrails... Like, Jason and I can cover topics, subject matter in twenty minutes that would take other people two hours. It's not because we're smarter than other people. It's just we know each other so well. Get the context. And... Yes. And even more importantly, what is our most valuable resource? It's our time. And I'm basically multiplying my time with Jason because he and I know each other so well.

[32:22](https://realalpha.app/v/4VjI-3FcHSg/?t=1942) So if you have the ability to work with people that you know so well, I. E. Your friends, you should take that opportunity to do that all the time because it multiplies your time. Let's talk about the state of venture capital today. I'm guessing you have some strong opinions on that. I think last quarter, there's, like, $500,000,000,000 raised to date. Where's venture capital at in terms of an asset class? I was essentially on the road every single week for the first six months of this year, and I took a very significant sample set of meetings with LPs. So I feel like I have a reasonably well informed opinion on this topic.

[32:57](https://realalpha.app/v/4VjI-3FcHSg/?t=1977) So here's the distillation of what I found.

[32:59](https://realalpha.app/v/4VjI-3FcHSg/?t=1979) **Jack Selby:** So one, the industry has done a poor job of returning capital to its investors over the last decade.

[33:06](https://realalpha.app/v/4VjI-3FcHSg/?t=1986) And we can talk more about why that's the case, but that's just the fact. So that's number one. Two, the mega funds. So essentially, eight firms went out and raised, I think, an aggregate of $70,000,000,000 earlier this year for whatever capital that was still positively disposed towards this asset class. That's two. Three, any capital that is left over that is... Remains positively disposed towards private technology, that capital is infatuated with shiny toy late stage AI deals. That's the entire landscape today. Full stop. And you think that's wrong? Well, to step back as to why Venture got into this position in the first place, after the great financial crisis when the printing presses at the Federal Reserve and other central banks was on full tilt for thirteen plus years and interest rates were zero, it caused a real problem for the venture capital industry in the following way.

[34:04](https://realalpha.app/v/4VjI-3FcHSg/?t=2044) So yields were zero. Investors were reaching for yield. They associated tech with growth with yield, so they stuck way too much money into the venture capital asset class, which by the way is tiny, especially compared to its big brother private equity. So venture is probably... I don't know what that number is. 3.5. 3,500,000,000,000. Right. It's a tiny asset class. In good venture, top quartile, which is the only place you really wanna be or higher, it's even smaller. And so essentially, way, way, way, way too much capital got stuffed into this otherwise tiny asset class that then spawned way too many managers that have turned out to be b minus or worse, and here we are.

[34:43](https://realalpha.app/v/4VjI-3FcHSg/?t=2083) And because of these private capital structures, the Darwinian cathartic culling of the herd takes forever. So there's They're ten year vehicles. They're ten year vehicles, and these venture firms that turn out to be b minus or worse just play the game of manage... Management fee ventures. And they just ride it out, and they milk the fees, and they're zombies. And so in 2021 hit, and so so many venture managers rode the wave up, top of the cycle, crystallized no gains, which is their fiduciary responsibility. I'm not saying you need to be a macro manager and know when to top ticket, but they crystallized no gains and rode the wave down.

[35:19](https://realalpha.app/v/4VjI-3FcHSg/?t=2119) So those paper gains just went poof, and that's a real problem. So you have a vintage of venture managers that are ostensibly still in business today, but they're walking zombies because they screwed up by not returning capital to investors at the last cycle peak, which is back in 2021. So that's a problem. And now so many of those folks have reinvented their portfolios as all being AI companies. So if you had a way back machine and looked at their portfolios from five years ago, you would not see nary a mention of AI. And if you fast forward today, all of them are AI enabled companies doing something or another.

[35:53](https://realalpha.app/v/4VjI-3FcHSg/?t=2153) And they're doing that because that is their only chance of potentially staying in business, because if they can throw a Hail Mary and have one of those companies potentially get acquired, go public, whatever sort of liquidity outcome you could have, then they can stay in business. But otherwise, they're zombies. And probably... I mean, Peter wrote an amazing editorial in Barron's about the hedge fund industry back, I think, in 2006. So... But how does that cleansing, that Darwinian culling of the herd, it just takes forever. And I've been wrong about this because I've been pounding the table about this dynamic, and I would have thought if it was a baseball analogy, we would be in the fifth or the sixth or maybe even the seventh inning of this process.

[36:30](https://realalpha.app/v/4VjI-3FcHSg/?t=2190) And the reality is we might be in the second inning at best. It's a very, very strong process. Realizing the losses. In terms of these firms just going the way of the dodo and going out of business. And so they're all out there, and they're they're they're trying to get in front of the same LPs, the guys that I were seeing nonstop for the first six months of the year, the andlcom... LP community is like, listen. You haven't given me money back in over a decade. You haven't raised a fund in three or four years. You need to go do something else for a job. And that's a very difficult conversation.

[36:59](https://realalpha.app/v/4VjI-3FcHSg/?t=2219) And so these firms, in the meantime, just kinda hang on for dear life, reinvent themselves as AI companies, throw a Hail Mary, see if they land the path. The way that I would explain this from the psychological lens is a lot of these people also have this identity as a venture capitalist. And once you're a venture capitalist, you really could only be two things. You could be a founder or a venture capitalist. That's the perception, whether real or imagined. And then if you really humble yourself, you could be a CXO at some startup. But, essentially, a lot of managers have this identity of being a venture capitalist, and the pain is not painful enough for them to have to kind of decouple from this identity.

[37:32](https://realalpha.app/v/4VjI-3FcHSg/?t=2252) I can go very deep on this. So if you're one of these b minus or worse managers that got spawned during the easy money period after the great financial crisis, what do you do? Because in venture, it's an existential crisis. It's not as if, like, if you're an investment banker and you start your career at Goldman Sachs, and you hit a bump in the road, you can go work at Citibank. And then you hit a bump in the road, you can go work at Jefferies. And you can hit a bump in the road, and and no offense to any of those firms, but there's a natural kind of cascade you could potentially go through to kinda land the plane and remain employable.

[37:59](https://realalpha.app/v/4VjI-3FcHSg/?t=2279) There's no equivalent to that in venture. If your venture firm goes south, you're done. And that means you gotta pull your kids out of private school, and maybe you can't pay the mortgage, and maybe you get divorced. It's an existential crisis for your life, and you have no other choice. So you have to hold on for dear life and ride down with the ship, and it's very hard. And because of that dynamic, it makes this catharsis process that much slower to play out. So that's on the bottom of the stack. At the top of the stack, you have this famous study, professor Steve Kaplan, previous guest, and he did this study on the persistence of venture capital.

[38:36](https://realalpha.app/v/4VjI-3FcHSg/?t=2316) So 52% of top quartile funds end up being top quartile. I believe roughly 75% end up being in the top 50%, so above above the median. Do you think that's gonna continue to persist in this age of AI, or do you think it'll increase or decrease? So it doesn't directly answer your question, but let me ask you a question that I think helps get to an aspect of this that I think is arguably more interesting. So as the mega funds get larger and larger and larger and have to write minimum tickets that are commensurately very large themselves, who fills that gap below that? So they're sucking up. They're hoovering up all the capital.

[39:16](https://realalpha.app/v/4VjI-3FcHSg/?t=2356) Who's left to write those tickets that are less than $20,000,000? Are these the little micro funds that are gonna do that? It's a real gap that's being left. So I think that has to be examined. And then if you're an allocator, do you put a fund like mine or benchmark, relatively small funds, in the same bucket as Marc Andreessen, who manages, I don't know, $60,000,000,000? Are those the same investment type managers? Like, if you have a Yale endowment model, what buckets do you put those two firms in? Do you put them in the same bucket? Empirically, it seems like no. I had Eric Swertsum from AngelList, and AngelList is very interesting because they have one of the biggest datasets in the world.

[39:54](https://realalpha.app/v/4VjI-3FcHSg/?t=2394) I think arguably the biggest on... When it comes to startups. I think 25,000 companies or so. And especially today, they use AI. They use the latest machine learning, and they figured out an interesting thing, which is they couldn't run the same mathematical models on Olive Venture. In other words, it was essentially two completely different and idiosyncratic asset classes, aka the early stage and the late stage. So even mathematically, it doesn't compute to just focus on venture capital as one asset class, meaning to assess precede the same way as you would a pre IPO company. Totally agree. Yeah.

[40:27](https://realalpha.app/v/4VjI-3FcHSg/?t=2427) **Jack Selby:** I think the mega funds are a different asset class. I'm not saying they're better or worse. They're just in a different bucket.

[40:32](https://realalpha.app/v/4VjI-3FcHSg/?t=2432) And earlier stage guys, like with what I do, I think we're in a different bucket. There's almost an analogy with what we do as being akin to middle market private equity in the sense that there's a difference... Important difference in the sense that I'm investing in business that are... You know, businesses that are in these middle market geographies. I'm not taking control stakes, but I only wanna work with entrepreneurs that want my help. So it's like synthetic control. And because it is venture, I do have more of a chance of going to zero than a typical, you know, private equity type business, but hopefully, that is compensated by the fact that my company should have better growth rates.

[41:03](https://realalpha.app/v/4VjI-3FcHSg/?t=2463) They should have better margins, so, therefore, they should have a better multiple. Other than that, you could put me in the middle market private equity bucket if you so chose, because I think there is a a high degree of similarity. Perhaps not surprisingly to listeners, I'm very optimistic on venture capital. I'll tell you why. So venture capital is known as this access class Mhmm. Where the founders choose the VCs, and the top VCs, at least, choose the top LPs. And my thesis is that the reason that Anthropic, SpaceX, OpenAI, the reason that all these startups essentially had to go public was not because they just suddenly decided, well, it's time to bring back liquidity.

[41:41](https://realalpha.app/v/4VjI-3FcHSg/?t=2501) Mhmm. SpaceX had tender offers. OpenAI had tender offers. Anthropic, I'm sure the the early employees are are are not too worried about about their liquidity. So I actually think the reason it goes back to this kind of consensus and venture capital, 75% of q one twenty twenty six of the entire venture capital funding was put into five companies. Mhmm. Said another way, they wouldn't have room to do another round. If they did another round, they'd be approaching a 100% and now over a 100%. So I actually think if there was more capital, let's say, it went from 3,500,000,000,000 to 7,000,000,000,000, now you would actually have the Anthropix, OpenAI's, SpaceX doing one or two more rounds staying private because as we know, there's a preference for top founders to stay private.

[42:30](https://realalpha.app/v/4VjI-3FcHSg/?t=2550) And that would be much more advantageous to both the startups, to the founders, to even early stage VCs. They have higher multiples. What do you think about that? The AI boom that is happening right now and has been going on for many years, it's very different, say, than the Internet period when we were putting together PayPal in the sense that the current market is very CapEx intensive. So you have energy needs. You have chip needs. You have data center needs. The list goes on and on on. You basically had none of that during the PayPal days, the doc... The .com days. And so because of the CapEx intensity, you have a tremendous off the charts amount of storytelling to essentially fuel the fundraising.

[43:17](https://realalpha.app/v/4VjI-3FcHSg/?t=2597) And so when this kind of cycle corrects... And, like, Cliff Asness, he was on your show not too long ago. He said it perfectly. Like, it's it's never different this time. Like, this will correct. And when it corrects, there's going to be tens, if not hundreds of billions of dollars that are going to get zeroed. It's just a fact. It's an absolute fact. And I would actually... I would challenge in saying that anyone who doesn't believe that there's an AI bubble is an absolute contrarian today. Like, that just seems like a ludicrous proposition. Like, it is such a clear consensus that? Whether it's the circular trading or the valuations, the multiples.

[43:56](https://realalpha.app/v/4VjI-3FcHSg/?t=2636) I mean, the list goes on and on. Because two things could be true at once. One is 90% of companies could be overvalued, and, also, the expected value of the vintage could still be high. I think that's what a lot of investors are trying to grapple with what... They get that all these pre revenue companies can't be worth under a million dollars or a billion dollars, But they also are unclear, I think, whether there's gonna be another one, two, three trillion dollar company in the batch. And I think probabilistically, it's it's probably very pessimistic to assume that the first three years of AI produced two arguably $3,000,000,000,000 companies, and now we're not...

[44:33](https://realalpha.app/v/4VjI-3FcHSg/?t=2673) Now it's game over. No no more trillion dollar companies.

[44:35](https://realalpha.app/v/4VjI-3FcHSg/?t=2675) **Jack Selby:** I respectfully disagree because I think there is an angle where AI enables companies to be built much more cheaply, achieve revenue much more quickly, get to good outcomes much more quickly, and generate good, if not great venture capital returns without the fixation

[44:54](https://realalpha.app/v/4VjI-3FcHSg/?t=2694) of, oh, I have to go build an ex trillion dollar company. Because I think people are so caught up in the zeitgeist of SpaceX and Anthropic. These are once in a generation, if not once in a lifetime type companies. And the idea that they come around with any sort of regularity, I think, is ludicrous. And we have to move away from that because if that's what you're pitching, you're again pitching something that's outrageously improbable that you're gonna find at an early stage, and then the duration is gonna be very extended. And that's a poor combination. And so that's why I I fundamentally disagree with that kind of perspective.

[45:27](https://realalpha.app/v/4VjI-3FcHSg/?t=2727) AI, again, those two things being equal, is an amazing tool, but what about building great companies that don't have to be trillion dollar outcomes? That is a mentality that is totally lost in Silicon Valley. And, again, I I love Silicon Valley with its audaciousness, and it's actually to give give to give fairness. It's the one aspect of my geography where I invest noncoastal that I'm the most envious of Silicon Valley. This is probably my biggest challenge. Like, when I meet that entrepreneur in Milwaukee, is he or she... Are they going to be able to work their tail off and get me to one of those minimum $500,000,000 type outcomes?

[46:03](https://realalpha.app/v/4VjI-3FcHSg/?t=2763) Because oftentimes, he or she will take my money because they think venture capital is special or sexier, whatever it may be, and they're gonna work their tail off, go through blood, sweat, and tears, all these near death experiences. Like, okay, Jack. We're gonna sell this widget for a $100,000,000, five or seventeen years out. I say, no. No. No. And that's because on a relative basis, they'll be one of the richest people in Milwaukee. And Milwaukee. And God bless them for being the wealthiest person in Milwaukee, but that's not what my money's for. Like, I have to have that minimum $500,000,000 type outcome with my first fund in order for my math to work.

[46:32](https://realalpha.app/v/4VjI-3FcHSg/?t=2792) I don't have to find a trillion dollar company, but I have to have that minimum $500,000,000 outcome. And too often, I have found, and this is going back to the analogy of me being a talent scout,

[46:41](https://realalpha.app/v/4VjI-3FcHSg/?t=2801) **Jack Selby:** I have to make sure that my entrepreneurs are sufficiently grandiose when they take my money.

[46:47](https://realalpha.app/v/4VjI-3FcHSg/?t=2807) Like, buddy at Greylock coined this phrase that I've stolen, You have to have equal bits, grit, and grandiosity. Grit, I've got all day long in Milwaukee and Cincinnati and Phoenix. What I often have to be much more on the lookout for is the grandiosity piece. Reminds me of a Jason Lemkin tweet, which I think it was during COVID where he said, in San Francisco, I'm unhappy but productive. Outside of San Francisco, I'm happier but less productive. Therefore, I will stay in San Francisco. I I think there's something to that. There... There's this memetic copying where, sure, you might have $20,000,000, but if your neighbor has a $100,000,000, now you're suddenly unhappy.

[47:21](https://realalpha.app/v/4VjI-3FcHSg/?t=2841) And people generally look at this as as a negative in terms of happiness, but in terms of productivity, it's a very positive kind of capitalistic type drive that that leads a lot of these submarkets like a San Francisco. In an ideal world, like, I would love it when young entrepreneurs go to the Bay Area right out of school from one of these noncoastal places and then move back. And so they've been infected. They could see what great They've been infected by the grandiosity in Palo Alto. Yeah. But they didn't they didn't stick for whatever reason, and they moved back to Phoenix or Milwaukee or Cincinnati or Houston.

[47:50](https://realalpha.app/v/4VjI-3FcHSg/?t=2870) That's the best model? With our first fund, we saw kind of an equal split between folks that had done some version of that and then just homegrown entrepreneurs. But I certainly look for it. And because if you've been in Palo Alto and you've seen that work ethic and you have that grandiosity and you just kind of learned how things work, and you can then come back to one of my geographies at a more reasonable price for me as an investor, you bet. That's a great combination. Yeah. That... And you see this across all of finance. Philadelphia is famous for bringing New York New York City transplants, and it's a model that works.

[48:20](https://realalpha.app/v/4VjI-3FcHSg/?t=2900) So that... Seeing what greatness looks like, it's one of those things that you lock in. It's one of my thesis around the PayPal mafia, around your friends, is that just seeing that early on, seeing what hard work looks like, seeing what intelligence looks like. There's so many different degrees to all these things. You have to lock that in to see the gap. Even with podcasting, I I had Jason Gallican. It's, like, episode 10 or so. And I immediately just saw the skill gap between us. I'm like, holy crap. This is both incredibly humbling and that he's, like, 10 x better than me and also incredibly motivating because I see, like, I see I see the the path to that.

[48:54](https://realalpha.app/v/4VjI-3FcHSg/?t=2934) Another friend of ours, Eric Anderson Mhmm. From Aloy. He's been my mentor for seventeen years. I I met him at at Dartmouth. And when I met him, I'm like, holy crap. There's a gap between us and, like, I need to figure out, like, what he does. And he's one of these other people that wakes up at 04:30AM and and just just grinds, and and and now he started $4,000,000,000 plus companies. But just seeing that gap is such, I think, not only powerful, but such a necessary component to greatness. Totally agree. I totally agree. And that's... Again, to give it fairness and balance and having spent a lot of time in Silicon Valley, just the the grandiosity, it...

[49:30](https://realalpha.app/v/4VjI-3FcHSg/?t=2970) It's just... It's inspiring. And I think, honestly, it it... It's what makes... Not to be corny about this, but it... What... It's truly the superpower of The United States. Like, we are such a risk on culture, and Silicon Valley takes it to the nth degree, which is a great thing, and that it inspires the rest of us. And, again, I just want my noncoastal entrepreneurs to have a little bit more of it at times. Going back to the beginning of the conversation when we talked about... I I followed this company, EyeSocket, into San Francisco. Mhmm. And I was 22 years old at the time, and I I slept on John Ramey's couch, and I was in the office and just seeing people create stuff.

[50:04](https://realalpha.app/v/4VjI-3FcHSg/?t=3004) But, also, just in San Francisco proper, and you're just standing around. You're talking to people even at a coffee shop, and they're like, yeah. I started this company. I raised 5,000,000. And you see that enough, your brain starts to believe that it's not some crazy thing. It's almost like inevitable. Of course, you go out and raise a pre seed based on some crazy idea. Of course, you raised $5,000,000 on, you know, $500,000 in revenue. Of course, then you have to raise a series. It becomes almost this sort of this preposterous dream everywhere but San Francisco. This was the early two thousands, so Silicon Valley culture was not yet as pervasive across the entire country.

[50:36](https://realalpha.app/v/4VjI-3FcHSg/?t=3036) But there's something just powerful about just being there and literally, like, touching people that that have raised money. It's it's hard to put in words, but it it is something. It's inspirational. It's, it's truly a national superpower. Our risk on culture is better than anywhere else in the world. It's amazing, and we should embrace it. You also cofounded Clarium with Peter Thiel, which is a macro hedge fund. I don't oftentimes have macro investors on the podcast, you and Cliff Asness and a few others. What's your view on the macro climate today? I think macro's back. I think, volatility's back.

[51:15](https://realalpha.app/v/4VjI-3FcHSg/?t=3075) You know, thirteen plus years after the GFC and interest rates were bolted to the floor. We live in a very different world now, I think, whether it's geopolitical, volatility, across the board. So it doesn't mean it's easier. That's for sure. But if you're smart and you can come up with some good theses, in the macro world, I think this is a great opportunity to potentially make money. So I think this is a... I think macro has a... Finally has an opportunity of being back and being more in vogue. And kind of the pendulum, you believe, will swing from more passive to more active? I think so. And, again, with emphasis, it doesn't mean it's easier.

[51:49](https://realalpha.app/v/4VjI-3FcHSg/?t=3109) But I think the opportunity set is is better now than what it had been for so long. Because after the financial crisis, you know, macro is basically trying to read the tea leaves in so many respects of, you know, what is the Fed gonna do, or what is, you know, some aspect of government gonna do, and that's just impossible. Like, there's no amount of fundamental research you can do to kinda come to any sort of informed conclusion. But now volatility is back. We live in a very different geopolitical world. Traditional trade relationships seem to be breaking down. Geopolitical global order seems to be shifting.

[52:18](https://realalpha.app/v/4VjI-3FcHSg/?t=3138) So if you can put together informed perspective on that, that might give you a trading edge. What do you think about these spot jobs that have hundreds of billions of dollars leverage, and some some people believe they're almost like policymakers. You know, they're they're bailing out funds like situational awareness with what Ken Griffin did. What's their role in the market, and how do other investors compete with these pod shops and their resources? Talent rules everything, kinda going back to my venture capital analogy. And so I think a pawnshop perhaps is a great place to kinda get a career started.

[52:50](https://realalpha.app/v/4VjI-3FcHSg/?t=3170) But if you're a world class, you know, Ken Griffin aspirant, and you put in your time at a pawnshop, you should spin out and go run your own fund. And why would you stick around? And so so I think they serve a purpose, but I think there's also a degree of kind of adverse selection, and that's a tricky balance. You've had one of the most fascinating careers spanning PayPal, Clarium, now CopperSky. If you give yourself one piece of advice, and going back to starting out PayPal and the day before you started PayPal, and you can give yourself one piece of advice for the rest of your career, what would that be?

[53:21](https://realalpha.app/v/4VjI-3FcHSg/?t=3201) I was talking to my my business partner, Jason Pressman, at CopperSky about this, a couple days ago, is that I have not done a good job of playing into momentum orientated markets. And so when the momentum market is going, it's a great way to make money. But I think I've been too boy scout, maybe even too cynical to participate. And looking back, I think that left money on the table. And I'm fine with that. I didn't lose any sleep on it, but it's annoying all the same. What's an example of that? Coming back to the venture industry and all the crazy growth rounds that have been going on and, you know, just basically fake markups.

[54:04](https://realalpha.app/v/4VjI-3FcHSg/?t=3244) And it's a hot potato game, and... But you make a lot of money playing it. And as long as the hot potato doesn't land your your lap or to mix metaphors, the music stop, and you don't have a chair to sit in, it's a great way to make money. And I just have... It's just my my personality to to just fight that and not play in that type of momentum market, and that has probably been a costly mistake. But, it is what it is. So another way you wanna play investing games, not narrative games? I'm an investor. I'm not a trader. The market and venture for the last several years has been a trading market.

[54:40](https://realalpha.app/v/4VjI-3FcHSg/?t=3280) Like, you can't underwrite Anthropic at $2,000,000,000,000. There's no way you can do that. There's no way anyone can do that. It's a trading market. So I'm an investor. And so I need to be able to get out my pencil and make the assumptions and underwrite the deal. That's what I do. And so that serves me well with what I do. And, you know, when this market currently corrects, which it will happen, it'll be, you know, when, not if, I will be relatively fine. And when our trader friends who are investing in these crazy valuations, they will not. But in the meantime, they've made a ton of money. Just to go contrarian on your mistake, I study the compounding of things.

[55:19](https://realalpha.app/v/4VjI-3FcHSg/?t=3319) I'm obsessed with this concept of different things compounding. I think much more things compound than people realize. Mhmm. Is there not a compounding to being more of a fundamental investor that could compound throughout your career? I think so. I mean, when the current market corrects, the only impact that'll have on what I do with my copper sky strategy is it will make the multiples that when I take my companies to Sandhill Road, the multiples undoubtedly will contract, and that that will have an impact on what I do. But because my entry point as an investor, as a value investor, are so inexpensive, it will impact me far less than my peers in Silicon Valley.

[55:57](https://realalpha.app/v/4VjI-3FcHSg/?t=3357) And that's why I can sleep well at night. But at the same time, you know, the guys that are out peddling SPVs and Anthropic at $2,000,000,000,000 when, you know, they just traded at 1.5 or one or... They're making a ton of money, and God bless them. But that is the antithesis of what I do. Well, Jack, this has been absolute masterclass. Thanks so much for jumping on. Thanks for having me.