What You Need To Know About Venture Capital And Growth Equity with John Avirett

Full Transcript:

Sean
Hello and welcome back to season two of Scaling Success, a podcast geared towards entrepreneurs, where we discuss a range of topics that contribute to building a valuable and long-lasting business. If you’re new to the podcast, please subscribe on Spotify and YouTube. I’m very excited to welcome John Avirett of StepStone as today’s guest. John is the perfect person to help us tackle today’s topic, namely the purpose and role of venture capital and growth equity in the economy, and more specifically, how entrepreneurs should think about when and from whom to raise capital. John is a partner with StepStone, a private markets investment firm with $134 billion in assets under management, where he is a member of the private equity team focusing on venture capital and growth equity. Prior to StepStone, John spent 16 years at Greenspring Associates, where he was responsible for sourcing and diligence efforts on fund, direct, and secondary investments. John sits on the advisory board of numerous venture and growth equity firms, including Volition Capital’s, and he has been involved in numerous successful direct investments, including Chewy.com, WalkMe, Grubhub, Roblox, Cloudflare, Assent Compliance, Recycle Track Systems, and many others. John is a proud native son of Baltimore, Maryland and a graduate of Johns Hopkins University. John, welcome to the podcast.

John Avirett
Thank you, Sean. Thank you. It’s great to be on. By the way, is that Mizzen+Main that you’re wearing?

Sean
No, no, that’s generic stuff. I don’t shop off the rack, John.

John Avirett
Oh, man. I thought you might have Mizzen+Main on today. You and I are Mizzen+Main brothers.

Sean
Not today. Not today, no. Although I do have some of those in the closet.

John Avirett
Well, thank you for the kind words and super excited be on the pod and grateful for the partnership. So yeah. Looking forward to the conversation today.

Sean
Awesome. Terrific. Yeah. And just some background for our listeners and viewers. I’ve had the pleasure of getting to know John over the last, I guess, 12 years or so. Greenspring was an early investor in Volition Capital, and John has sat on our advisory board for a number of years. I feel like we as a firm have definitely been the beneficiary of his perspective and his experience and his wisdom, really, as it relates to private markets. So we often get questions from entrepreneurs in the get-to-know-you phase of explain to me a little bit about the business of private equity and who invests in your funds and how are you guys unique and different. It’s easy for us to answer those questions. But I thought John would bring a unique perspective to the podcast. So we’re definitely lucky to have him and thanks for joining us. John, I thought it might be interesting just to kick off by having you share a little bit of your back story of how you got into private equity and kind of your journey at Greenspring leading up to now your time at StepStone.

John Avirett
Yeah, absolutely. So yeah, I was fortunate to join the industry quite early in my career. So after graduating Johns Hopkins, and as you said, a Baltimore native, so I strayed from Baltimore for a short period of time to Chicago and worked for Zurich Financial. But people say I get allergic if I leave Baltimore for too long. So as quickly driven back to Baltimore and was fortunate to join, the time, it was called Montagu Newhall Associates and now Greenspring, and Greenspring was acquired, as you mentioned, by StepStone. But through a network connection had the opportunity to be one of the early analysts at Montagu Newhall/and eventually Greenspring. And it was amazing opportunity. I knew about ventures that are growing up. One of my mentors was a local venture capitalist [inaudible], and I learned about the industry and sort of the innovation economy through him. So really jumped to the opportunity to join the industry quite early on. The business model of Greenspring was quite unique when my partner Ashton Newhall, spun out of T Rowe Price in 2000. His view was he wanted to create a firm where we could be the most valuable life cycle partner to elite venture growth firms. Most partners to venture firms or growth firms were limited partners, hence the word limited partners. They didn’t do a whole lot outside of bringing capital. And our view is if we could actually bring capital to an elite venture fund or commit capital to a firm so that tremendous investors like you all can put money into entrepreneurs, that was one way to do it. But another way to do it was support companies directly. So doing direct investments with you all and companies like Chewy or Assent, providing secondary liquidity. So if you ever have a client that needs to sell, let me know. We’ll buy it. Or if an entrepreneur ever needs some liquidity. Then along the way, we also built some capabilities where we could help our managers and their companies with customer introductions, partner introductions, and recruiting. So really kind of taking this view that to the very best venture managers or entrepreneurs, capital is commoditized, and we need to make our dollar look very different. In 2000, as a small firm out of Baltimore, we needed to do a lot. It was a crowded market in 2000, and we just kind of took a very differentiated approach to building the business that had characteristics that allowed us to gain great access to elite firms and companies along that journey.

Sean
That’s great. And I think one of your calling cards, at least from my perspective, is that you’ve been really best in class at identifying kind of up-and-coming emerging managers. Just talk us through that process of how you go about kind of understanding the market and where you might find good firms to kind of partner with over the long term. Because I think there’s a parallel there as it relates perhaps to entrepreneurs when they’re thinking about bringing on a capital partner.

John Avirett
Yeah, for sure. So when I started in this industry in ’05, venture capital was oftentimes referred to as an access class, not an asset class. There were 20 or 30 firms. As a limited partner, you were either in them or you weren’t. If you were in them, the returns in that top 20 firms were incredibly strong. But if you couldn’t gain access to those, you shouldn’t have invested in venture capital. The disparity between the best and the worst is more pronounced than any other asset class, both liquid or illiquid. So there was a real role as a fund of funds provider to provide endowments, foundations, family offices, pension funds, access to that top 20 or 30.
Because, again, if you couldn’t gain that access, it didn’t matter to play in the asset class. And if you could, the returns were very, very strong. But what’s happened over time is this asset class has become both filled with managers that again are high Roman numerals, very much established groups, and those groups that were those top 20 back in the early to mid-2000 or in the ’90s still persist. But it’s also been an asset class where identification matters, where spin-outs emerging managers that have built firms in particular over the last, I’d say 10 to 15 years have really broken out and become very meaningful players in the ecosystem.

John Avirett
So as an allocator, as an investor into venture and growth, I think you have to have an eye for, again, the perennial all-stars that have this high persistency but also have to figure out who are those next-generation venture or growth managers that in some cases were individuals at bigger, broader organizations that spin out and create smaller or more boutique firms. Or maybe it’s an entrepreneur or an operator, et cetera, that has that experience, that wants to get into the investing game. So we spend a lot of time building portfolios, really, of a mixture of both. And they both can produce tremendous returns. But oftentimes so to get there and sometimes different manners because of the size of the partnership, the size of the funds, the stage and strategy. But it’s definitely become a larger asset class over a period of time, and the ways to generate alpha have expanded across different investment strategies.

Sean
Oh, that’s great. That’s helpful. Thanks. You mentioned there in passing that the Greenspring, one of the strategies is as a fund of funds, so you’re investing directly in managers. Entrepreneurs will often ask us, where do you get your capital? And the answer will be there’s different pockets of capital. There’s fund of funds, like a Greenspring, now, StepStone. There are endowments. There’s pension funds. There’s wealthy families, etc. But I think all of those groups are looking for something similar when they choose to invest in venture or growth equity. Maybe just talk through that process, even as you’re talking to your clients. Why do institutions invest in venture capital and growth equity?

John Avirett
Yeah, absolutely. I’ll maybe kind of zoom out even a little bit further to that. It kind of ties into your prior question, which is, is a subset of institutions that would give us money, because, again, there’s a group of venture capitalist growth managers that will just never take their call. So we’re effectively providing access to them. And another subset that you need eyes and ears to identify next- generation managers, where they’re they’re not going to find the next Volition Capital because they don’t have the networks to understand that highly talented team was within Fidelity Ventures was considering leaving and those sort of parameters. So you kind of pay a group like ourselves or others to both get access and identify those asset classes within the continuum. Both again are highly, highly valuable. To your question around why institutions. I just want to make sure I get it right, John. So you ask why institutions want to allocate to the asset class?

Sean
Correct.

John Avirett
Yeah. So institutions that allocate to the asset class would range from, as you pointed out, endowments, foundations, family offices, public pension funds, insurance companies, sovereign wealth funds. More and more you’re seeing RIAs or other even wealth channels and the like allocate to the asset class. What’s been proven in venture and growth is it has been probably the highest performing illiquid and liquid asset class out there if you can invest in that upper quartile. So more and more institutions have sort of seen the returns that can be driven in venture and growth and have added this as part of their alternative bucket. Venture at one point was definitely a smaller portion of the portfolios and growth was because there was a period of time where venture and growth returns outside of the ’80s and ’90s and early to mid-2000, the returns were much poorer. We’ve seen incredible returns in the asset class in particular over the last sort of 10 to 12-ish years. So more and more people were adding that to the bucket because of the offer that this asset class can generate and I think people better understanding so that the risk parameters that exist in venture and growth. If you’re doing allocating to early-stage venture managers, clearly you need a lot of diversification because the risks associated with those. The further you go up in growth, institutions may need less diversification because loss rates are going to generally be lower there. But people have become more and more sophisticated over time to add this as part of their bucket because of the performance, because they better understand the risks associated with it. Importantly, if you think about venture and growth, it’s really fueling the innovation technology and innovation ecosystem with the US or more broadly, and that innovation ecosystem has proven to be a highly valuable part of any asset allocation out there. Capturing it in the private world where valuations are lower, there’s more inefficiency has been a really durable way to gather and gain part of that innovation economy allocation within a buck.

Sean
You raised a couple of interesting points I want to come back to. So certainly there’s trade-offs, right? So one of those trade-offs is it’s illiquid, you can’t access it. But if you’re a bigger pool of capital, you will sacrifice liquidity in exchange for what could be hopefully higher returns. You mentioned that private markets are inefficient, at least relative to public markets. I think you and I are living in the same world. There have been really good returns, and that’s led to a lot of capital being raised. I’d love to get your thoughts on, is there still inefficiency in the private markets and what does the future outlook for kind of venture capital and growth equity look like in light of what we’re living through right now, which is a little bit of a market correction set against a backdrop of a lot of firms that raised a lot of money.

John Avirett
Yeah. Yeah, it’s a great question. Yeah. Again, when you’re in inefficient markets and venture historically was one of the most inefficient markets. I mean, that’s why one of the great reasons why you had these tremendous outlier type of outcomes, but tied with giving the market opportunities, the growth of technology, the growth of the underlying businesses. So it’s sort of a confluence of a variety of things that allowed for these outlier returns. As more moneies come into the system. Clearly, there has been more kind of transactional nature within venture and growth. I think you saw most meaningfully right in late-stage and pre-IPO companies where those deals were being done largely based on who showed up with the highest price. In private equity, most private equity deals are larger private equity deals or intermediated, and who wins largely has to do with valuation. There is some brand and understanding space, but a lot of it has to do with the transaction. That kind of started moving down into venture land, where again, it was all about sort of price and who could move faster and valuation. The thing that we love about venture and where we want to play is in segments of the venture market, whether it’s in seed or early stage, it’s bootstrap growth where you all are in, where it’s less about the valuation, and it’s more about everything that you bring outside of a dollar and an entrepreneur wanting to partner with somebody that they know and trust and good to go and help in the business, and they’re not necessarily trying to price optimize for that last X, Y, Z valuation. Unfortunately, you saw with a lot of kind of newer capital, in some cases, tourist capital, nontraditional venture capital coming into the system, you saw a lot more churn of transactional nature happening across the board. Again, in particular in the growth, late-stage, venture-backed companies, but even down into some of the early stage. So again, we want to work with people that don’t win by paying the highest price. They win by building trust and relationships, knowing a category really well, be able to help an entrepreneur and a management team go build a big durable business over time. You need a special subset of people and resources and networks in order to do that on a sort of a repeatable basis. Again, our job is sort of sift through, which is now thousands of venture firms on a global basis. A lot of those people have popped up over the last decade is find those people that again win for those reasons and not because they’re going to pay the highest check. I think, again, we’re moving into an environment more where I think entrepreneurs in some cases got a little caught up in this transactional aspect and looked at valuation as a badge of honor, in some cases, sort of keeping up with the Joneses around specific valuations alike. Really, I mean, to be frank, the real badge of honor, whether it’s for an entrepreneur or it’s for a venture capitalist or growth equity firm is when that company ultimately exits, right? It’s sold to a strategic and M&A to private equity or get it public and have market capitalization. So I think more and more actors probably that are kind of shifting their thinking around, making sure they’ve got long-term partners, I think valuations are obviously coming down where you want to be aligned with your investors. You want employees that have options that are in the money. So we’re definitely seeing a readjustment there. But again, we’re kind of in the early innings of some of this shift in sentiment.

Sean
I mean, you have such a unique perspective because, through your firm, you have relationships with many firms, and then you also have access to the underlying portfolios of those firms. So you’ve just seen so many of these stories play out. I wonder if there’s any generalizations you can make just from the successes and the failures. If one of your good friends is an entrepreneur and he says, “Hey John, I’m getting approached by a few firms, should I raise money?” Should I take outside capital? What would you say to your friend? And how would you help coach them through just first, the decision of whether to take money or not? Then maybe we’ll get to who you should take money from and types of questions you should ask. But just should you raise money?

John Avirett
Yeah. It’s a great question. I mean, listen. I think when you’re thinking about raising money for the first time, whether you’re a seed stage company or you’re a bootstrapped entrepreneur that’s gotten the business to some scale, maybe on your own coin or with friends and family, you’re ultimately going to be giving up a chunk of ownership in venture and growth, largely a minority. You’re not handing the keys to a private equity firm, so you’re not losing ownership, but you’re taking on a meaningful business partner that you’re going to be working with for a very long time. The average time to liquidity in venture growth companies is actually longer than the average marriage. So if you sort of put that-

Sean
That is an amazing stat. I’m going to tuck that one away for the next time I get asked that question on hold period. Okay.

John Avirett
If you think about that again to the entrepreneur, you’re going to get married to a firm, a partner, or a subset of partners that you’re going to go be building a business with for quite some time. So I think that the piece, forget about use of proceeds because I think, again, people can think about, “Hey, do I need a dollar? And if I have that dollar and I put X, Y and Z in a product or sales and marketing or channel or I’m going to go acquire something Like what is the ROI on the dollar?” If you get the trusted relationship part wrong, you get everything wrong in our estimation. So I think you really have to first and foremost be open to having a partner that you want as a business partner to go take your business from maybe good to great or great to excellent or excellent to awesome and that you need to have that openness in that mindset. If you don’t, right, this is your baby and you don’t need a business partner, mentally you don’t do that until you’re kind of involved.

Sean
It’s interesting. I mean, it’s interesting. I didn’t know how you would answer that question necessarily. But it does run perfectly counter to the earlier point you made about the trend of the last few years with some of the transactional firms that might be a little more transient in nature. They’re seeking returns in a bull market. They’re doing late-stage pre-IPO type financings, maybe even early stage. But it’s the high bid, but maybe there’s not much of a relationship there. Maybe they’re just going to write the check and not be involved in the business. At least from your perspective, valuing that relationship would probably be first on the list.

John Avirett
Absolutely. Especially, listen again, different entrepreneurs, certain entrepreneurs say, “Damn the torpedoes. I don’t need the VC and growth. I can go build this myself and then another subset again, really, really value that. I think, again, people value that even more in turbulent times, whether they’re fully ready to accept it or not. But where you all play, I think, again, it matters that much more, right, than maybe an MIT or Stanford or Carnegie Mellon dropout that’s going to go start a company and he or she thinks they’re going to go conquer the world. I think in some cases that the companies that you all are, the more bootstrapping growth companies. Again, they’re going to be more prone to being open and thinking from a business partner perspective. But again, even if we’re talking about sort of the former versus the latter, those entrepreneurs really do again need to think about the right firms to be building those long enduring companies because it does take both capital and resources and really kind of a trusted steady hand to be in that journey through ups and downs, with an entrepreneur. Because that journey is challenging, it’s lonely. It’s got lots of peaks and troughs. And you really need somebody who’s sort of empathetic to that journey with you.

Sean
In your role as an allocator of capital to GPs or funds specifically, certainly you have data to look at that helps drive decision around track record and at least patterns of success and so forth. What else do you evaluate as perhaps indicators of continued success?

John Avirett
Yeah. I mean, it kind of goes back a little bit to the point that I referenced earlier, that if we’re trying to evaluate whether a firm can persist. Again, we can look at the backward track record and say this firm has a 2X, 3X, 4X, 5X, 6X track record. Right? But that’s all we’re facing. Ultimately, we’re investing in a fund that’s a blind pool. Right. A new fund to have a fresh crop of companies to replicate the success. So you want that firm. Ultimately, this is a people business. It’s the underlying people within that firm to have that repeatability of what they did in the past. So how do you like diligence or repeatability, right? The biggest thing to diligence repeatability is go talk to the end customer, which the end customer for venture capitalists. Again, people it’s two end customers, right? There’s LPs that give them VCs money, but also one of the end customers is the entrepreneurs. So we try to spend a lot of time with the entrepreneurs understanding why they took a dollar from X, Y, or Z venture firm over another firm. If he or she is going to go create a new company or he or she’s going to refer their best friend starting a company, are they going to say this firm, that firm should be your first jack and your first call? And if they offer your term sheet, even if it’s at 20% lower than everyone else, take it hands down or be the best decision you ever made. And so it goes back to best companies capital’s commoditized. So you need to have that sort of [inaudible] to win deals out there in a competitive environment where there’s more dollars. We’re trying to understand, does that firm and do the people that are leading that firm have those abilities to consistently source, win, and help to build enduring franchises within their specific strategies?

Sean
Yeah, that’s great. Again, I talk to a lot of entrepreneurs every day. Many of these folks have never raised capital before. So going back to your point about being a bootstrap founder, so I think there’s that first decision point, which is, do I want a partner? Do I want to open this business up to someone from the outside? If so, do I trust this person? But then the next question I get, once you’re kind of feeling each other out, is like, “All right, tell me how you guys are different from every other firm out there.” While I think every firm has their pitch, the decision is largely ultimately made based upon the nature of the relationship that founder or entrepreneur I think has with the firm, and that’s certainly influenced, I think, by the reputation and past experiences that stay with you, no doubt. What’s your outlook for the firm? Right now, at maybe just your personal opinion on, is this a good time to be an entrepreneur? We’ve had this great period of a lot of value creation. A lot of companies raised a lot of money. We had a long-term bull market. Now, I’m just sensing when I talk to entrepreneurs, I don’t want to say a defeatist attitude, but everyone’s just trying to understand what is the fallout from this change in the public markets, and how does that impact kind of an entrepreneur’s ability to really kind of build a valuable business against that backdrop?

John Avirett
Yeah. Before answering that, I think one thing I want to throw in there that ties into the prior conversation is advice an entrepreneur is make sure you’re being diligence right by a private equity firm or growth equity firm or venture firm, right? They’re asking you for a ton of information. They’re asking to talk to your customers. Right? They’re asking to talk to your team members. Do your diligence on that firm. Go talk to other entrepreneurs that work with them. Go talk to people that know those individuals or that firm very intimately, personally, and understand what type of partner that person’s going to be or that firm is going to be in good times and bad times and make sure you have that intellectual honesty and really do that work upfront to form that. So again, I think certain entrepreneurs kind of skip that step because the valuation is high and move fast. The term sheet had an expiring gun to your head, make a decision in a week. But again, these are long-term relationships. So do your work on that firm. If that firm is saying like, “Hey, this is how we treat entrepreneurs, this is how we help, this is what you should expect from us.” Validate it. Right. They’re validating every one of your SaaS metrics. They’re validating. They’re doing background checks potentially on the management teams, etc. So take that extra, extra step to make sure you do your proper diligence on that firm and in particular that partner or deal team or others that are going to be your right-hand man or woman in the journey ahead.

Sean
I think that’s a great point, John, and it’s amazing how rarely entrepreneurs actually take that step. You’re right. We engage in a conversation. The entrepreneur says, “Yeah, I’m considering raising money.” We will send a laundry list data request. They might have already even taken that extra step of pulling together a data room to kind of front run those questions. We’re going to ask to talk to customers. Rarely do entrepreneurs actually say, “Can I talk to a few of your references?” But it’s such a valuable exercise, particularly given that fun stat you shared about the duration of a business partnership in comparison to a marriage. I had not heard that one before. But I mean, it just kind of magnifies the importance of making sure you’re getting that decision right.

John Avirett
It kind of does lead into sort of the question you just ask, right? We are in a period where deal pacing is slowed down, right? So whether, again, your investors are not investing at a fever pitch like they were or entrepreneurs realizing, again, valuations are not as high, there’s more uncertainty from a macro perspective are not out there raising, unless in some cases they need to raise. So you’ve just seen a slowdown. And again, I think that can create better behavior on both sides, where again, people are getting to know each other for longer periods of time before deciding to dive into the deep end and partner and go build together. So again, I think there can be some real health to that if you’re an entrepreneur and/or you’re a VC because you have longer to diligence each other again both ways that it is a good thing to do business together. It is not a shotgun wedding because it’s a hot market and some banker tells you to raise and go get the highest valuation, call 10 people and whoever shows up take their loot. So I think there’s some beauty to that as an entrepreneur to spend this time, whether you’re actually raising or not, to go build relationships. Venture investors or growth investors, again, might not be firing off term sheets like they used to, but it’s also a great time to get to build those relationships for when the time is right, go raise that round. So I think those are kind of good, healthy things in terms of going to building good, enduring partnerships with a lot of trust. Both sides should get to see game tape, right? If you get to see game tape and get to share quarters of data or years of data to affirm and vice versa, you get to see how that firm reacts. They don’t just fly in and take you out to a nice steak dinner. If you say you’re not raising, they don’t show up again. You’re going to get to see kind of consistency of behaviors. Consistency of behaviors, whether you’re an entrepreneur and how you operate and producing results is so important to the venture capitalist and vice versa. If you’re an entrepreneur, the consistency of how that VC or that growth firm is going to show up is important, right? Venture caps and growth, investors can be backseat drivers where they tell you, “Slow down, speed up, hit the brakes.” You want to know how somebody’s going to react, especially in times of volatility, and not have somebody all of a sudden tell you to fire 30-hour employees during COVID, then COVID becomes an accelerator, and then they scream at you for not growing fast enough, “You should have hired 50% more.” You want consistency. So you just have a lot more time to understand how people will behave during these periods as you get to know people. I think the other piece which again, Sean, you’re more on the ground floor than me on this, but when there is more rifts that are happening out there and less companies as aggressively hiring, there is more talent available for younger companies. Talent had been really a challenge for a lot of younger companies, both in terms of getting at it and just the cost associated with it. Also, there’s some interesting talent dynamics that are associated with location, remote and not remote and variety of kind of factors there. So I think when you see periods like this, there does tend to be more available talent. At the end of the day, building businesses, it’s a people business. So you need great people. If you can build great companies with great people and you can do it more capital efficiently, that does tend to create better win, wins, whether again, you’re an entrepreneur or you’re a venture capitalist that is partnering with the entrepreneurs. So I think those things are actually heading in a more positive direction for company building, again, early innings in that. But again, I think that’s another kind of positive parameter that people should think about. So if you are thinking about raising whatever dollar amount that is, you might be able to more effectively deploy that money, which largely goes into people who go build products or sell or whatnot, whatever in this environment. Now, again, there’s macro unknowns as to you go hire great new salespeople. The demand on the other side may pull back. But in any way, you might have an opportunity to upgrade or enhance your teams at a period where otherwise it would have been more challenging if we were in the bull market we’ve been in for a number of years.

Sean
Yeah. It’s almost like two sides of the same coin. On the one hand, when capital is flowing freely. It’s also flowing freely for your competitors. There is that word for talent. I think when markets tighten up a little bit, it forces entrepreneurs to go back to the basics and be scrappy and gritty and just squeeze that much more out of every penny. The labor force, it’s not as tight, and you might have longer tenure and less turnover of your employee basis. So I know certainly from the last few recessions, and I don’t know if we’re heading there, it looks like we probably are, a lot of great businesses are built in those time periods. So it’ll take some time, I think, to understand where the market’s going to settle out and how long a recession might last if that’s where we’re headed. But these are cycles, right? There’s going to be a lot of opportunity on the other side. So I know we’re certainly as excited as we’ve ever been, and the beauty of this country is it’s incredibly entrepreneurial, and new companies are being started every single day, and it’s almost for certain that companies being started in this time period will go on to accomplish some pretty big things. StepStone and the role you guys are playing are a big part of that. John, maybe just to wrap it up, I’d love to hear just one anecdote/personal story of one of the kind of highlights of your career, whether that’s an investment you made, a relationship you formed, but maybe one of your more particularly proud moments of your career over the last 20 years?

John Avirett
Oh, man. Gosh, I don’t like to brag about anything here, John, but-

Sean
I mean, maybe it was your college football career. I don’t know. That’s fine. You feel free to take this wherever you want.

John Avirett
D3 Johns Hopkins football, for sure. I did notice you’re wearing a purple shirt, so. Well, it’s not Mizzen+Main, our favorite clothing line. You are representing the Baltimore Ravens for me. So-

Sean
There you go. That was not an accident.

John Avirett
… we’ll have to get you down for Ravens. I do have to put before answering the question… I do have to put a plug-in around sort of what you’re describing on the innovation economy in the US. There are some cool stats out here that you should be aware of. If you think about some of what we have as a nation, the innovation economy in the US is truly like one of the national treasures we have. It’s incredible. If you look at the top five or six market cap companies on a global basis, almost all of them were venture- backed. I think the only one that isn’t venture-backed is Saudi Aramco right now. The rest of the next five or six were all venture- backed, which is totally incredible. Then you look at the NBCA and a bunch of people have done studies on this in terms of innovation, economy, and the dollars being put into venture-backed companies and what they’ve sort of created. Roughly half the US public companies were venture-backed, and they make up close to 75% of the entire market capitalization. So you think about what again was a small industry. It’s gotten bigger, but it’s still a small part of the pie if you think about public equities, fixed income, these private equity Goliaths. Then you’ve got this innovation engine, this venture capitalist, that growth equity people are taking a ton of risk, betting on people, team, idea, product, and a lot of fight and grit and innovation largely here in the US. It’s happening globally as well. Certainly, it’s happening globally, and it’s creating this huge shift of value creation and job creation, economic drivers that we have.

John Avirett
So I think that’s what gets me super pumped about what I get to do and getting to work with people like you or amazing entrepreneurs that have that sort of firepower. I think again, to your point, in tough times, you see a lot of great businesses that are built because people are out there thinking and trying to solve whether it’s a net new problem or a problem that exists that needs to be optimized, where that innovation engine that we have in the US creates both accelerated growth but also rebirth in times of change. So again, we’re very lucky to do what we’re doing. I mean, in some ways asking about one of the highlights of my career was getting to join venture capital basically less than a year out of college and getting to work day-to-day with tremendous venture capitalist growth investors like you all at volition or entrepreneurs like Ryan Cohen who founded Chewy.com with you all. That’s what gets my blood pumping. Clearly, it’s not always up into the right. But if you really get to work with people that you know and trust, it leads to better outcomes. Our tagline at Greenspring before you got acquired was trust, relationships, better outcomes. I think about a relationship like Volition, and this is not just be a commercial, the trusted relationship that we all built, obviously, we were one of your first partners. We put a lot of trust in you all as you spun out of fidelity. But whether it was the returns you drove, the transparency that you provide us, the ability to effect and to talk about your strategy and journey and help you in that regard or partner with great businesses like Ascent and RTS and Chewy along the way and build that friendship and bonds and obviously have a lot of success together, that’s what you want. We think a lot about that is these holistic relationships where you’re winning with people that you know and trust, and that ultimately, again, leads to better, better outcomes. The folks that are more transactional, and again, don’t think about us as partners and think about us as limited partners. Similarly, like an entrepreneur that tries to hide the ball to us as investors and doesn’t want to truly interact and gain those resources and partner, those tend to not be great relationships. Even if you made a buck or made some money at some point, at some point, in our estimation, it probably isn’t going to work out the way that you want. Our funds are over a decade long. Your funds are over a decade long, and our business is long, the same way that the entrepreneur’s journey from zero to success is long. So, you want to do it with people you like doing it with that you want to hang out and spend time and go build things with and have a lot of fun. Again, I think one of the beauties of the partnership of volition is we have a lot of fun together and do a lot of great things and hopefully more to come.

Sean
Well, you are a great blueprint of the type of relationship we would hope to have with the companies we invest in. So right back at you on some of those comments. You guys and our other investors have been hugely influential in kind of shaping our growth as a firm and the evolution of the strategy, and we look to you as our board to highlight where our blind spots might be. So-

John Avirett
One of those, Sean, was just the lack of media presence that you had. I mean, as you know, in our advisory board, I’d always just comment the fact that Larry was really leading the charge and particularly on TV, where I was hoping that you could become a TV personality. You’re not quite there. Obviously, the pod’s a first step. Most of the pod listeners are probably not seeing the video. They’re just listening on Spotify. So we’ve got to get your camera ready like Larry. But this is the type of step that I love to see. That’s-

Sean
I always appreciate your feedback and guidance, John, and here we are on a podcast. So, it all comes full circle. But John, thank you so much for taking the time to chat with us. I know our listeners will benefit from and enjoy kind of hearing your perspective as an allocator of capital into the asset class, not only direct to companies but through general partners and funds and will help, I think demystify some of the questions we hear from entrepreneurs when we’re getting to know them. Again, we very much value the relationship with StepStone. You guys have been amazing partners to us, and this is a great chance for some of our listeners to benefit from some of those perspectives as well. So, thank you so much.

John Avirett
Absolutely. Thanks for having me on, and we’ll talk soon.

Sean
It sounds good, John. Take care.