Josh: Right now, if you want to invest in the hottest companies in the world,
Josh: SpaceX, OpenAI, and Anthropic, you really can't.
Josh: It's normally an activity reserved for the ultra-wealthy who are accredited
Josh: and involves a lot of jumping through hoops.
Josh: Well, this week, there's a fund that enables you to invest in all three and more.
Josh: And it seems like a pretty awesome deal, but the internet has some skeptics
Josh: and questions about how it works.
Ejaaz: Well, the good news is we have the GP of the fund here, Ankur Nagpal,
Ejaaz: on the show to answer all these questions. Ankur, what's up, dude?
Ankur: What's up? Excited for this. It's been a really, really fun week and yeah,
Ankur: looking forward to digging in.
Ejaaz: Okay, so the headline I keep seeing everywhere is with this investment vehicle,
Ejaaz: now the average show can invest 500 bucks in their favorite company before they go public.
Ejaaz: So if you have 500 bucks, you can invest in Anthropic and OpenAI.
Ejaaz: But I want to take a few steps back because I think people are missing the wider
Ejaaz: story as to why this makes sense now and why you're doing it.
Ejaaz: So that's my first question.
Ejaaz: Why does USVC exist at all? And why is now the right time for this?
Ankur: So if you look at where most of the money is being made in private technology
Ankur: companies now, Now, it's been happening before these companies go public.
Ankur: Businesses are taking so long to get out there. And the result of that is the
Ankur: average person misses out on that wealth creation.
Ankur: So the goal with USVC is to build a vehicle for people to invest in the future
Ankur: of American technology.
Ankur: Now, it's easy to look at, you know, OpenAI, Anthropic, and all of that.
Ankur: Those are the names we have today.
Ankur: But a big part of this fund is investing in the companies of the future.
Ankur: So it's not just late stage private tech of which, you know,
Ankur: there are other products as well, but it's also backing the smaller companies
Ankur: starting today that will be relevant three, five, seven years from now.
Ejaaz: Okay. And how does USVC specifically solve this problem? Can you like walk us
Ejaaz: through like if I'm someone that's investing 500 bucks today,
Ejaaz: what is exactly happening with my money?
Ankur: Yeah. So historically, the way investing in private startups work,
Ankur: and this is kind of bizarre.
Ankur: In the U.S., historically, you have to be something called an accredited investor,
Ankur: which means you need to have a net worth of millions of dollars in order to invest in a startup.
Ankur: And there's different opinions on why it exists, but it's a bit ridiculous when
Ankur: you think about, you know, you can invest in any sort of derivative crypto product
Ankur: without that. I can go gamble.
Ankur: I can go bet on Polymarket on how long Donald Trump will shake his hand for.
Ankur: But investing in Enthropic or OpenAI is illegal for the average person.
Ankur: So the goal with US VC and, you know, we're SEC approved to do this is to offer a registered fund.
Ankur: Again, you know, people should understand that this is investing in venture capital.
Ankur: It is still a speculative asset class. We always say with VC,
Ankur: only invest what you can afford to lose. It is an illiquid investment.
Ankur: Like, do not think of it comparable to investing in the stock market.
Ankur: However, if you're someone that otherwise has a balanced portfolio,
Ankur: it could make sense to allocate, you know, 3%, 5%, 7%, something like that to
Ankur: this basket of high growth technology companies and effectively own a piece of the future.
Josh: Awesome. So I'm investing in this. I see a price on the page that says the NAV is $19.95.
Josh: And I have a little bit of PTSD, right? There was a company that launched,
Josh: or an ETF that launched a few weeks ago that went up like 10x in one day and
Josh: then it crashed back down.
Josh: But I understand that that's because the NAV was actually much lower than the
Josh: company was trading for.
Josh: I believe USVC is handling this a bit differently. So when I see the price $19.95
Josh: on the screen, what is that getting me and how do you handle the pricing?
Josh: Is it subject to that fluctuation?
Josh: How would you explain NAV to a person who doesn't really understand?
Ankur: That's a really good question, because ultimately, US VC is a fundamentally
Ankur: different product from all the ETFs.
Ankur: I believe there is, you know, Fundrise has an ETF called, can't remember the
Ankur: ticker, Robinoot has an ETF as well.
Ankur: And while these are trying to give the average investor access to private companies,
Ankur: they're fundamentally different products.
Ankur: And the reason for that is, their price is sort of divorced from the underlying
Ankur: value of assets. So even right now, the Fundrise ticker VCX,
Ankur: for instance, it's trading at roughly four times the price of the underlying companies.
Ankur: And if you're an early investor, that's great. You're opting the money and it can work really well.
Ankur: But in down markets, this can also sort of trade not in lockstep with the underlying companies.
Ankur: So you could, as an example, buy this ETF, the companies could do well,
Ankur: but you could still lose money because the pricing is sort of divorced from
Ankur: the underlying value. Now, USVC is a different structure.
Ankur: It is not an ETF, so it is not easily tradable. However, the price is determined
Ankur: by the price of the underlying companies.
Ankur: So the NAV that you see only changes if and when one of the underlying companies
Ankur: has an updated valuation.
Ankur: So it's a slower sort of moving NAV.
Ankur: Now, in turn, you may wonder, okay, this is well and good, but if it's not tradable,
Ankur: how do I actually get my money out?
Ankur: And the way this works is quarterly, the goal of this fund, and we caveat it
Ankur: with like, look, we aim to do this just because according to your perspective, it's not guaranteed.
Ankur: But if we are to do our job well, we have to meet a quarterly redemption of
Ankur: up to 5% of the fund at the actual NAV.
Ankur: Now, that doesn't mean each investor is limited to 5%. it means 5% of the entire
Ankur: fund will be made available for redemptions every single quarter.
Ankur: So as an example, if we have 100 million in assets, we'll do 5 million every
Ankur: quarter that'll be available to investors on a pro rata basis.
Ejaaz: On the point of redemption, I understand that the shares obviously aren't listed, right?
Ejaaz: So redemptions are quarterly, like you mentioned, but there's a cap.
Ejaaz: I think it's like 5% of NAV at the board's discretion.
Ejaaz: So a two-part question that I have for you is, in a real panic,
Ejaaz: like what actually happens to someone who wants to get out of this vehicle, right?
Ejaaz: Has the board already pre-committed to offering the tender every different quarter or can they skip?
Ejaaz: Like what are people liable for? Who's liable for here?
Ankur: So ultimately we or the board reserves the right to skip.
Ankur: However, it is in our best interest. Our interests are aligned.
Ankur: If we are a fund that is skipping tender offers, it becomes a less attractive
Ankur: investment product and it ultimately hurts us quite a bit.
Ankur: However, it's still important to anyone listening. Like, again,
Ankur: this is venture. It's a different asset class.
Ankur: Like, think about a venture fund. It is a highly illiquid investment.
Ankur: This does have tender offers, which is typical, which is better than a venture
Ankur: fund. In a venture fund, your money is locked up for 10 years.
Ankur: You have nothing you can do about it.
Ankur: However, like, you know, we're kind of repeating, this is an illiquid product.
Ankur: Think about it like, you know, like similar to how you think about a venture fund.
Josh: So there is a lot more stability than something that we saw with BCX.
Ankur: Absolutely. Yeah. The upside is, look, like you're actually owning something
Ankur: close to the underlying asset, which the ETFs, I think, are really fun.
Ankur: I mean, I, you know, dabble in it myself, but I think of it almost like a speculative
Ankur: ticker to kind of trade the sentiment on these names more so than anything else.
Josh: So you mentioned owning the underlying asset. I guess I'm curious,
Josh: how close are we to that underlying asset?
Josh: And the question there is, I understand some of these are SPVs.
Josh: They're not directly on the cap table.
Josh: SPVs generally come with fees, which has been a big thing that I've seen people
Josh: on the internet talking about is the fee structure, what you're paying for as
Josh: a premium in order to access this.
Josh: Could you speak to the fee structure a little bit here? Yeah, absolutely.
Ankur: So our strategy is multifold. One of the tenets of our strategy is when it comes
Ankur: to early stage investing, like pre-seed and seed, it's very hard for us to keep
Ankur: track of what are the most promising companies.
Ankur: So there, our goal is to find the most promising GPs that run these specialized
Ankur: pre-seed and seed funds and be their source of capital.
Ankur: The benefit of doing this is when they want to write a follow-on check,
Ankur: like a series A or a series B check, we can be their source of capital. In terms of how we're
Ankur: This is a very small seed portfolio. We'll hopefully be announcing a lot of new investments soon.
Ankur: The early investments are largely through a single underlying fund.
Ankur: However, moving forward, a lot of investments that are planned are direct on the cap table.
Ankur: And this is important because if it's direct on the cap table,
Ankur: it means there's no management fee.
Ankur: But also because this type of registered fund doesn't charge carry,
Ankur: there's no carry as well, which makes it very, very competitive from a pricing
Ankur: and fee perspective for any of those direct investments.
Ejaaz: Wow, that's great if you're getting the direct investment on the table.
Ejaaz: But just to kind of step back for a second and kind of walk through maybe an
Ejaaz: example, like I know a lot of the companies that you're investing in right now aren't public.
Ejaaz: They're meant to, they're very highly valued. They've been valued maximally
Ejaaz: over the last couple of months, especially in the AI world.
Ejaaz: If we stepped back, say, a year ago, right, when OpenAI was worth a couple hundred
Ejaaz: billion dollars or even a hundred billion dollars, let's say this vehicle existed back then.
Ejaaz: Can you walk us through an example of if I'd invested a thousand dollars in
Ejaaz: here, how much would I be up right now?
Ejaaz: How much could I have taken out? Are you able to give us a kind of walkthrough?
Ankur: Yeah, let me, we can try and work through this live, right?
Ankur: So again, this fund took us a while to set up and we sort of don't control the
Ankur: market conditions and they are what they are.
Ankur: But theoretically, every time there's a markup, what happens is you look at
Ankur: what that company size is a percentage of NAV and that markup is reflected in NAV.
Ankur: And so that goes up and you could theoretically start redeeming quarterly based
Ankur: on that sort of inflated NAV value.
Ankur: Even now, part of our strategy is we believe there are opportunities to come
Ankur: in and buy out certain positions at discounts.
Ankur: These could be secondaries in funds, secondaries in companies.
Ankur: And the benefit there is as a company raises a new brand of financing,
Ankur: that's a little, that's a markup to NAV, which theoretically could benefit people.
Ankur: Working backwards, it's tough to model out exactly what this is because
Ankur: There's a huge sensitivity on position size and fund size, right?
Ankur: Because as an example, if we own a SpaceX position that is 20% of our fund,
Ankur: but then our fund grows, our position effectively gets diluted unless we're
Ankur: kind of buying more to keep up with it.
Ankur: And that sort of makes some of this math a little bit more complicated.
Ejaaz: One thing that kind of stood out to me when I was digging into this and I tweeted
Ejaaz: about this, you responded to me because you were like, some of these management
Ejaaz: fee estimations are wrong, is this is happening on AngelList.
Ejaaz: Now, AngelList is a widely successful platform, but why is it particularly suited
Ejaaz: for this particular product?
Ankur: For people who don't know about this, AngelList has been around for 15 years.
Ankur: They're sort of, you know, at this point, they've had multiple sort of generations
Ankur: of leaders and employees come. And, you know, it's been around.
Ankur: It's been a fixture since...
Ankur: I've now built and sold two companies and they are how I raised money for my
Ankur: first company over 10 years ago. So they've been around for a very, very long time.
Ankur: But the benefit of the AngelList platform is they are where the majority of
Ankur: early stage investing happens.
Ankur: They are the fund manager of choice for a lot of early stage investors.
Ankur: They are the SPV tool for most companies.
Ankur: And as a result, their platform has really good exposure to all of these early
Ankur: stage assets, which is a very good vantage point for us if we're like,
Ankur: hey, you know, we want to go acquire a stake in Anthropic.
Ankur: Let's see, you know, there's a lot of Anthropic investors on AngelList.
Ankur: We know who to reach out to.
Ankur: So that makes it a very attractive sort of very logical institution to start a product like this.
Ejaaz: So when I think about I saw someone explain this on X, there was a lot of activity yesterday.
Ejaaz: So if you understand, right, the walkthrough, I put in 500 bucks and the way
Ejaaz: I outlined it in my explanation yesterday over here was there's a 3% management
Ejaaz: fee in total aggregated, not 1%.
Ejaaz: It's a double layer vehicle. So you go at USVC at the top, you're paying them
Ejaaz: a management fee. There's no carry.
Ejaaz: So there's no necessary incentive for you guys to maybe like work on the or
Ejaaz: like hold particular positions.
Ejaaz: But then at the bottom, right, the layers that you guys are investing in where
Ejaaz: these GPs are actually like putting in chunks on the cap table on L1 SPVs,
Ejaaz: they then take a 220, right?
Ejaaz: So in my mind, that made sense as 3%. But you clarified over here,
Ejaaz: you said our management fee is actually 1% and the total expense ratio right
Ejaaz: now is 2.5%. I think that's really important and people don't understand that.
Ejaaz: Can you, would you mind like explaining how exactly you get to that?
Ankur: Yeah, absolutely. Yeah, that's a, it's a nuance that matters to people closer to this.
Ankur: What investors care about is their expense ratio but that's different from a
Ankur: management fee you know the idea because a 2.5% management fee looks like 2.5%
Ankur: going into our pocket the reality
Ankur: is the expense ratio which is the net percentage investors are paying
Ankur: is 2.5% right now.
Ankur: And the mechanics and the scare to some people is it's really right now 3 point something percent.
Ankur: We subsidize it out of our pocket to make it 2.5%. Now you may wonder,
Ankur: why are we doing it? Why is it so high?
Ankur: The reason is when you start funds like these, they're pretty expensive to start.
Ankur: So all these funds will have very high expense ratios up front because there's fixed costs, right?
Ankur: And when you have like 10 or 20 or 30 million in assets, those fixed costs are really high.
Ankur: However, we think the 2.5% is very competitive because again,
Ankur: you know, if you compare this to a Vanguard fund, you'll be like,
Ankur: this is like why 2.5%, that's crazy.
Ankur: But venture funds typically are 2%. And Drees and some other funds are 2.5%.
Ankur: However, if you're a venture fund of funds, which we partially are,
Ankur: those are typically 3% if you include the underlying.
Ankur: So this 2.5% cap, I think makes us very competitive, especially when you factor
Ankur: in, we don't charge carry. Now, some of our investments are in funds and they
Ankur: underlying have their own carry.
Ankur: However, all the direct investments don't have that and there's no carry on our end.
Ankur: The combination of that, I think, compared to the world of venture products
Ankur: makes this very competitive.
Ankur: And a big part of why even, you know, you're like, okay, why is it even two
Ankur: and a half is when you try and distribute a fund like this to retail,
Ankur: there's just operational fees that really add up.
Ankur: But from a management fee perspective, I mean, you know, we were looking at 1% or 100 bps.
Ankur: And within that, we're, you know, have to do sales and marketing and a lot of other stuff.
Ankur: And right now, we're honestly subsidizing most of it.
Josh: Awesome. Okay, so we understand why this works. The fund structure.
Josh: Now, let's talk about the portfolio of what you actually get when you invest
Josh: in this thing. I see XAI on there, Anthropic, OpenAI being three of the larger ones.
Josh: And particularly when I see the largest holding, I mean, 20 and a quarter percent is XAI.
Josh: Now, as most people know, XAI has been acquired by SpaceX on February 3rd at
Josh: one and a quarter trillion dollar valuation.
Josh: So that position now is functionally pre-IPO SpaceX.
Josh: Is that kind of how you think about it internally? and are the people investing
Josh: in that acquisition price or is this a higher markup closer to what it's looking
Josh: like as it IPOs this year?
Ankur: Yeah, so I think the most recent mark on this, and I think we've shared this,
Ankur: was a few weeks ago based on some internal documentation. It's not the IPO price,
Ankur: right? That's speculative. That hasn't happened. We don't know when that is.
Ankur: My general caveat with all of this is like, look, some of this may look super
Ankur: opportunistic. You can get in before certain marks and all of that.
Ankur: I don't encourage that type of thinking in general. I think you should think
Ankur: about this as a long-term investment.
Ankur: Are you long-term bullish on venture as an asset class? If so, great.
Ankur: I think these positions are great. I obviously like these companies.
Ankur: However, this is such a small percentage of what we will and plan to do.
Ankur: And something you'll see soon is we're going to be very public with our investments.
Ankur: Hopefully as soon as next week, we'll announce newer positions.
Ankur: And so people can kind of see the portfolio evolve in real time.
Ankur: But my general guidance is like consider
Ankur: investing in this if you're generally bullish about the asset class
Ankur: you want to own a piece of the most important technology companies in
Ankur: the future you can withstand the
Ankur: lack of liquidity and the fact that it's a speculative asset class and do it
Ankur: for that don't do it because you really like the SpaceX position or the Anthropic
Ankur: position these are great companies we wished we owned more of them but right
Ankur: now we've added a lot in cash these positions have effectively gotten diluted
Ankur: and we think the future is not just these companies,
Ankur: but the companies that everyone will talk about three years from now and five years from now.
Josh: Awesome, so yeah, notably in the portfolio, 56% of the holdings,
Josh: if you purchase today, are cash.
Josh: So you're buying basically this potential upside opportunity for whatever the
Josh: fund decides to invest in.
Josh: How do you consider allocating that and what is the velocity people can expect you to deploy that?
Josh: I found a lot of people were kind of mentioning they don't want to invest in
Josh: something that's half cash.
Josh: So what is the plan to deploy that and kind of how quick?
Ankur: Totally. I mean, our goal is we'd want to ideally hold close to
Ankur: 10 to 20 percent somewhere or maybe even a little bit less in cash and cash
Ankur: equivalents and again the reason we want to do that is we have to quarterly
Ankur: tenders right like if all your dollars are invested in venture that's very illiquid
Ankur: and quarterly tenders become a little bit difficult so
Ankur: ideally we would like to keep some kind of buffer in either cash or public equivalents
Ankur: where we can go make our tenders however we intend to be deploying these dollars
Ankur: quite aggressively and aggressive doesn't mean we're going to index all of late
Ankur: stage private tech but you know we're going to be backing a lot of early stage fund managers,
Ankur: a lot of companies directly on the cap table,
Ankur: buy out some kind of fund positions as well.
Ankur: There's a lot I can't talk about because these are deals in progress.
Ankur: But again, we've been very active on the social so far and we will continue
Ankur: to be when we announce each new position.
Ankur: And what's cool is for a lot of these companies, they're pretty small.
Ankur: So they will also announce it to their community and it could be a great way
Ankur: to activate their community to own a small piece of the business.
Ejaaz: A very important nuance that you've described several times on the show so far
Ejaaz: is this isn't trading like a public stock, right? The VCE game,
Ejaaz: venture game is very, very different.
Ejaaz: It is more asymmetric. Deals are
Ejaaz: kind of like aggregated and dealt with within a very few set of actors.
Ejaaz: And these rounds of valuations can mark up pretty massively.
Ejaaz: So it takes time and it's a long haul thing.
Ejaaz: I get that. You mentioned like, it's the long game, right?
Ejaaz: Three to five years is what you said. In three to five years,
Ejaaz: or maybe even a decade, what's the best outcome for USVC?
Ankur: So the best outcome for us is if you look at the data, venture capital as an
Ankur: asset class has the potential to outperform public markets while also being
Ankur: somewhat uncorrelated.
Ankur: So if we can sort of index that, right, like I can't commit to an IRR, I can't commit to that.
Ankur: But if we can effectively outperform while not being fully correlated,
Ankur: that's sort of, that's why endowments invest in venture, right?
Ankur: Like it's two things. It's the alpha and the lack of beta.
Ankur: And that's sort of the goal here as well.
Josh: Awesome. Well, thank you. Sadly, we are out of time. I wish we had more time
Josh: to chat about this, but I very much appreciate you coming on the show to join
Josh: us to kind of explain the perceptions around it, to give some clarity to this fund.
Josh: Any final thoughts for anyone on kind of the steps they should take if they're
Josh: interested in participating or just learning more?
Ankur: Yeah, look, I mean, usvc.com is our website. At this point, you know, we've been,
Ankur: the response has been phenomenal and it's honestly blown every expectation so
Ankur: it's gone from like oh you should invest in usvc to all the reasons people should
Ankur: you know be careful and think about liquidity and you know what they can afford
Ankur: to invest and stuff but no check it out at usvc.com and thanks for having me guys
Josh: Awesome we really appreciate the time thank you so much thanks.