The text below is a transcript of the audio from Episode 43 of Onward, "Sell your tech company for $310M or $30B, with Auren Hoffman".
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Ben: Today’s guest is Auren Hoffman. Auren was the founder of LiveRamp, a public-traded company on Nasdaq. He is CEO of SafeGraph and GP of Flex Capital. He has founded and funded dozens of companies. Auren is the quintessential tech entrepreneur and a true insider within the tech community.
Before we get started, I want to remind you that this podcast is not investment advice, it is intended for information and entertainment purposes only.
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Ben: Auren Hoffman, welcome to Onward.
Auren: I'm very excited to be here. Thanks, Ben.
Ben: Okay, so let's jump right in here. You sold your business LiveRamp for $310 million in 2014. In retrospect, should you not have
Auren: In retrospect, we made a mistake to sell, and I think there's a few different reasons we made a mistake. First was a personal reason. I think a lot of times when people sell, they're selling because it would personally change their financial situation, and that was definitely true for me. It went from money being something that one would have to think about at the time I had two very young kids, to not having to worry about it afterwards.
It just so happened that later that year, also in 2014, but later that year, my wife's business ended up selling. And also, one of my best friends, who I was on the board of, a decently large shareholder of, also sold later that year. So if I had a crystal ball from a personal finance reason, if those had sold first, and they definitely could have sold first, we wouldn't have sold.
And then the second thing is that I just didn't understand the power of the business. So the business, when you're in it, sometimes you see all the duct tape that is there
Ben: mm-hmm
Auren: and within six months of selling it, I realized, okay, this business is actually way better than I had thought it was. It's way more enduring.
I thought it was, and you spend all this time gathering all these people. The early days are the hardest. You finally find all these great people to work with that you love working with and stuff. And it would have been great to have a run with those guys for another five or 10 years. So for all those reasons, I think in retrospect, we shouldn't have sold, but I'm not sure what I could have known beforehand to have changed my mind.
Ben: Okay. So was it one of the top two or three biggest mistakes of your life?
Auren: I don't know if it was one of the top mistakes. If I had the same information, I don't know if I would have changed my mind. I think that's kind of the definition of a mistake. If you go for the two pointer conversion in a football game and you play the percentages and you don't get it, it doesn't mean it was a mistake.
You made the right call at the time. So I think these are always hard things to go like retrospective. And then of course, that led to a whole bunch of other things, investing in a bunch of other things and doing other things that I wouldn't have done and growing in different ways. So I think these things are very, very hard.
But I think from a net worth perspective, my net worth would be higher today if we hadn't sold. I think almost certainly that would be true. I think that company today would be worth 30, 40 billion dollars at least. And so I think it would have been a very different situation.
Ben: Wait, so take me there. That is wild. What would you, you've done different, what are the decisions? That's a huge difference.
Auren: I think we would have 100x'ed company. We probably already underpriced it when we sold. So when we were selling, it's already just doing well. And I don't think we appreciate at the time, at the time we were doing probably 35 million ARR and we were growing 80 percent a year and we're profitable. That was just a year before all the stats got known.
And it's like, so we just didn't appreciate how good the business was. So we probably already sold it too cheap. And then all these other things that came in as well that we could have probably grown the business faster post selling. When you sell a business, things tend to slow down. And then over time you lose talent.
Obviously I left the business about a year after we sold it. And, uh, Other talented people over time left as well, cause it got more bureaucratic and other
types of things. So I think all of those reasons we would have been able to, and we would have been able to be focused a lot more on the core problem.
Ben: What did you learn from that experience?
Auren: Well, I learned you don't get lightning in a bottle that often. And so we had a collection of one of the most talented groups of people. I think. really ever assembled. So we got lucky. Most of the people joined this when they were 22. So they didn't come in with great resumes, but if you just look at what they've all done since, it's just like astronomical.
And so these are just incredibly talented people, great, hardworking people, super ethical people, fun people, interesting people. And so just having those people around, even if you fail is awesome. So there's just something about having a team and it takes a while to recreate that. You may have started the creating that at a certain point in your life, where you maybe had the ability to create it in one way.
Most of that talent creation was pre kids for me. Post kids, you have a different way of having, creating it and you may have different other types of things you have to do. And we're all in person back then. And maybe nowadays you're more distributed. You have all these other things that have changed as well.
Ben: So in retrospect, it was a once in a lifetime. Have you done it again?
Auren: Yeah, I think so. But it's different. Each stage of your life, it's different. And now most of the things I do are much more distributed. And so you have different relationships with your coworkers than when you do. And then when you have kids, you want to be there for dinner, those types of things where if you don't have kids, you don't have to worry about that.
And so you're having late night. Dinners with your colleagues and maybe traveling a little bit more with your colleagues than you would, so you have all these other things that change as your life changes as well.
Ben: Yeah. Well, I'm coming back to that. Do you think you've done it again? We have to come back to, but hold on. If that wasn't one of your biggest mistakes, what were,
Auren: It's always hard to know what's a mistake, because assuming your life turned out quite well, well then it's very hard to say, okay, I didn't take this
opportunity at this point, but then maybe by not taking the opportunity, that helped the rest of things happen. So I think these things are really hard to replay.
These regrets are difficult. It's very easy in the moment if it's just something simple, like, I don't know, let's say you had a chance to invest early in Facebook or something in 2004 and you decided not to do it. That's an easy thing to regret because it's very easy to replay and it wouldn't really change any other path that went there because it was just this one core decision.
But if you had a chance to work at Facebook, And then you couldn't have done some other thing and your life still turned out well. Well then, yeah, okay. I have a sense I would have been worth an extra a hundred million dollars or whatever. That's real loss, but it's hard to play. Okay. Well, maybe I wouldn't have met my spouse or maybe this wouldn't happen or that wouldn't.
So I think it's all these other things are really hard. We live in a very butterfly effect. Have you ever seen Sliding Doors, the movie?
Ben: yes.
Auren: I love that movie. It's one of my favorite movies. I think it should be required watching for people. This is a fantastic, beautiful movie. There's just so many little things that happen in your life and it's so hard to know how all these things would play out based on that.
Ben: So do you not have a lot of regrets? Some people carry a lot of regrets around with them.
Auren: I don't personally, I have regrets in that moment. I wish I said this thing differently. Or if I said this thing like this, or I played sports, I had this regret. I wish I didn't hit the backhand with a slice or something. I wish I did more topspin. So you have all these mini regrets and you're trying to learn from them.
Like basically you make mistakes every day and every one of those mistakes is a regret or you said thing in a way you wish you didn't say, or you sent an email and then that email got misinterpreted. And so of course you have tons of regrets and all those things I think are regrets and they're all learning opportunities to get better.
And of course, the worst ones are when you make the same mistake again and again and again. And we've all done that. Anyone who's been a CEO, it's like,
oh wow, I've made this mistake like 50 times. I keep making the same mistake about hiring or about some other type of thing. I wish I didn't do that. Those are like the really gnawing regrets that one has, is these uber mistakes that you keep making again and again and again.
And we're human, so we have to expect that that's going to be a high degree of things that we do.
Ben: So, okay, let me invert this here. So, what about some of the best decisions you've ever made? Do you think about what those were? Do they come to your mind right away?
Auren: Yeah, they do, but some of them weren't easy decisions. I mean, I think who you marry is for most people, certainly top five decision, if not top one decision that you make. And for me, was it really a decision? I don't know. We met, we fell in love. It's like, okay, yeah, I guess I could have decided to not be with her or something, but it was so obvious to do it.
I mean, it's not like I made some sort of decision science. I wrote a macro program and put it in Excel to decide whether I got married. So it was probably the most consequential, most important decision of my life, but I'm not sure I really made the decision per se. We just got married and it turned out to be amazing.
Ben: Right, so, then you ladder up to the next thing, which is that, okay, making hard decisions, not to make the best decisions or worst decisions, now you're at hard decisions. So then a natural question is, were the hardest decisions some of the best or worst decisions you've ever made? And I feel like what you're leading me to believe is no.
Auren: Well, I mean, I think a lot of the bigger decisions that people make, there's the commission and omission. And so, you know, omission is just not doing something. We're not doing something fast enough. A lot of CEOs, they make a lot of omission personnel decisions where like keep people in jobs longer than they should, or they don't shake up the company when they should be shaking up the company, or they don't get involved in a certain thing when they should be, or they don't overly manage something that they should be overly managing.
So these are more like. omission decisions, which I think sometimes that can be good. You could do things good for omission and bad for omission, and you can do things good for co omission and bad for co omission. And to me, that's the
two by two matrix one should be thinking about. And the co omission ones are much easier to analyze good and bad than the omission ones.
But often the more consequential ones are the omission ones.
Ben: So you feel like personally, you've made more omission mistakes and hard decisions than commission.
Auren: Well, I think those are just hard to evaluate.
Ben: What were some of the more difficult periods you've had? And how did you think about weathering them in terms of decisions?
Auren: Honestly, I've lived a pretty charmed life, knock on wood or whatever my desk is made out of, so don't really have very many bad days. I don't even have that many bad hours. So, I mean, things generally are pretty good. I'm surrounded by people that I love. I get to do fun things. And I recognize that I'm fortunate and lucky in many, many ways.
And I try to talk about that. Even my wife and I talk about how fortunate we are and we found each other. Fortunate we are, we have kids that we love. Fortunate are that we have great friends and community and other types of things. And obviously all those things could change just because we're that today, those things could change.
We have our health today too. Obviously at some point that will change. So, you have all these things that we have to count our blessings about as well, and I think if you're lucky enough to have those blessings, you should try to appreciate them because so many people around the world don't have that.
Ben: Yeah. Well, that was a kind of a marvelous look into your personality because you don't have regret. The mistakes you made, the decisions, the difficulties, you're really an optimist, clearly, or at least you seem to see the world's glass half full.
Auren: I mean, risk averse optimist,
Ben: And how much do you think that contributed to your success?
Auren: I'm not sure. I think the thing that easiest I could do is just hard work. So I think people who put in a lot of hours and who have a real desire to succeed are more likely to succeed. Doesn't mean they will, but they're more
likely to succeed, and obviously you can succeed By not doing that and you could not succeed by doing that, but it just increases your chances greatly.
Ben: Yeah. Something on the team I work with, my team, is I feel like some of us actually really enjoy it. I think I've heard you say you don't love exercise. Some people love exercise.
Auren: I hate exercise. Yeah.
Ben: I feel like some of us just love working. It's just absolutely, I don't mean like the fun work. I even mean like the grind just it's irresistible.
Auren: I like what I do and there are certain things that I don't love. So I would say a decent part of my day I do things that I don't love doing. I'm not super excited to do it, but I know I have to go do it. I mean, I take out the trash in my house. So I don't like love doing that. So they're just things that you do because you have to do.
But I guess I don't. Hate it per se. I do hate exercise, honestly. Um, and I still do it anyway. And I probably don't do it as much as I would if I didn't hate it. Sometimes you still have to do things you just really don't like.
Ben: You've been entrepreneuring. I guess that's like 96, 96, 95. You sold your first business in 1997.
Auren: Yeah, even before that. So that was in college. I started business in college and we sold it after college. I had a business in high school that paid for my first three years of college. And the reason why I started the business in college is because I ran out of money I had to pay for my last year and I was like, Oh, I will just start a business to go do it.
So I didn't budget correctly or I had more beer than I should have or something.
Ben: At least the businesses I know were all software related.
Auren: Yeah,
Ben: So you've been a software developer.
Auren: obviously not in high school, but starting college, yeah.
Ben: Yeah. So I think of it as you went through two major eras, late nineties to late 2000s, I mean, 97 to 2010 or nine or whatever. And then the next phase or the next era.
Auren: I think that's probably right. I think we're definitely in a new era today. Ben: When did the third one yet? Right around end of COVID or something. Auren: Yep.
Ben: Yeah. So I'm curious how you think about those two earlier eras and what were the differences, even the change between eras and how like different things apply, different rules apply, different pricing, a product flies.
Auren: One of the interesting things is there's almost nobody still involved from the first era that I know, unless they were so successful, it just kept them going. Like Marc Andreessen or there's a couple of people from that era who are just so successful. But even most of the ones that were super successful, they got off the train.
They started a winery or something. They got off the train at some point, and I think that's just human nature. People don't continue usually doing it, even way less so in tech than in finance. Probably so many people who were involved in finance early on in their career are still super involved. And, you know, by like almost all my entrepreneur friends, I would say maybe even a hundred percent.
I had all these friends in the nineties who were all running companies. And we all raised a little bit of money and we're all stupid and young and et cetera, basically, none of them are doing anything meaningful in tech anymore. They're ones who maybe didn't succeed as well. And those guys might be working for a tech company, but they're not entrepreneurs.
Anymore, or they're doing some other type of thing. And then the ones who were successful are enjoying their wealth. They're not actually in the grind anymore. It's just an interesting thing that people don't often keep going at it all the time. I mean, I would say almost all of them were, I can maybe think of one or two that are still doing it.
So maybe it's not a hundred percent. I would say quite a few of them are way more talented than me. Way smarter, way more brilliant, way more charismatic. But for whatever reason, they had other priorities in life over time, which makes
sense. They got other interests or other types of things. And I would say a very high percentage of them have a winery.
Ben: I kind of wonder if that's one of the reasons why text is successful. Cause you don't have these people who end up dominating the industry for 50 years because they move on. You have this waves of change.
Auren: Yeah, that might be true. Or it's just hard. It's a grind. It's a grind to start a company again. People remember how tough it is. And they're like, I don't want to do that. And so I don't want to go back to two people in a garage. Type of thing. There's only a small number of people who want to go back to doing it, and they did it in their early twenties, not because they wanted to necessarily, but because they had to.
That was their main option. And then, if they had some success, why go back to doing that thing again?
Ben: Yeah, no, I can appreciate it too, if they can, it's so brutal.
Auren: Yeah. Again, there's definitely some exceptions that just keep doing it over and over again.
Ben: Has the culture changed a lot too, between those generations?
Auren: I definitely think the culture of, you know, Silicon Valley was way more different from the New York in the 90s than it is today. So I think as it converged more with New York, way more people, let's say, who were Tech people would probably send their kids to public schools in the 90s, whereas today it's probably close to zero, probably Manhattan or something.
And then even some of those people send their kids to the same East Coast boarding schools. They probably even vacation in the same places that the people in New York vacation, like Aspen or Martha's Vineyard or Nantucket or something like that, or the Hamptons. They probably do a lot of those types of things.
Whereas in the 90s, it was just very, very separate. Cultures, and then of course, I think the money thing, they spend money in a similar way. They're just as showy now than they were. So it has converged more to New York over the last, let's say, 20, 30 years.
Ben: I worked in tech briefly in 99 and 2000. And yeah, it's funny how you said that. I didn't really think about it. All those people I knew, nobody I knew from that era. When I went back to tech in 2011, 12, there's nobody I know. I have some people on my boards from that era, but I don't know anybody anymore.
Auren: And it's a young person's game. So as you get older, like you and I, there's certain stamina that you need. There's certain just number of raw hours. I still work an incredible number of hours. I think it's important. I spend also a lot of time just tinkering with things, especially this AI era, there's like a new thing to tinker with every single day.
You can spend your whole day tinkering today if you need to. And I think you need to, you can't spend your whole day, but you can't do no tinkering either. There's some sort of laugh or curve of tinkering that one has to do. Even as a very busy CEO of just trying to learn about new stuff.
Ben: Yeah, the various businesses you started, did they come out as organic ideas or were they more business analysis, MBAs?
Auren: They're all over the map. I mean, I am still starting new businesses on a regular basis today. It's all over the map. And sometimes you're not. It just kind of happens. Or sometimes you find another person who's also passionate about something and together you come up with something. I don't think there's always an awesome grand design on businesses.
Ben: So for people who don't know you, I think of you as one of the world experts on data businesses. I think that's probably like objectively true. But anyways, here's a question for you. I heard you say this and I wanted to know more about it. So there were, seemed to be a lot more big data business or huge data businesses started before the internet.
Back in the eighties, seventies, then after, I think I heard you say there were only one that started in the last 20 or 30 years. And so I decided to put it up since the internet. And I'm curious why that is. It was just examples of big businesses that were starting before Bloomberg, FICO, CoStar actually
Auren: Yep, most of the well known data businesses, and we're talking about data only, not like database and stuff, are some sort of application on top of data, but most of the well known data businesses were started over 40 years ago. Let's say in the last 20 years, ZoomInfo is one of the very few. Core
data businesses that became ultimate unicorn, the late nineties, you had co star, which I would put in there.
They do a lot of stuff, but I put that in the data business. That's an incredible business as well. I think a lot of the businesses, one of the reasons that they did well, data is a very tough business. So I think there's a lot of data businesses out there and there's so many data businesses today that are due 20 to 40 million in revenue and do 10 to 20 million in EBIT.
There's so many very good businesses. So data is still a great business to start. The question is whether it's a good venture business. These are great, profitable, cash flowing businesses, but most of these businesses are not venture returners. In fact, really one of the very few businesses that there's a venture returner, Zoom Info, and weirdly they didn't even take venture capital.
So all the investment they took was secondary. They didn't take primary. They didn't need it. They were profitable. They grew profitably. And I think that's why they were well. Almost all the data businesses that took venture capital had, some of them had okay returns. So some of them, Had an exit, but none of them did great.
None of them were top of the portfolio for the venture capital firms, et cetera. And I think partially data is super, super competitive and the data businesses who do really well. And there's quite a few that are the a hundred billion market cap type businesses. So 50 billion market cap businesses. So these are incredible businesses, but a lot of them are that because of some sort of.
Monopolistic thing that they have, they've got some sort of regulatory capture. They've got some sort of duopoly thing came in. They've got a data co op, industry data co op. There's a lot in the finance industry that have supported this. And a lot of it were got built when like the rails got built in the seventies.
Or sixties, I mean, you could think almost like visa as a data business. And I was just at co op of banks. There was a nonprofit when it started. So it was Beresk. It was a nonprofit when it got started and then later got transformed to these for profits. So a lot of these companies, which are just gazillion dollar market cap businesses.
They just started as an industry good. And, you know, people always talk about, well, how can open AI convert from a nonprofit to a for profit? There's a lot of
examples of that, by the way. There's a ton of examples of these nonprofits that have conserved very, very large for profits over the years.
Ben: So knowing what you know about data businesses, what does that tell you about starting or investing in AI?
Auren: I mean, everything is AI. I haven't seen any business that's started. We do a lot of investing in the very early stages. We did about maybe 50 deals last year, 2024 in the early stages.
Ben: Whoa, 50. Yeah.
Auren: And almost all of them are AI. If you're not starting a business today where you're using AI and AI the core reasons why you're going to win.
You're going after a competitor who isn't doing a good job using AI and you're using AI. Same reason, same thing in the 90s where you started a business using the internet and you're going after somebody who just wasn't using the internet well, maybe they're trying to transition to the internet, but they weren't using it well.
That is the reason why a lot of these businesses are getting going now. They might not be doing the core underlying. Hard work where you might need billions and billions of dollars of CapEx and OpEx to go do, they might be using Claude or some other type of thing to make it going. But almost every business that's starting today is an AI centric business.
Ben: It's funny because when I get outside of tech, people who are in other industries, they are AI skeptics or, well, I mount anything is AI going to actually have any impact and then go inside tech. And you're like, there's nothing but AI. And it's so obviously going to have an impact.
Auren: It's funny, I don't really meet AI skeptics anymore. I mean, everyone can have a debate as to when things are going to go into what industry or what's going on, but just the amount of change that you just saw in the last year. I mean, if they're like customer service or if you're a call center type of thing, just like every business has seen it.
Every business. General Motors. Bank of America, they're already seeing huge efforts, they're already seeing changes that are dramatic. They know things are coming and they know people are going to go after them in certain ways.
They're, I think people are getting less blindsided than they were in the 90s because of the internet.
People are very aware this is happening. It's so obvious that it's happening. And also cause we get to see in our own lives. I just created a song yesterday. I had a few people over for dinner, my house, a couple of days ago, and I created a song about the dinner and the song is freaking awesome. It's so good.
Ben: Would you use to make the song?
Auren: use Suno.
Ben: Do you know? Okay.
Auren: Which I love. I love it. It's so fun. It's so fun. And the whole thing, everything took me under two minutes to do everything, including just the time I had to wait for the spinning wheel to create the song. And it's such a good song. It's just so cool and so fun. And I sent it to everyone who came to the dinner and everyone loved it.
And everyone started sharing it. And the song was about the people in the dinner and what we said and how we interacted and it was just so fun. Cool and so fun and so creative. And one of the things I love about AI, just to take a little tangent, I can't write music, can't paint, I can't draw. I just don't have that artistic thing.
I've just never been good at any of those types of things and AI can do all that stuff. All those things immediately, so well, and all of a sudden you go from a total dweeb on that type of creativity department. Maybe you're creative in other ways. Maybe you can write a story or something, but in that type of creative department, and that you go from my total dweeb to just being a master.
You can be a music master. You could literally be at the same level that some other well known person was not that long ago. It's just incredible. And so fun.
Ben: Let's have a debate that I feel like I have internally, but how much AI is going to affect software engineering. Cause most of the team here will say. It tells some things, but it's like an assist in a little bit, but it's not really that good at software programming. But if you go on Twitter, everybody's like, Oh my God, software engineers are gonna be out of business.
Mark Bennernoth yesterday or something said he'd never gonna hire another software engineer. You're a software programmer. Tell me how much do you think it affects your industry?
Auren: I think it's massive and it's getting better and better. The nice thing about software is you can write tests, things have to compile, you have to see if it works. There's at least more objective truth than there is in a painting. If this painting is good or not, it's just like, who knows? Whereas in software, it's still not perfect, but if things compile, if it passes the test, if these things happen, it's a lot easier to do in software to get to better.
And then for other people to comment on it or to change it. And then we can use the changes to then make it better, et cetera. It's already huge. If people aren't using these tools to do software, they're at risk. So I think if you're a software engineer and you're not using these tools, you will get displaced.
Because people who are doing these tools are just going to be way better than you, and if that person is willing to take the same salary as you, and they're 30 percent better, or maybe even 100 percent better, or maybe even more, you're
just not going to be able to compete with that person. So I think, right now, I would say software developers are going to go out of business, but the ones who are not using these tools are going to, likely, I have a very hard time growing and certainly their salaries will be stagnant.
They may be unemployed for longer and they may have other types of issues that happen there. So it is going to be more imperative that people use them. And maybe today the average software developer who's using these tools well is 50 percent better, 30 to 50 percent better than they were before, which is incredible and massive.
But I think very soon they will be over a hundred percent better.
Ben: Okay.
Auren: I think that's true for lawyers. So I think there's certain classes of folks where you're just going to be so much better. I think this is good because I think a lot of the things, at least in those areas, are the things that the software developers and lawyers don't like doing.
At least in the short term, it's definitely possible that in the longer term it will hit the other stuff. Their job satisfaction will go up, they'll have a lot more fun.
Ben: So if you are starting a vertical real estate data AI company, Auren: You may have a friend that's doing something like this.
Ben: Yeah, me too. What kind of playbook would you be following? How would you be thinking about it?
Auren: I don't know. I don't know that industry that well, per se. But I think in any company today. If you're starting a company, you have to be thinking everything through AI first. And I'm not just being an AI bandwagon here, it's just obvious. It's just like if you were starting a company in the 90s and you have to be internet first.
Imagine you were starting this tech company in the 90s and you weren't internet first. It'd just be like, stupid. Why would you do that? And we think of in the mid to late 2000s, if you weren't thinking about the cloud and stuff like that, and all these big things that make changes, you have to adopt to those changes.
You can't stick with the old paradigm in a tech world where things are changing so fast. In another world, you're in construction or something, things might move a lot slower. So then there's other ways to compete, but in the world of tech, if you're starting a tech company, if it is something called tech in your mind, if you think of yourself as a tech entrepreneur, you might have to be leading edge, but you've got to be much more on that leading edge side to compete.
Ben: I heard you say this on another podcast, you'll have a company get started with like a theory of the future over a longer period, maybe 10 years. And one of the theories you had was that there'd be more and more companies buying data. The data would be essential to being able to compete in the future.
And yet it turned out that was mostly wrong. Could you actually just expand on that again here? Cause I thought it was so interesting and I had some follow up questions about it.
Auren: Yeah. So maybe eight years ago or so, I had a whole thesis that. Look, I knew data companies were not big fund returners in the past. There weren't that many data companies. We just think of number of SAS companies versus the number of data companies. It's like a hundred to one in terms of how well people did as an investor.
But my theory was that there was an inflection point that was happening. That was about to change. While this was before AI, there was the rise of the data scientists, the rise of all these tools that made it easier to use data, whether it be Snowflake and Databricks and stuff like that. And people were becoming much more data oriented.
People were doing a better job of analyzing their own internal data. So if you just say, okay, why would you buy external data until you're good at analyzing your internal data? So they're getting better and better, uh, analyzing their internals. Let's say your target or Walmart, they're going to analyze your internal data before you buy new data that comes in.
And so theory was all these things are happening. Now, all of a sudden, there's going to be this explosion of data buyers. You're going to want to buy external data and bring it in. That made a lot of sense to me. And so I started data companies. I started investing in a ton of data companies. And in general, it just didn't work out.
The number of data buyers today, as opposed to eight years ago, has gone up. It's not like it's been flat or gone down, but it's gone very slowly. I would have expected it to be not just one order of magnitude, I would have expected to be a magnitude and a half, maybe even two orders of magnitude more buyers today than there were years ago.
I thought this explosion was right around the corner. And one of the areas that I looked at was hedge funds. So at the time there was maybe 70 significant buyers of data of the 11, 000 hedge funds. Maybe 70 of them were significant buyers. Today, I don't know, maybe 90. And at the time I was predicting at least 1, 000.
It was so obvious. And also if you look at the 70, they're so well known as doing well because they're buying data. So you think all these people want to mimic them, right? If you think of the time, it was the two sigmas, the renaissance of the world, the 0. 72s, the Citadels. Those are still the biggest buyers.
Even really well known hedge funds like Bridgewater, like the amount they buy for a total is so tiny, even though they're massive, whatever, hundreds of billions of dollars under management, they're massive, their data budgets are so minuscule based on their AUM. I know people who have. 20, 30 billion under management.
It's just the amount of alternative data they buy is so tiny. You look at every industry, it's like that. In the real estate industry, and there's so few companies that buy data of significant amounts. Maybe Blackstone is buying data of a fairly significant amount. And then maybe nobody else. It's like it went from zero to one.
And then you just go to each thing, retail. Okay. Maybe Walmart is doing a pretty good job of buying data. Yeah. Maybe Starbucks. It's hard to find that many retailers that are really buying any significant amount of it. So in every industry, it hasn't played out the way I thought it was going to play out.
Ben: And so why don't more companies buy data?
Auren: I think it's complicated. And I think it's hard. I think the biggest reason is data is an ingredient. One way to think about it is data is like This super amazing, high quality butter made from this incredible cows in Vermont. Okay? And this butter is gonna make your pastries taste so good. And so you are like, I'm going to pay this premium for this high quality butter from these super happy cows from Upper Vermont.
The thing is, you still have to be a great pastry chef. I could buy, because I'm a terrible cook, all the best butter in the world. And my pastries, which I've never made a pastry in my entire life, my pastries, I can pretty much guarantee you will turn out crap. It's just an ingredient. And it's just one of many ingredients that you need to make a great end product.
And sometimes you need data from many sources. So you need many different types of datasets. If you're a hedge fund, it's now one dataset actually really will help you. You might need to combine. Dozens or sometimes even hundreds of data sets before you even get a little bit of alpha. That is a huge amount of time and investment and all these other types of things.
And you think of these pastry chefs, these very smart people to go do it and try to figure it out and try things out. And to make a great pastry, you probably have to make thousands of bad pastries first.
Ben: Mm hmm.
Auren: So it's not an end product. There are a lot of companies that have used data and they have an end solution and they're built on top of an end solution.
And I also at the time invested in some of those, most of those have done way better
Ben: Mm hmm. The application.
Auren: and they may have proprietary data, but that's not why people are buying it for say, I mean, they work better because of their proprietary data and some of the data companies sell into those software companies that go do it.
But those software companies have been able to capture way more of the value because they're really helping. If you're a retailer, maybe you don't want to have to actually develop the product yourself. Okay. And when you're selling data, you're selling to like a product manager or an engineer. Maybe you don't want to do that.
You just want to get that. And so I just, we need something to do a better job of forecasting. I mean, I'm going to pump in my own data and hopefully they will help me do the forecasting. They could bring external data. They could do all that stuff. And so you're just limiting the number of, buyers that are out there.
Ben: You've said it in another podcast or two, there's four kind of data businesses. There's data, religion,
Auren: Truth versus religion, and then data versus application. Ben: truth versus religion, data versus application. Yeah.
Auren: So what I'm talking about here is the application businesses have done quite well, the data businesses have done not well. So on that axis, on the data versus application, the application businesses, which prior to eight years ago were also better, So prior to eight years ago, the application businesses were better.
At least all the new ones were better. And I had thought that there was a shift and we're going to shift much more to the data. I was wrong about that. And the truth versus religion does always have different things. Religion to me is what's going to happen in the future. So I make predictions of the future.
Truth is much more about what happened in the past and there's different needs for both.
Ben: And does AI then drive more demand for truth then? Does it actually drive a shift?
Auren: AI is driving more demand for data. Most data businesses I know now have some new buyers to sell to. They're selling to AI companies. There's really very few AI companies that are buying data. So you have a few new buyers. OpenAI is buying data, Anthropics is buying some data. There's a few others that are out there.
That are buying some data perplexity, a few others. So you have a few new data buyers, which is great for data companies, but it's still small and maybe they have big budgets, which is great, but it's always nice to have new buyers with big budgets to go acquire the data, but it's still very small and it hasn't really moved the needle that much for data companies.
In fact, most data companies. In many data markets, if you think of the 2023 total revenues for that particular category of data versus the 2024, many of them are not even growing. Many of them are contracting. And I think we're going to see in many cases, a bigger contraction because what happened when 2024 is a lot of these data businesses that I know of got way more profitable because they're using AI to do a lot of the things that they were doing before.
And they were able to massively increase their margins. But they didn't pass that on to the customer yet. And so the price, let's say was still the same in the future. You can just imagine if they're trying to get more customers, well, now that their margins have grown, they have more opportunity to lower price and that will be a weapon, but they could have against the competitors.
And so I think in a lot of those cases, you'll start to see prices. Now the margins might still the same. So maybe the profitability. Of the data businesses might stay the same or maybe even go up over time, but the total revenues in many categories, not in all, but in many categories has been flat to down.
Ben: So AI is a deflationary force.
Auren: AI is a deflationary force. Correct. Good for customers, potentially good for data companies because it helps them on certain things. Every day I change my mind, whether it's like good for our data businesses or bad. And certainly in 2024, it's been in that good. Unclear whether that will be true going forward.
Ben: So I think of you as one of the most connected people I know as well. You have a lot of dinners, dialogues, and you've been doing this for. Long time, mid 2000s, 20 years,
Auren: Doing what?
Ben: just networking events.
Auren: Oh, I've been doing those things even way longer than I, some of those I started in the nineties. Yeah.
Ben: Why do you do them?
Auren: I love dinner parties. I love lunch party. I like learning from other people. There's something both communal people like that. They like actually sitting down with people and learning from one another.
And then I think it just can accelerate learning really fast and they're super fun. I like laughing and enjoying it and they're super fun as well. So I like all those things. And I think you can get a lot out of a one on one conversation or having fun in this conversation that you and I are having.
We've had many conversations since we got to know each other a year ago or so like this, and those are always fun and interesting, the different type of conversation that you can have in a group dynamics.
Ben: Yeah. So you've been doing, let's say, maybe 30 years of this type of connectivity. What do you know about being connected that people who don't have your experience might not find intuitive.
Auren: Well, I don't think connections are as valuable as they used to be. So I think who you know has declined in value. It's still important, but it's much less important than in the past. Your reputation is still important, and maybe other types of things about you are still important. But probably if you think of the what you know versus who you know, there's this tension and dynamic.
That's out there and probably the, who, you know, peaked maybe 20 years ago. And then the, what you knows are more ascendant ever since, if you think of the dominant professions in the eighties, it was the investment banker or something was the dominant profession. And even there were all these cool well known recruiters.
There were all these people. And I think there's two things. A, they were who you knows. But because information was so much more siloed. Then that it is now, they also became what you knows and their whole job was to put two people together and get a vague on the transaction. That's what they did. So yeah, they're in the, who, you know, business, but actually I think one of the reasons they were so successful is they were actually what you knows.
Cause they had all these private conversations with people and they would soak up all this interesting information and then they would able to use that well. To help all their customers succeed today, much more have got relegated to the who, you know, standpoint. And if you just think of the investment banker, they're just way less competitive today on a relative basis than even lawyers.
The best maker was three rungs up from a lawyer in the eighties. Today, There are no lawyers who go to become investment bankers. That almost never happens anymore. That used to be like a very common path in like the 80s and 90s. Today, investment bankers who are leaving investment banking, who maybe used to have a lawyer and becoming lawyers, the people go in the other way.
There's some very well known investment bankers like Morgan Stanley actually recently joined law firms. So the power dynamics have shifted so dramatically over the last few years and partially just because it's very easy to discover what you know today. They're discoverable people. They have reputations.
They're online. It's much easier to figure that out. And while who you know, those are still important and they're always be important, the, what you know, is our Senate. Even if you think of a salespeople, the most successful salespeople I've had are not who you know. So you would think they would be, but their network actually had no bearing to their success.
In fact, every time I try to hire someone with a good network, that actually never really worked out. It was really just their product knowledge and all the other things you have to do to be a good salesperson.
Ben: It's such a funny insight that. So I'm going to say this, you can either challenge it or find it, but essentially technology, the internet broke down the importance of being connected because information became more transparent. I mean, the actual connections is transparent. You can look at it on LinkedIn and say, Oh, this person is connected to Lauren, I can get an introduction.
Auren: Sure. Even just discovery.
Ben: Yes. Search,
Auren: Even discovering the experts before was so hard. How would you even know where to go? Now it's just a quick search tells you at least who the experts are.
Ben: I saw this in my research review, which I thought was funny because I thought of you as connected even in 2013, but apparently in 2013 you had a really hard time raising money for a live ramp.
Auren: True. Yeah. Well, but just because you're connected doesn't mean it's easy to raise money.
Ben: Ha ha
Auren: it's easy to get the meeting who, you know, you know, all these venture capitalists, they'll meet with you. In fact, I think it might even be less likely that they'll fund you because my whole other thing about people is.
Most people's impression of somebody is based on the first time they meet them, and it's very hard for them to change that impression unless they see you quite often. If someone only sees you twice a year, it would be very hard to update that first impression. So your first impression is actually very important. And if you happen to run in right now in the grocery store to the mother of your best friend when you were 10, but she hasn't seen you since, she will not imagine you any different than when you were 10. She still thinks you like to play with your Star Wars figurines. She still thinks of you in the same way.
She remembers all the great foods you like. She still thinks you like all that same stuff. She knows maybe her own child has changed, because she sees her own child all the time, and there's an evolvement out there. But for you, it's very hard, and I think everyone's the same way, and so just because you know a venture capitalist, happen to see them at parties, or whatever it might be, it doesn't mean anything, because you have changed quite a bit.
Since they have met you, you're a change. You've gotten so much better. You're much more advanced in certain things. Your skills have changed or whatever it might be, or maybe you were a partier back then, and now you're more just into work and you more care about things, but their impression of you
will be very hard to change and only a very evolved human can change their impression very easily about somebody.
Ben: If you could generalize that or abstract that out to like society and also nature of change, because you see that resistance to change in various ways. How would you generalize some of that? Cause that's a really interesting insight. What does that mean more broadly for society?
Auren: I think people get stuck in their impressions of things and they don't realize people change a lot. And also your impression of people's are often wrong when you first meet them. So both these things, your impression is wrong. And so you may have not even known, I may have not understood who Ben was when I first met him.
I got the wrong impression of you for whatever reason. And by the way, we're different on a day to day basis. You might be different on Tuesday than you are on a Wednesday. Same person. Or you act different in social situations, or who knows why I got that impression of you. But it's very hard to update that of a given person.
Ben: I've heard you say that you think you have low EQ.
Auren: Yeah, I have low EQ.
Ben: I haven't noticed that. So it's interesting that you believe that, but I would say high IQ, but does that give you a different lens into how people behave because you're reading it for the different capability?
Auren: The way I've done it with low EQ is I have a very hard time reading non verbal things. So that's almost a definitional low EQ person. And if someone thinks something, but doesn't tell me, I will never know. I will never know. So what I always do is I just assume that everything somebody tells me is the truth.
And that's all I need to know. That's the way I've done it all my life. It's obviously not true. I know it's not true, but it has worked.
Ben: Have you been in New York?
Auren: New York, it's much easier
Ben: Oh, yeah.
Auren: in New York. People will tell you what they think. In California, much harder. People are less likely to tell you what they think. In New York, people are like, Hey, what's the matter with you?
You know, Hey, jerk. They'll tell you those things and they'll still love you, but they'll tell you to your face
Ben: Oh, okay.
Auren: they're unhappy with you, which I love, I love that candor that's there because for somebody like me, like a low EQ person, that's extremely helpful. If I'm causing somebody some distress, if I'm making somebody unhappy, it's very helpful to me that they give me.
Some feedback on that. And usually people do give feedback, but they give it in a nonverbal way, which I can't pick up on.
Ben: Do you think this has been a strength and a weakness for you in your career?
Auren: I think EQ is overrated. I'm not just saying that because I have low EQ. I think it's a crutch that people rely on. And then I think the whole thing that people with good EQ are doing is they're interpreting these very vague signals that are out there and. Even the best EQ people can misinterpret these signals because they're so vague. And so if you over rely on your EQ, even if you're good at it, you still make quite a bit of mistakes. And if it's your main source of strength, if someone ever says, Oh yeah, my main source of strength is EQ. I'm a little bit wary of that person in many different settings, because I feel like they will make a lot more mistakes.
I'd rather have someone who thinks I'm in the middle of EQ. Obviously EQ is important, and I wish I had more of it. But if somebody thinks they have super high EQ, to me that is often a flag that they're over rely on those signals.
Ben: Interesting.
Auren: And by the way, a lot of people who think they have high EQ don't.
Ben: Don't. Yeah, yeah,
Auren: both those problems, some of them do, but a lot of people just think they intuit stuff, and you're like, uh, I don't know that you're correct.
So you have that side of it as well.
Ben: yeah. That's definitely true with a lot of things. Let me just change topics for a second. Cause I want to talk to you about venture capital. If you invest in 50 companies last year, you've invested in a lot of startups. I have two questions for you on it. We started a venture fund to have
Auren: When you start late stage,
Ben: late stage. Yeah.
The, your early stage. Yeah.
Auren: I think it's very different,
Ben: It's very different. So yeah, I'd be interested in, especially for our listeners who don't have nearly experience in VC as you do, ways, how do you think about it? General lessons you have or guideposts you follow.
Auren: It really depends what your goal is to do. When I started investing in companies many years ago, my goal wasn't necessarily IRR or to make a return. My goal was to learn and to have fun and was hoping not to lose money, but it was a different type of goal. And I was investing my own money. So I had leeway to that.
Now, I have other people's money that I'm investing on behalf of, and my goal is to make money for them. That is my entire goal for them. And when we're making investment, and I think it's a very different responsibility that you have than if you're investing your own money in things. In the venture capital world, there are these fund returners or these incredible companies that come around every once in a while.
And they're pretty rare. And most people that I know who are investors, they never even had a chance to invest in any of them. It's not like they turned them down. A lot of them never even had a chance. Let's say the life of a three year fund, there's probably 20 companies that really matter, that really moved the needle over those three years.
Ben: In the country
Auren: Yeah, 20 tech companies, let's say in the Western world, global, that's how you take China out of it because it's a whole other market, but the
companies that you could invest in that you'd want to invest in, there's probably 20 companies that started that let's say your seed funder. And we do a lot of seed investing by 20 companies that matter over those three years that you could have got into. And if you're running a seed fund, it'd be really great to get into. at least one of those companies. If you're just in one, you're probably gonna at least be okay, and at least probably have a pretty good return depending on how much you put in there. You could be really good if you put a lot in, and you could still as a percentage of your fund, it would mean a lot.
But even if you put a little as a percentage of your fund, even if it's less than 1 percent of your fund that you put into that particular name, it still could have a massive, because let's say it's a hundred X. So even if it was less than 1 percent of your fund, it still could be a fund returner or something like that.
Now, if you do two of them, of those 20, well, you're almost certainly going to have a very good fund. And if you're in more than two, you may have a generational fund. Now it's of course so hard to know which of them are the 20 at the time. You won't know that often for over 10 years. Which of those are the right ones to be in, but that's the key.
If you're a seed investor and that's the only key, that's the most important thing is to be in those companies. You still don't want to get zeros and getting losses is bad. Of course, there's a lot of other things. You can still make money by never being in them. You can make actually really IRR by never being in any of those companies.
But if you are in those companies, everything changes. The game changes, everything changes. And then of course. Your reputation will change too. So the more of those companies you ever are in, the more chance you are getting to those companies in the future. And it's all this other stuff that happens as well.
So that's the most important thing when you're angel investing, which is the mistake isn't investing something that goes to zero. The mistake is not seeing the great company. And then the next mistake would be seeing the great company and deciding not to invest. And then the next mistake would be deciding to invest and then not letting you in.
So that's the funnel that one has to think about there. Of course you want to avoid as many losses as possible, but the other mistake is way more costly for you in the long term.
Ben: and is that mostly driven by brand, the flow?
Auren: There's so many different things. It's so hard. It's so competitive. And it's so hard. It could be brand. It could be hustle. It could be. Outbound, and we do so much outbound, we do so much outbound email and outbound calling and outbound everything. There's so many things, you can't rely on your reputation, you can't rely on X to do, because most seed funders, there's not even that much of a reputation.
It's a lot of angels, Sequoia, Benchmark, they don't usually play in the seed. Ben: Yeah. I think of a being, it's not as extreme as seed, but, but similar.
Auren: A is a little different. A is different. When someone's raising an A round and they're a good company, usually they call the top 10 A firms. There might be a debate of who's in the top 10, but they'll call them up, send them an email. It could be a cold email. And they'll be like, Hey, I'm raising money. They have reputation.
So like getting into the top 10 is very hard. And you got, if you're not in the top 10, you know, where seed is very different because it's not even clear who the top seed guys are. And it's so dispersed and it's so out there. A lot of times it's just use your network or somebody invested. They introduce you to somebody else.
So you hear about somebody somehow, cause you're in electricity. Yeah. Deregulation space and somebody else is doing something cool there. So you reach out there more. It's like someone you worked with. It's like your old CEO in a company that you worked with decides to put a hundred K into you and take a chance on you because you are a great employee.
There's so many weird things like that that happened at the seed.
Ben: Yeah. Okay.
Auren: And then seed is also more community. Usually in a seed, someone wants to raise a 2 million seed, there could be many, many investors. Some of them might put in 20K, 10K, some of them might put in a million dollars or 500, 000, but there's room for many.
In the A, there's usually one and they have very sharp elbows and they don't want anyone else there. Benchmark has the sharpest elbows. They don't play nice with anybody. I would have a tough time referring someone to Benchmark
because I would feel like they would lower my allocation. Cause they have super sharp elbows out there.
They're just known not to be friendly. So guys like me might not want to refer them, but they're not alone. All these guys, Nick Sequoia, they want to invest. They want to put as big a check as they can. Into that company. So they're not going to be playing nice for other types of people out there.
Ben: I kind of think the way you're describing C is how Venture was early nineties or something.
Auren: Yeah. There you had more like, okay, we're going to invest together. If you think of Sequoia and Klein are investing together in Google and they each put in 10 million or something, 20 million into Google at the time. Can they split the round between them? That is very uncommon today, but that was still pretty big.
And then Google did a seed round before where they have Bezos and a few other people who put in a hundred K that was the pre thing ahead of time.
Ben: Okay. Let me just do a couple of follow up questions here at the end. Since you're so connected to them, I thought I'd ask you the classic Peter Thiel question. I'm interested to know what important truth very few people agree with you on.
Auren: That's a good question. I haven't really thought about it. So one of the things I like about that question, by the way, is that is a question you shouldn't really spring on somebody.
Ben: Ha ha ha ha!
Auren: a question you should be like, go think about this for two weeks and come back to me with your best answer. And I think my problem generally with interviewing is that I think more people should Send the questions ahead of time.
Ben: You should have told me. I was debating it. I find people prepare, it doesn't feel as natural.
Auren: Yeah, that could be true. And that is true for sure. If it's prepared, it's less natural, but if there's questions that devolve thoughts, the first thing that comes to your mind isn't always the best. It might tell you something about their
personality. Is it very hard to say, again, you're dealing with a low EQ person here.
The first thing that comes to mind, which is probably even not in my top 10 answer, because I have so many things, but I both appreciate. And just find it interesting how much of life is marketing and how much of value is marketing. I mean, we go back to the skiing thing. I think the general reason why people like skiing is that other people that they know like skiing.
I almost certainly. That is the case. If it was obviously terrible, if it was a terrible thing, then it would be hard. So it has to hit some sort of bar. The reason why it's so popular is because it's popular. There's this recursive, and I think there's so many things in life like that. Like wine is a good example.
A wine objectively, there's just no way it tastes good. It's a complete fiction. It just happens to be back in the day, long time ago, the only way to really get drunk well was through wine. Getting drunk is a desirable thing for many reasons. And so back in the day in ancient Greece, they had wine and it somehow still pervades today.
First of all, it's not even a very good way to get drunk. It tastes terrible, super expensive. There's all these reasons that are out there, yet it pervades in society and I think it's just so interesting you have to appreciate. Art is the same way. Let's say we agree that this painting is objectively the best painting, which of course we'll never be able to agree on, but let's say we agree on it.
It's objectively the best painting. And it gives us pleasure to hang that in our living room and look at it every day. Well, still doesn't make any sense why the original is worth a thousand times more than the exact copy that you could never discern. And of course, even the first thing that I said is preposterous.
The reason why art is valuable is because other people think it's valuable. It's true of almost so many things in life. And again, I don't dislike it. I love the scam. I think we're all in the scam. We're all part of the scam. We all play into the scam and that's what makes life so interesting. And so fun is we all like to believe in these scams together.
And scam is a bad word of it. You could call it something else that's out there, some sort of fiction or story, like a Harari story, but it's a common story that we believe in. And of course, humans would never be able to do anything. And we would never be able to live together if we didn't believe in these stories together.
And I think that's fun and it makes human, but in some ways also is so not true. But you have to believe in the fiction anyway. It's kind of like Santa Claus. You have to believe in any way to make things fun and interesting in life.
Ben: Yeah. You got to a great answer. So I appreciate it. Well, I appreciate it. You taking time.
Auren: This has been super fun, bud.
Ben: Totally. Onward.
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Ben: You have been listening to Onward, the Fundrise podcast, featuringAuren Hoffman, CEO of SafeGraph and GP of Flex Capital. His podcast is the World of DaaS. D.A.A.S, which personally I love.
My name is Ben Miller, CEO of Fundrise. We invite you again to please send your comments and questions to onward@fundrise.com.
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Thanks so much for joining me.
