July 18, 2025 • 40 mins
Katie and Matt discuss search funds, post-MBA career paths, Katie’s future in horse barn ownership, search-fund flips, the Windsurf quasi-acqui-hire deal, Vanguard and Strategy, the function of index funds, owning the global financial portfolio and Perching Square Capital Management’s closed-end fund.
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Speaker 1 (00:04):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
I'm excited with for today's episode. I'm only really excited to
talk about search funds if I'm being honest, because.
Speaker 1 (00:16):
I want to get straight into you your future as
an h VAC tech.
Speaker 3 (00:19):
Yeah.
Speaker 2 (00:19):
I was reading this article as a guide, you know, right.
Speaker 1 (00:22):
The appeal to the search fund is that, like, who
among us hasn't wanted to own a lucrative HVAC business
in New Jersey?
Speaker 2 (00:30):
Just run into the swamps of New Jersey and get
into waste management. Wait, that's a different thing. It is similar,
I'm sorry about Yeah, right right, right, right, right, right right.
Speaker 1 (00:47):
Hello, and welcome to the Money Stuff Podcast, your weekly
podcast where we talk about stuff related to money. I'm
Matt Levien, and I write the Money Stuff column.
Speaker 2 (00:57):
For Bloomberg Opinion, and I'm Katie Greifeld, a reporter for
Bloomberg News and an anchor for Bloomberg Television.
Speaker 1 (01:04):
Wouldn't that be a great story, though, if you're like
some twenty eight year old Harvard MBA and you're like,
I'm gonna start a search fund, and you scour the
earth and you send cold emails to a bunch of
people and you end up getting into the waste management
business in New Jersey, and you're like, oh great, now
I can be my own boss and like run this
licrative business. And then like the mob shows up.
Speaker 2 (01:23):
Yeah, surprise, Yeah, now you have you have many bosses,
and they'll kill you. I'd never heard of search funds before,
even as a dedicated money stuff reader. I guess I
never absorbed it, but I was so charmed by this piece.
This is probably the longest article I've read in a
(01:44):
long time, but I wrote it start to finish in
Business Insider.
Speaker 1 (01:47):
Right, there's a Business Insider story about search funds. I
love search funds so much because search funds are like
if you get a business degree from a fancy school,
the highest calling could be running a duct cleaning business,
or I always say pest control. Like pest control to
(02:08):
me is the archetypal search fund. I don't know if
it's actually that common search fund use, but basically, right,
a search fund is like you go to business school,
you graduate, you raise a like six or seven figure
fund from investors. The investors, I think are often like
your family, but sometimes are professional investors. Because the returns
(02:29):
on search ones are really good. And then you go
out and search for years to find a boring small
business who's somewhat aging owner is looking to get out
of the business and sell to some young whipper snapper,
and then you buy it and then you run it,
and you use the tips and tricks that you learned
(02:50):
in your two years of business school to like optimize it,
and you're like a little private equity king pin. Except
instead of being like an associated a big private equity
fund is just you. And instead of like rolling up
a giant business, you like buy one pest control company
and then you run the pest control company.
Speaker 2 (03:08):
It's so good, it is so charming. And I mean
reading this Business Insider article, Okay, so it's told through
the lens of this man, Dan Schweber, I believe his
name is. And I mean I thought that I deal
with a lot of rejection as a journalist. Being a
search fund founder, what do you call them? Just a
(03:28):
search fundor a searcher. Being a searcher sounds absolutely grueling
in terms of dealing with the word no. By the
end of it, he sent thirty six hundred initial emails,
three hundred and seventy five introductory calls, just thirty intro
meetings and six signed letters of intent and this business
that he ended up buying, which is an HVAC company.
(03:51):
He emailed the guy twelve times, as you pointed out
in your column, And I don't think I've ever made
it to the twelve email. But I don't think I've
sent twelve emails to the same person pitching them, which
is I don't know. It was inspiring. It was inspiring
on so many different levels, Matt.
Speaker 1 (04:08):
How persistence pays off by getting you an HVAC.
Speaker 2 (04:11):
Company exactly, but just sends a dozen emails. Maybe I
can own an HVAC company.
Speaker 1 (04:20):
What I love about it is that this was a
sort of novel idea at some point, you know, twenty
years ago, and it has now really like pervaded the
top business schools, so that a lot of people are
doing this, which means that if you run an h
BAC company, you are constantly, constantly getting cold emails from
(04:40):
searchers and so like. Of course you had to email
I twelve times because the guy who was like, ah
more search funds.
Speaker 2 (04:46):
Yeah, it is.
Speaker 1 (04:47):
Such an amazing time to be in an unglamorous business
because there are so many people with MBAs who want
your glamorous business. Right. A lot of them are searchers,
but some of them are like private equity funds doing
roll ups of like pest control or whatever. Right, Like,
there are a lot of buyers to choose from if
you happen to own an HVAC company. And I don't know,
it's just so strange to me to think, like, you're
a plumber, you like work in plumbing for twenty years,
(05:09):
you start your own plumbing company, you like go around
doing plumbing, and then like you occasionally check your email
and there's like four hundred emails from private equity firms
and MBAs. It's just like a strange dynamic.
Speaker 2 (05:21):
It's a seller's market. I wish I had a plumbing
company to.
Speaker 1 (05:24):
Sell, right, And Like, one thing I wondered about is like,
if you are a search funder and you buy yourself
a plumbing company in a year, do you flip it
to another search funder, because like the demand keeps growing.
Speaker 2 (05:35):
I do want to talk about that how you exit
it as a searcher. But you seemed charmed by particular
from getting into the shoes of the man who owned
this HVAC company. The article also got into the shoes
of the employees who worked there. I think that's another
interesting level. Like, Okay, the founder and owner of the
business is getting a bunch of emails. How do the
(05:56):
employees react when you tell them this thirty two year
old now owns the business and you work for him
and he's the CEO, and you know he's some Harvard MBA.
Speaker 1 (06:08):
Okay, here's how I think about this. I think in
the olden days, people would start businesses and they would
be like, you know, high school educated, like you know,
they start a business because like they're just scrappy entrepreneurs,
and then they would run the business for a while.
They'd have employees, and they would have like a kid,
and they'd be like, well, of course the kid is
going to take over the family business. But because they're
(06:29):
rich now, instead of like the kid just like you know,
starting at the family business. After high school, they send
the kid to Harvard Business School and the kid gets
all these like new fangled business ideas and he comes
back at age twenty eight and he's like, I'm going
to take over the family business and run it in
a modern way, and like, you know that's good, right,
Like you have like the scrappy founder, and then you
(06:50):
have the next generations like professional and educated. But the
chain has been broken. So now like the founder gets
rich and the kids are like, well, I don't want
to work at the family h fact business sounds terrible, right,
So the kids go off and like become documentary filmmakers.
And meanwhile, like, it's really hard to get into Harvard
Business School now, So you can't just get into Harvard
Business School by being the like shiftless child of an
(07:12):
h back founder. But all the people in Harvard Business School,
you know, there's still a demand for Harvard MBAs to
run h back companies. So now instead of it like
being the kid of the founder, it's just like some
random person who happened to get a Harvard MBA and
now wants to run the you know, hvac business in Peoria.
So it's disaggregated the like family you know family family air. Yeah,
(07:32):
instead of like the son taking over the family business
with his fancy Harvard degree, it's like some random person
takes over the family business with his fancy Harvard degree.
But you know, it's like still kind of the same.
It's like the employees still have to work for a
thirty two year old who hasn't marked the back. You know,
it's like it all makes a kind of sense. It's
just become more like coldly logical and market driven.
Speaker 2 (07:53):
Something that I kept thinking about while reading this article
for some reason, a meme that keeps popping into my
various algorithm is, you know, a cartoon guy hand in
his face in the middle of the circle, and it's like,
I meet a girl. Her dad owns like a twenty
million dollar a year, like waste management company or pest
control or something, but he doesn't want to like hand
(08:14):
the keys to his ambitious future son in law, and
then we stop talking, which it would be a lot
funnier if I could show the meme, but I promise
it's funny, but it kind of reminded me of this
sure anyway, I thought also it was interesting. You know,
this article described it as a phenomenon happening around like
late twenty year old and like graduates in their thirties,
(08:37):
and I think it speaks to something about millennial culture,
that there is that desire to run into the woods
or go to Peoria and run an HVAC company, versus
stay in a city and try to climb the corporate ladder.
Like this probably happens with every single generation, but it
does feel like it speaks to some sort of disillusionment.
Speaker 1 (08:59):
Yeah, I don't know. You think about like what you
can do with your MBA, right, Like if you're a
sort of corporate type, like you can go work in
private equity, and you can start by building models and
doing kind of grunt work, and your hope is that
in ten or fifteen years you'll be you know, kind
of leading big deals and sitting on boards of companies
and kind of running portfolio companies. Or you can just
(09:23):
do deals and run companies yourself immediately, with the trade
off being that those companies are small pest control companies
in Peoria. But like maybe that's good trade, right, Like
maybe you want that trade, right, Like I am sure
that in like ten years you'll be reading about people
who started as search funders and bought like one HVAC
(09:44):
company and then bought another HVAC company and then became
like billionaire private equity kingpins by like doing roll ups
of their industries. There's kind of two paths to that outcome, right,
There's like the outcome of being a private equity associated
and there's the outcome of taking over an HVAC company.
And I bet the second path is more we're likely
to get you to the billionaire Kington outcome at this
point than like being a private equity associate.
Speaker 2 (10:06):
Well, I think you have to have some ridiculous amount
of just self confidence or real earned ego to think
like I'm going to go in and I am going
to ceo this small company, like it hasn't been ceoed before.
Speaker 1 (10:25):
Yeah, it's here like a little bit more confident, a
little bit more risk taking. You're not like just following
the expected prestigious path of going to a private equity
fram and you're like, I'm going to strike out on
my own and see what happens. Well, you know, it's
interesting because like also in ten years, this will be
such a like well trodden path, you know, they'll be
like incubators for search funds and like it'll be so
(10:48):
standardized that it won't be like particularly entrepreneurial and risky anymore.
But right now it's still a little entrepreneurial and risky.
Speaker 2 (10:54):
So you're saying I should get it now, is what
I'm hearing.
Speaker 1 (10:58):
I don't know I was gonna say you should have
gotten in five years ago. I have no idea what
the market is like. I think you shouldn't get in
ten years.
Speaker 2 (11:03):
But yeah, get really pandemic.
Speaker 1 (11:06):
I think this is great. I feel like we've had
a number of like career ideas for each other during
the course of this podcast. But you like taking you
raising money from friends and family to take over an
HHAC company. I like it. I didn't know that you
had such an intense interest in HPAC.
Speaker 2 (11:23):
I'm not specifically h we're using a horse barn, but yes,
that's the thing.
Speaker 1 (11:29):
I don't know if that works. I think like the
whole point of this is that you're taking over like
non glamorous family businesses from like aging founders who don't
want to do it anymore, not like people's like delightful
lifestyle businesses.
Speaker 2 (11:45):
But there's there's plenty of people who would think that
a barn is un glamorous.
Speaker 1 (11:50):
Do any of them own barns?
Speaker 2 (11:53):
No, they don't.
Speaker 1 (11:54):
It's your problem. You have to buy the barn from
someone who runs the barn. I don't know.
Speaker 2 (11:59):
I'm reading this have like a renewed I'm reinvigorated, and
you know, I thought I wanted to be a podcaster
or I did that, It's okay. I wanted to be
a novelist, still working on that, but I think that
what I really want to be is a searcher. I've
always wanted to buy a trissage barn, but now I
have a fancy, not yet saturated sort of term to
(12:23):
apply to it.
Speaker 1 (12:24):
Yeah, I mean that is really like. The thing about
the Search Funding is like it's given people a set
of concepts to sort of standardize and think about and
justify this thing of like I want to buy an
existing small business and run it according to my own
you know ideas. I think like a while ago, if
you're in business school and you're like, I want to
(12:45):
run an HVAC company, people would be like, that's a
strange thing to want to do with your forward MBA,
Whereas now it's like totally standardized. I was like, oh,
of course the Search fund. And similarly, I feel like
this is going to be like season two of the
podcast is going to be You're going to go to
investor meetings. We're going to record them. People are going
to be like, of course, here's a million dollars you're
going to people. I think send every horse barn in
(13:08):
America at.
Speaker 2 (13:09):
Least twelve at least twelve. If anyone listening right now.
Speaker 1 (13:14):
You own cold email, you'll show up on a horse.
Speaker 2 (13:16):
That's true, and they'll know I'm the real deal. They won't.
Speaker 1 (13:22):
Yeah, That's like one thing in this h RAG article
is like, you know, the guy who owned the h
RAG company was like, all these search funders emailed me
and I was like, all right, come out and they're like,
let me check my schedule. But this guy and the
guy who bought the company from him, I was like,
I'll be there tomorrow, right, You're going to show your
enthusiasm by like showing up on a horse.
Speaker 2 (13:39):
That's the other thing I found charming is that it's
just like old fashioned sort of you know, I'm going
to come up and meet you in person. I'm going
to shake your hand and I'm going to look you
in the eye. And that has a lot of currency
with the people who are selling these un sexy businesses.
Speaker 1 (13:55):
Right because these are people who have built businesses over
years and they are the owner, but they also like
work closely with the employees, and they are not just
maximizing shareholder value. And if they were to sell to
a private equity firm that laid off all the employees,
they'd be sad and like they live in the community,
they'd be looked down upon. So if they can sell
to someone who gives them a firm handshake and looks
(14:17):
them in the eye, and so they'll take care of
your employee. You know, it's a very family business oriented,
you know, kind of tool making environment, and you're not
just paying the highest price to maximize shareolder value. You're
kind of taking over a business that has lies to
a community.
Speaker 2 (14:29):
Yeah, I do want to talk about how Schweber is
going to get this big payout. The business insider says
that he's in for so if all of this goes
according to plan, he's in for a big payout. Of
the search entrepreneurs who eventually sell their business, just under
a quarter of them get nothing. Another twenty seven percent
get less than four million dollars in equity, twenty eight
(14:51):
percent get four million dollars to ten million dollars. The
luckiest eighteen percent get more than ten million dollars. So,
you know, after I buy the horse barn, I have
to stay there and make it better and grow it.
And then the idea is that I'm going to sell
it in like a decade and make a big profit.
Speaker 1 (15:10):
I can imagine some people go into it thinking like
I'm going to make my life in p area running
an HRC company. But you know, most of them are
like business school people, and like they're choosing between this
and private equity, and yeah, they want to do a flip, right.
They want to like buy a sleepy family business that
isn't you know, optimizing everything, and they want to spruce
(15:31):
up the financials and maybe do a few like tuck
in acquisitions and then sell it to you know, a
sort of more scale buyer, sell it to you know,
private equity roll up or something for you know, if
you can buy it at like one time's revenue and
sell it at you know, five times revenue, then they
you know, make a lot of money.
Speaker 2 (15:51):
And so the investors who.
Speaker 1 (15:55):
You know, or you retire or something on it.
Speaker 2 (15:57):
Or you become an investor in search funds. Sure, so
if you invest in a search fund, you're in it
for the long haul. You're in it until there's a flip.
Speaker 1 (16:06):
I don't really know the terms, right, Like you could imagine,
you know, the investors just getting a share of the
cash loough and being happy with never flipping it. But no,
most of them want to cash out, and yeah, you're
in it for a flip, and you know, you say
the long term. I don't know what the holding periods are.
But like you know, again, the sort of alternative to
this is private equity funds. And so yeah, you might
(16:27):
think I'm going to take over an HVAC company. I'm
gonna learn hvac, I'm gonna do some deals. I'm gonna
spruce things up that won't take me more than five
years until I can flip the company, right Like, it's
not necessarily your family business for the rest of your life.
Speaker 2 (16:44):
I have to imagine a lot of these fail I
don't know.
Speaker 1 (16:48):
I don't know what fail means. I mean, right like,
probably some of them, at least of them, they don't
scurce them up, and then they get bored and then
they're like, I were shutting this down and I'm going
back to New York. But right like, you're taking were
like a stable business with customers, and you know, you
like that, You're not founding a business, right like, your
downside is not as bad as if you were founding
(17:10):
a business from scratch, right you know that this company
already has a business and customers and you know, revenue
and employees, and probably in many cases it could operate
on its own that much from you, So you might
not be able to do a flip. You might like
get bored and close it down rather than eke out
(17:30):
a very small profit for yourself every year. But like
you're not going to lose all your money.
Speaker 2 (17:35):
Yeah, that's true. I mean to your point that they're
not founding a brand new business. So I was thinking
about this in terms of, like, you know, maybe these
smart young people with these big degrees, maybe their brain
power would better serve the economy by putting that towards
new ideas.
Speaker 1 (17:52):
Why degrees are not in astrophysics, right, there's there masters
of business administration, right, they've learned to administer businesses. I
think it's like a really good thing for the economy
if like the local sort of mid sized businesses get
really good business administration, Right, if like the Harvard MBA
is instead of just going to work in finance, like
(18:14):
actually go and work for real companies that do you
know HVAC.
Speaker 2 (18:19):
This reminded me, I know these people who there was
a bed and breakfast for sale in a small Pennsylvania town,
really charming, and it was an existing business with existing
customer base who they had a lot of repeat customers
and the owners were retiring and they bought the business
and it's going really well.
Speaker 1 (18:38):
And those people are named.
Speaker 2 (18:41):
Bob and Julia. And Friday is my dad's birthday, So
happy birthday, Dad, Happy.
Speaker 1 (18:46):
Birthday, Bob. I meant to tell you that I saw someone.
Hold on, that's you, Okay, that is me. I mean
it's your's your home studio. You need to go to
the ville.
Speaker 2 (19:08):
It's literally a hairball. He's fine, he's fine. Windsurf windsurf
man buying companies, Yeah, but not really, not really buying
(19:34):
the company. Well kind of set the scene.
Speaker 1 (19:38):
Windsurf is like an AI coding assistant company, and of
course it was in talks to be acquired by open
Ai for a while. The rumor was that open Eye
was going to pay three billion dollars to acquire it,
which I think means to acquired in the normal way,
like buy all the stock of the company. But they
couldn't get to an agreement on some weird terms, including
like sharing the technology with Microsoft. It's open I walked
(20:00):
away and then Google did this weird deal where it
paid two point four billion dollars to Windsurf for basically
like some but not all, of Windsurf's employees. Like basically
Google was trying to acquire like the top talent from
Windsurf to feed into the mall of like having AI
researchers do AI at Google. And they've got like a
(20:24):
non exclusive license to Windserf's product. But it seemed pretty
clear that it was a talent acquisition, but they didn't
buy the company. They got no stake in the company,
but the shareholders of the company mostly got cashed out,
like the venture capitalists got paid off for their stock.
So Google paid for the stock of the company, but
didn't acquire the stock of the company. They just got
(20:44):
the talent and like left of the company on its own.
And this is kind of a weird outcome, in particular
for the employees of Windsurf who didn't go over to Google,
because they were kind of left in this company that
had some cash and like a business, but no more
of its founders. And it's kind of like it loose ends.
And then a couple of days later, Cognition, another AI company,
(21:06):
bought the rest of Windsurf for an unspecified price that
might have been just like here, you're gonna have a job,
and so yeah, that was the deal. It was like
quite controversial. There'should a lot of the deals kind of
like this in the AI space, where you know, you
have very big tech companies that want to pay a
(21:27):
very large amount of money for AI talent, and the
top AI talent often has their own startups, and their
startups often have the effect of proving that their founders
are good at AI stuff but do not have products
that the big tech companies want. And historically the way
(21:47):
that ended was the big tech companies would buy the startup,
shut down the product that they didn't want, and like
give the employees jobs. But that has changed, like that
aqui hier model has changed, and I don't quite know why.
Like the leading theory for why it has changed is
that in the Biden administration there was a lot of
anti trust scrutiny of big tech companies buying even small startups,
(22:12):
and so they stopped doing aqui hiers and started doing
just hires. Yeah, but the other thing that is happening
is if you're Google or Meta whoever, it's sort of
dawning on you, like, well, we don't really have to
acquire the company. We just have to pay the founders
(22:32):
to come work for us. And we have to pay
them a lot because they have the startup. I have
equity in the startup, so like they have to give
up the equity in the startups, we have to pay
them a lot. But like, do we need to acquire
all of the employees. Do we need to pay the
vcs the full value of the company or can we
just like acquire the founders and like let the rest go.
So there's a lot of talk about like the social
(22:55):
contract of startups and vcs being violated by these deals,
and I feel like, so far, actually the social contract
holds up pretty well. We're like the vcs who fund
it Windsurf. You know, they got several times their money, right,
Like they got rewarded for funding Windsurf, even though I
think people would say in a sense like the product
isn't what's making the money. It's just like the founders
(23:17):
are going somewhere else is what's making them the money.
But you know, and the employees ultimately ended up his jobs,
although not at Google, So like the social contract sort
of held, but it's like it just feels like it's
a little bit under pressure, where like, you know, the
next deal Google could just be like, we're going to
pay the founders, you know, a billion dollars each, and
we're not going to cash out of the vcs.
Speaker 2 (23:36):
Yeah, reading this and just thinking about similar circumstances, my
thought was, why don't they just try to poach people
the normal way? Like why is tech this special, weird
place where there is acqua hiring, Like why can't they
just offer the founder one hundred million dollars or something
like that, similar to what Mark Zuckerberg is doing. Why
(23:56):
do we have to go through all the hoops of
you know, buying the company or doing whatever Google just did.
Speaker 1 (24:03):
I think that part of it is like you can
now pay AI researchers one hundred million dollars, but you
can't pay them five hundred million dollars because all the
other A researchers would be mad. And like if they
have a startup, you know, that has raised money at
a four billion dollar valuation and they own you know,
whatever they own twenty five they own a billion dollars
worth of it, right, you have to lure them away
(24:24):
from that startup by giving them a lot of money.
Maybe it's not a billion dollars, maybe they don't think
it's worth what, you know, what it raised that, but
you have to give them something like a billion dollars.
And the way to do that is to have some
sort of M and A like transaction. Right Like, if
you're just saying I'm going to give you a salary
of a billion dollars, that's tough to sell to your
(24:46):
other employees. But if you say I'm going to do
an M and A transaction that technically doesn't involve buying
any of the company, but like there's a licensing deal
and it's like an agreement with Windsurf, then you can
do a transaction that effectively gives the founders a billion dollars.
And so I think that's part of it. Where Like,
the going rate for poaching an employee from like open
(25:09):
Ai to Meta is you know, one hundred million dollars.
But the going rate for poaching a founder of a
startup that like was valued at a lot of money
by a VC, the going rate for that might be
billions of dollars. And the only way to pay that
is in something that looks like an MNA transaction.
Speaker 2 (25:24):
The other thought I had was that there is still
some acquihiring going on. If you think about the recent
example of also Meta with skill AI.
Speaker 1 (25:35):
These are the same thing, Like these are not quite acquisitions. Yeah,
sometimes they're like state acquisitions, but not one hundred percent acquisitions.
And sometimes they're more like the Windsurf deal where it's
like a commercial license and a big payment, but not
one hundred percent acquisition.
Speaker 3 (25:49):
Yeah.
Speaker 2 (25:49):
I was just thinking about the employees who didn't get
picked to go to Google, and that's probably a pretty
lousy feeling, but maybe they're happy a cognition.
Speaker 1 (25:59):
Yeah. It's like there's this incredible gold rush for AI,
and there's incredible variance in people's perceived market value, right,
Like there are people who are you like, there are
people who are multi billionaires because they like were in
earlier and AI, and then there are people who are
paid like, you know, six hundred thousand dollars a year
and they're like, oh my god, I'm so poor, like
(26:21):
like there's a huge range. And some of that is
the sort of classic startup like were you there at
the founding of a hot company? But some of it
is like people's perceived value to the big tech companies,
where like, if you are really really good, a big
tech company will pay you, you know, much much, much
more than one hundred million dollars if they have to.
(26:42):
And then if you're less good, it's like, yeah, you're
on salary. It's fine.
Speaker 2 (26:46):
And where we are in the world right now, I mean,
is this uniquely a tech industry phenomenon and specifically in
AI industry.
Speaker 1 (26:54):
Phenomenally, Like given in tech people have normal jobs like
this is very localized to AI, you know, like they're
not these kinds of bidding wars for people who do
non AI tech business man.
Speaker 2 (27:09):
If I had any practical skills, I'd be thinking I
need to be an AI person somehow, But I think
search fund founder is more realistic.
Speaker 3 (27:19):
Yeah.
Speaker 2 (27:36):
You know who else is in the business of buying
up a lot of companies is it's Vanguard. They are
an index company all the companies. As much as Vanguard
likes to talk specifically to me and everyone else about
their you know, active management ambitions, they are huge. That
(27:56):
means that they own a lot of the shares outstanding
of a lot of companies, including companies that you might
not expect I.
Speaker 1 (28:05):
Would expect, Wait, can I ask you, are they the
biggest total stock market index fund? Oh my god, God
runs you know, a big S and P five hundred
and index fund, and so does everyone else. But like,
I definitely own some of the Vanguard Total stock Market
Index fund, which is not the S and P five hundred.
It's everything, including small companies and including bigcern treasure companies.
Speaker 2 (28:30):
I'm trying to find out because I don't want to
miscall myself, but I think that the Vanguard Total stock
Market Index fund is the largest. I mean, it's it's
in the trillions, so I would imagine that that's it.
Speaker 1 (28:43):
So when you say Vanguard owns is one of the
biggest sholders of companies, you wouldn't expect. I would expect
them to be the big sholder of every single public company.
That's what I.
Speaker 2 (28:52):
Would and they are, and they are, including Strategy in.
Speaker 1 (28:56):
Particular, I'd expect them to be one of the biggest
holders of every non P five hundred company because like,
there are a lot of SMP index funds, but like, yeah,
Vanguard is really into total stock market index ones. But anyway,
but yeah, they're the biggest holder of Strategy micro Strategy
now called strategy.
Speaker 2 (29:14):
I guess I did not appreciate that strategy isn't in
the S and P five hundred, but we're also talking
about a non S and P five hundred tracking fund.
Because I don't know, it just feels like increasingly the
whole world revolves around the S and P five hundred,
but the Vanguard Total Stock Market funds biggest shareholder of strategy.
(29:34):
I say that you might not expect it because the
personality of Vanguard is an asset manager that is deeply,
deeply skeptical slash repulse by cryptocurrencies.
Speaker 1 (29:48):
I know. This is the thing about running index fund.
It's like it doesn't matter what you think, you just
buy it. Yeah, It's like a really good, like disciplining mechanism. Right,
Like you consider that and be like, wow, I think
this company is overvalued, but it doesn't matter to buy
it because you're an index one manager and like that's
what people are paying you for, and they're not paying
you very much. Right, If they're paying you a lot,
then you might be like, well, I'm going to short
this company because like I think it's overvalued and I'm
(30:10):
you know, getting paid a lot from my wisdom. But
they're paying you like two basis points to buy every company,
so you buy every company. It's a really good pass.
Speaker 2 (30:18):
The thing that's slightly different here is that Vanguard obviously
has control over what products that it launches.
Speaker 1 (30:24):
Yeah, but like it's it's products or index ones.
Speaker 2 (30:27):
I know, I know, but this is a relatively new
phenomenon where you have equity companies that just hold bitcoin
and you think about like commodities. For example, Vanguard for
a long time would not launch a commodities fund. They're
never going to launch their own cryptocurrency funds. And okay,
(30:47):
yes they're going to buy every single stock out there,
but it's a new phenomenon where that means you're also
buying crypto indirectly.
Speaker 1 (30:57):
Yeah. Well, the things I like about it is that
a little inside baseball but not really. Bloomberg has this
like view that you shouldn't own stock in companies that
you write about. So like I don't own stock in
you know, Goldman or Apollo or whatever, but I own
index funds they own stock in those companies, and so
I e right, and like in some ways it would
(31:18):
be weird if I didn't. Right, Like to me, like
I should have my savings in like the global financial portfolio,
and if I owned like all of the stocks except Goldman,
then like in theory, that would create a financial bias
against Goldman. I would be like, well, I don't want
any of their stock, but I own every other stocks.
I want their stock to go down relative to the
rest of the market. And then like crypto is kind
(31:39):
of the same, right, Like, you know, we have like
sort of rules that you shouldn't own crypto if you're
writing about it, but like if I own zero crypto,
then I'm sort of biased against crypto, right Like I
you know, I own like all of these stocks, and
I want the stocks to go out, but I don't
want crypto to go because I don't want any crypto.
But now, because on the Vanguard Total Stock Market Fund,
(32:00):
I own some bitcoin indirectly, but like I have some
exposure to bitcoin through strategy, and I think, like more generally,
like it is good for ordinary investors to be able
to get low cost access to like market cap weighted
ownership of like the entire global financial portfolio, right like,
just as like it's probably good for you to not
(32:20):
have to pick which stocks will go up and just
buy all the stocks, like you shouldn't even have to
like pick like which asset classes will go You just
like be able to be like I'm going to buy
the market right, And you can't really do that that
It's not really a thing like people try. It's not
really a thing because like, you know, how do you
decide how much real estate to have in that? But
by smuggling a little bitcoin into your you know, total
stock market fund, it means you have like a little
(32:42):
bit closer to exposure to the entire financial portfolio. And
if you don't like crypto, you'll be mad about that.
But if you're buying the total stock market fund, your
thesis has to be I don't know what I want
to buy. I have no strong views about which companies
will go up, So like you have some bitcoin, why not?
Speaker 2 (32:58):
Yeah? Occasionally Tom Keane invites me on radio and just
kind of bullies me about crypto for a couple of minutes,
and then I get off air and super I don't
I would not describe him as pro christ I'm not
surprised yet he famously calls it bitdog. But in trying
to make him care, I have tried to make the
(33:18):
case that you should care because it's probably in your
retirement account through this sort of indirect exposure, Like your
fortunes in a small way are tied to bitcoin now, right.
Speaker 1 (33:30):
I would reverse that. I would say that, like, if
you don't have a strong reason to be short crypto,
you should be long crypto in proportion to it's like
weight in the market, right, and like that weight has
gone up a lot in the last ten years, right
now trillion dollars. And if you are just like completely
on a blank slate, completely agnostic about everything, like your
(33:52):
weight should not be zero and now it's in your
retirement fund. Great problem solved. I'm not saying you should
buy crypto of like by all means, this is not
investing advice, but like you know, I'm just saying, if
you have no views, like the default weight in your
portfolio for every asset is not zero. The default weight
is like it's market weight, right, And so if you're
(34:14):
just setting it to defaults, you should have some crypto.
And the way to have some crypto is either like, ah,
you go create an account on coinbase, or like you
just you know, own a total stock market index one
that happens to have some crypto.
Speaker 2 (34:26):
So you're a marked cap weighted guy.
Speaker 1 (34:29):
I'm not saying that's the best way to invest. I'm
saying that's the neutral way to invest. I'm saying that,
like anything that you do to deviate from like the
market cap weighted global financial portfolio, should ideally have every
reason ideally not that, not that I you know, follow that.
(34:51):
I'm just you know, as a theoretical matter, like you
should own the market unless you have some reason to
think that something else is better.
Speaker 2 (34:58):
And that is investment advice.
Speaker 1 (35:01):
No, I mean, I don't know how I could get
suit over that, but no, it's not investment advice. The
bitcoin treasury companies are interesting in part because they give
you away to own crypto if your only investment is
the total stock market. But more broadly, they're interesting because
they are a way for equity investors to own crypto
(35:24):
without owning crypto. And I think that there's a lot
of demand for that. Some of it is from like Vanguard, Right, Vanguard,
which let's hypothesize does not want to own crypto, nonetheless
owns a lot of micro strategy. It's like that's like
a good arbitrage, right, Like you have like bitcoin, which
like Vanguard doesn't want to buy and you have micro Strategy,
which Vanguard, against its will does want to buy, and
so like you can like transport bitcoin into Vanguard and
(35:46):
make some money on it. But like, more broadly, I
mean there's a lot of like equity investors who for
one reason or another can or want to buy micro
strategy for bitcoin exposure, can't buy like just bitcoin for
bitcoin exposure. They get an email from one guy saying,
like my hedge fund, our prime broker will give us
(36:08):
sixteen to one leverage on micro strategy, and they'll give
us no leverage on I bet like the bitcoin ETF. Right,
So if you want to get exposure to bitcoin, getting
it in the form of a stock, like a real stock,
not an ETF, like a corporate stock. Getting in the
formu of a corporate stock is in many ways preferable
to other forms of owning it. And that's why that's
(36:29):
part of why the bitcoin treasury companies often traded a
premium to their underlying bitcoin, because like there's a whole
class of investors who can get crypto that way, but
can get it as easily or as efficiently in other forms.
Speaker 2 (36:43):
That's really interesting because after the spot bitcoin ETF's launched,
I think a lot of people, perhaps myself, questioned what
the use case for micro Strategy was.
Speaker 1 (36:55):
Yeah, and the number one answer is index funds. Vanguard's
total stock more good fund does not own ETFs. Yeah,
it owns companies, and micro Strategy is still a company
even though it's a pot of bitcoins. Like that's the
number one answer. There are other answers, because like someone
at some prime brokerage is like, we'll give more leverage
on corporates than we will on ETFs, even though the
(37:16):
corporate is like more volatile than the ATF. But like
the number one answers index ones, and like, yeah, micro
Strategy is not in the S and P five hundred.
It wants to be in the SP five hundred. That's
like the next that's the next frontier.
Speaker 2 (37:29):
It did make it into the NASTAC one hundred, and
that's a big d. It was somewhat controversial.
Speaker 1 (37:35):
Yeah, because like these indexes don't include ETFs, They don't
include investment vehicles with like rare interesting exceptions, right, Like
there's like an argument that Berkshire Hathaway is an investment
vehicle and like you know and then you I don't
if you remember, but friend of the show Bill Ackman
of perching Square Capital Management. Uh, when he.
Speaker 2 (37:52):
Found his way into another episode when he was so not.
Speaker 1 (37:56):
The bird but the actual Bilackman when he was.
Speaker 2 (37:58):
Trying to trow Yeah.
Speaker 1 (38:01):
I haven't even talked about that long. When he was
launching his clothes un fund, he's like, it's going to
be in the S and P five hundred. It was
not going to be in the S and P five
hundred because the S and P five hundred does not
include clothes down funds, but it does include Berkshire Hathaway
because it's not quite a closed un fund, it's a
company and microshrate is the same deal, right, Like, if
you're like, I'm going to launch a fund that holds bitcoin,
(38:22):
that will not be in the S and P five
hundred or even the Nazak one hundred. But if you're like,
I am a tech company, I'm going to almost exclusively
hold bitcoin and talk about it a lot, you can
be in the S five hundred at least the Nazak
one hundred, and that's different.
Speaker 2 (38:35):
Well, that was the controversy around its NASDAQ one hundred.
NASTACK one hundred does not hold financial companies and it
feels like micro strategy. It was micro strategy at the time,
like it was sort of grandfathered in because it is
nominally still a tech company, very nominally.
Speaker 1 (38:53):
Yeah, you're right, that's the arbitrage, right, It's like, we're
not a financial company, we're not an investment company. We're
just the tech company that happens own seventy billion dollars
a bit quin. Yeah, it's a good trade. I'm sorry
that Bill Lackman caught so many strays at the end
of this episode.
Speaker 2 (39:09):
It's okay. I don't think he listened to the end
if you want to say that.
Speaker 1 (39:12):
Like when we mentioned last week that we're going to
name your bird friend of the show, Bill Lackman, we
got approximately twenty emails saying of Perching Square Capital Management.
A lot of people will I know I did that joke,
and we did not, and I'm sorry.
Speaker 2 (39:29):
But very clever.
Speaker 1 (39:31):
We'll do better next time. Perching Square. Yeah, he just
learned to perch. And that was the Money Stuff podcast.
Speaker 2 (39:43):
I'm Matt Livian and I'm Katie Greifeld.
Speaker 1 (39:45):
You can find my work by subscribing to the Money
Stuff newsletter on Bloomberg dot com.
Speaker 2 (39:49):
And you can find me on Bloomberg TV every day
on Open Interest between nine to eleven am Eastern.
Speaker 1 (39:55):
We'd love to hear from you. You can send an
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Speaker 2 (40:02):
You can also subscribe to our show wherever you're listening
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Speaker 1 (40:08):
The Money Stuff Podcast is produced by Ana ma Aserakus
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Speaker 2 (40:12):
Theme music was composed by Blake Maples and Stage Bauman
is Bloomberg's head of Podcasts.
Speaker 1 (40:17):
Thanks for listening to The Money Stuff Podcast. We'll be
back next week with more stuff
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
I'm excited with for today's episode. I'm only really excited to
talk about search funds if I'm being honest, because.
Speaker 1 (00:16):
I want to get straight into you your future as
an h VAC tech.
Speaker 3 (00:19):
Yeah.
Speaker 2 (00:19):
I was reading this article as a guide, you know, right.
Speaker 1 (00:22):
The appeal to the search fund is that, like, who
among us hasn't wanted to own a lucrative HVAC business
in New Jersey?
Speaker 2 (00:30):
Just run into the swamps of New Jersey and get
into waste management. Wait, that's a different thing. It is similar,
I'm sorry about Yeah, right right, right, right, right, right right.
Speaker 1 (00:47):
Hello, and welcome to the Money Stuff Podcast, your weekly
podcast where we talk about stuff related to money. I'm
Matt Levien, and I write the Money Stuff column.
Speaker 2 (00:57):
For Bloomberg Opinion, and I'm Katie Greifeld, a reporter for
Bloomberg News and an anchor for Bloomberg Television.
Speaker 1 (01:04):
Wouldn't that be a great story, though, if you're like
some twenty eight year old Harvard MBA and you're like,
I'm gonna start a search fund, and you scour the
earth and you send cold emails to a bunch of
people and you end up getting into the waste management
business in New Jersey, and you're like, oh great, now
I can be my own boss and like run this
licrative business. And then like the mob shows up.
Speaker 2 (01:23):
Yeah, surprise, Yeah, now you have you have many bosses,
and they'll kill you. I'd never heard of search funds before,
even as a dedicated money stuff reader. I guess I
never absorbed it, but I was so charmed by this piece.
This is probably the longest article I've read in a
(01:44):
long time, but I wrote it start to finish in
Business Insider.
Speaker 1 (01:47):
Right, there's a Business Insider story about search funds. I
love search funds so much because search funds are like
if you get a business degree from a fancy school,
the highest calling could be running a duct cleaning business,
or I always say pest control. Like pest control to
(02:08):
me is the archetypal search fund. I don't know if
it's actually that common search fund use, but basically, right,
a search fund is like you go to business school,
you graduate, you raise a like six or seven figure
fund from investors. The investors, I think are often like
your family, but sometimes are professional investors. Because the returns
(02:29):
on search ones are really good. And then you go
out and search for years to find a boring small
business who's somewhat aging owner is looking to get out
of the business and sell to some young whipper snapper,
and then you buy it and then you run it,
and you use the tips and tricks that you learned
(02:50):
in your two years of business school to like optimize it,
and you're like a little private equity king pin. Except
instead of being like an associated a big private equity
fund is just you. And instead of like rolling up
a giant business, you like buy one pest control company
and then you run the pest control company.
Speaker 2 (03:08):
It's so good, it is so charming. And I mean
reading this Business Insider article, Okay, so it's told through
the lens of this man, Dan Schweber, I believe his
name is. And I mean I thought that I deal
with a lot of rejection as a journalist. Being a
search fund founder, what do you call them? Just a
(03:28):
search fundor a searcher. Being a searcher sounds absolutely grueling
in terms of dealing with the word no. By the
end of it, he sent thirty six hundred initial emails,
three hundred and seventy five introductory calls, just thirty intro
meetings and six signed letters of intent and this business
that he ended up buying, which is an HVAC company.
(03:51):
He emailed the guy twelve times, as you pointed out
in your column, And I don't think I've ever made
it to the twelve email. But I don't think I've
sent twelve emails to the same person pitching them, which
is I don't know. It was inspiring. It was inspiring
on so many different levels, Matt.
Speaker 1 (04:08):
How persistence pays off by getting you an HVAC.
Speaker 2 (04:11):
Company exactly, but just sends a dozen emails. Maybe I
can own an HVAC company.
Speaker 1 (04:20):
What I love about it is that this was a
sort of novel idea at some point, you know, twenty
years ago, and it has now really like pervaded the
top business schools, so that a lot of people are
doing this, which means that if you run an h
BAC company, you are constantly, constantly getting cold emails from
(04:40):
searchers and so like. Of course you had to email
I twelve times because the guy who was like, ah
more search funds.
Speaker 2 (04:46):
Yeah, it is.
Speaker 1 (04:47):
Such an amazing time to be in an unglamorous business
because there are so many people with MBAs who want
your glamorous business. Right. A lot of them are searchers,
but some of them are like private equity funds doing
roll ups of like pest control or whatever. Right, Like,
there are a lot of buyers to choose from if
you happen to own an HVAC company. And I don't know,
it's just so strange to me to think, like, you're
a plumber, you like work in plumbing for twenty years,
(05:09):
you start your own plumbing company, you like go around
doing plumbing, and then like you occasionally check your email
and there's like four hundred emails from private equity firms
and MBAs. It's just like a strange dynamic.
Speaker 2 (05:21):
It's a seller's market. I wish I had a plumbing
company to.
Speaker 1 (05:24):
Sell, right, And Like, one thing I wondered about is like,
if you are a search funder and you buy yourself
a plumbing company in a year, do you flip it
to another search funder, because like the demand keeps growing.
Speaker 2 (05:35):
I do want to talk about that how you exit
it as a searcher. But you seemed charmed by particular
from getting into the shoes of the man who owned
this HVAC company. The article also got into the shoes
of the employees who worked there. I think that's another
interesting level. Like, Okay, the founder and owner of the
business is getting a bunch of emails. How do the
(05:56):
employees react when you tell them this thirty two year
old now owns the business and you work for him
and he's the CEO, and you know he's some Harvard MBA.
Speaker 1 (06:08):
Okay, here's how I think about this. I think in
the olden days, people would start businesses and they would
be like, you know, high school educated, like you know,
they start a business because like they're just scrappy entrepreneurs,
and then they would run the business for a while.
They'd have employees, and they would have like a kid,
and they'd be like, well, of course the kid is
going to take over the family business. But because they're
(06:29):
rich now, instead of like the kid just like you know,
starting at the family business. After high school, they send
the kid to Harvard Business School and the kid gets
all these like new fangled business ideas and he comes
back at age twenty eight and he's like, I'm going
to take over the family business and run it in
a modern way, and like, you know that's good, right,
Like you have like the scrappy founder, and then you
(06:50):
have the next generations like professional and educated. But the
chain has been broken. So now like the founder gets
rich and the kids are like, well, I don't want
to work at the family h fact business sounds terrible, right,
So the kids go off and like become documentary filmmakers.
And meanwhile, like, it's really hard to get into Harvard
Business School now, So you can't just get into Harvard
Business School by being the like shiftless child of an
(07:12):
h back founder. But all the people in Harvard Business School,
you know, there's still a demand for Harvard MBAs to
run h back companies. So now instead of it like
being the kid of the founder, it's just like some
random person who happened to get a Harvard MBA and
now wants to run the you know, hvac business in Peoria.
So it's disaggregated the like family you know family family air. Yeah,
(07:32):
instead of like the son taking over the family business
with his fancy Harvard degree, it's like some random person
takes over the family business with his fancy Harvard degree.
But you know, it's like still kind of the same.
It's like the employees still have to work for a
thirty two year old who hasn't marked the back. You know,
it's like it all makes a kind of sense. It's
just become more like coldly logical and market driven.
Speaker 2 (07:53):
Something that I kept thinking about while reading this article
for some reason, a meme that keeps popping into my
various algorithm is, you know, a cartoon guy hand in
his face in the middle of the circle, and it's like,
I meet a girl. Her dad owns like a twenty
million dollar a year, like waste management company or pest
control or something, but he doesn't want to like hand
(08:14):
the keys to his ambitious future son in law, and
then we stop talking, which it would be a lot
funnier if I could show the meme, but I promise
it's funny, but it kind of reminded me of this
sure anyway, I thought also it was interesting. You know,
this article described it as a phenomenon happening around like
late twenty year old and like graduates in their thirties,
(08:37):
and I think it speaks to something about millennial culture,
that there is that desire to run into the woods
or go to Peoria and run an HVAC company, versus
stay in a city and try to climb the corporate ladder.
Like this probably happens with every single generation, but it
does feel like it speaks to some sort of disillusionment.
Speaker 1 (08:59):
Yeah, I don't know. You think about like what you
can do with your MBA, right, Like if you're a
sort of corporate type, like you can go work in
private equity, and you can start by building models and
doing kind of grunt work, and your hope is that
in ten or fifteen years you'll be you know, kind
of leading big deals and sitting on boards of companies
and kind of running portfolio companies. Or you can just
(09:23):
do deals and run companies yourself immediately, with the trade
off being that those companies are small pest control companies
in Peoria. But like maybe that's good trade, right, Like
maybe you want that trade, right, Like I am sure
that in like ten years you'll be reading about people
who started as search funders and bought like one HVAC
(09:44):
company and then bought another HVAC company and then became
like billionaire private equity kingpins by like doing roll ups
of their industries. There's kind of two paths to that outcome, right,
There's like the outcome of being a private equity associated
and there's the outcome of taking over an HVAC company.
And I bet the second path is more we're likely
to get you to the billionaire Kington outcome at this
point than like being a private equity associate.
Speaker 2 (10:06):
Well, I think you have to have some ridiculous amount
of just self confidence or real earned ego to think
like I'm going to go in and I am going
to ceo this small company, like it hasn't been ceoed before.
Speaker 1 (10:25):
Yeah, it's here like a little bit more confident, a
little bit more risk taking. You're not like just following
the expected prestigious path of going to a private equity
fram and you're like, I'm going to strike out on
my own and see what happens. Well, you know, it's
interesting because like also in ten years, this will be
such a like well trodden path, you know, they'll be
like incubators for search funds and like it'll be so
(10:48):
standardized that it won't be like particularly entrepreneurial and risky anymore.
But right now it's still a little entrepreneurial and risky.
Speaker 2 (10:54):
So you're saying I should get it now, is what
I'm hearing.
Speaker 1 (10:58):
I don't know I was gonna say you should have
gotten in five years ago. I have no idea what
the market is like. I think you shouldn't get in
ten years.
Speaker 2 (11:03):
But yeah, get really pandemic.
Speaker 1 (11:06):
I think this is great. I feel like we've had
a number of like career ideas for each other during
the course of this podcast. But you like taking you
raising money from friends and family to take over an
HHAC company. I like it. I didn't know that you
had such an intense interest in HPAC.
Speaker 2 (11:23):
I'm not specifically h we're using a horse barn, but yes,
that's the thing.
Speaker 1 (11:29):
I don't know if that works. I think like the
whole point of this is that you're taking over like
non glamorous family businesses from like aging founders who don't
want to do it anymore, not like people's like delightful
lifestyle businesses.
Speaker 2 (11:45):
But there's there's plenty of people who would think that
a barn is un glamorous.
Speaker 1 (11:50):
Do any of them own barns?
Speaker 2 (11:53):
No, they don't.
Speaker 1 (11:54):
It's your problem. You have to buy the barn from
someone who runs the barn. I don't know.
Speaker 2 (11:59):
I'm reading this have like a renewed I'm reinvigorated, and
you know, I thought I wanted to be a podcaster
or I did that, It's okay. I wanted to be
a novelist, still working on that, but I think that
what I really want to be is a searcher. I've
always wanted to buy a trissage barn, but now I
have a fancy, not yet saturated sort of term to
(12:23):
apply to it.
Speaker 1 (12:24):
Yeah, I mean that is really like. The thing about
the Search Funding is like it's given people a set
of concepts to sort of standardize and think about and
justify this thing of like I want to buy an
existing small business and run it according to my own
you know ideas. I think like a while ago, if
you're in business school and you're like, I want to
(12:45):
run an HVAC company, people would be like, that's a
strange thing to want to do with your forward MBA,
Whereas now it's like totally standardized. I was like, oh,
of course the Search fund. And similarly, I feel like
this is going to be like season two of the
podcast is going to be You're going to go to
investor meetings. We're going to record them. People are going
to be like, of course, here's a million dollars you're
going to people. I think send every horse barn in
(13:08):
America at.
Speaker 2 (13:09):
Least twelve at least twelve. If anyone listening right now.
Speaker 1 (13:14):
You own cold email, you'll show up on a horse.
Speaker 2 (13:16):
That's true, and they'll know I'm the real deal. They won't.
Speaker 1 (13:22):
Yeah, That's like one thing in this h RAG article
is like, you know, the guy who owned the h
RAG company was like, all these search funders emailed me
and I was like, all right, come out and they're like,
let me check my schedule. But this guy and the
guy who bought the company from him, I was like,
I'll be there tomorrow, right, You're going to show your
enthusiasm by like showing up on a horse.
Speaker 2 (13:39):
That's the other thing I found charming is that it's
just like old fashioned sort of you know, I'm going
to come up and meet you in person. I'm going
to shake your hand and I'm going to look you
in the eye. And that has a lot of currency
with the people who are selling these un sexy businesses.
Speaker 1 (13:55):
Right because these are people who have built businesses over
years and they are the owner, but they also like
work closely with the employees, and they are not just
maximizing shareholder value. And if they were to sell to
a private equity firm that laid off all the employees,
they'd be sad and like they live in the community,
they'd be looked down upon. So if they can sell
to someone who gives them a firm handshake and looks
(14:17):
them in the eye, and so they'll take care of
your employee. You know, it's a very family business oriented,
you know, kind of tool making environment, and you're not
just paying the highest price to maximize shareolder value. You're
kind of taking over a business that has lies to
a community.
Speaker 2 (14:29):
Yeah, I do want to talk about how Schweber is
going to get this big payout. The business insider says
that he's in for so if all of this goes
according to plan, he's in for a big payout. Of
the search entrepreneurs who eventually sell their business, just under
a quarter of them get nothing. Another twenty seven percent
get less than four million dollars in equity, twenty eight
(14:51):
percent get four million dollars to ten million dollars. The
luckiest eighteen percent get more than ten million dollars. So,
you know, after I buy the horse barn, I have
to stay there and make it better and grow it.
And then the idea is that I'm going to sell
it in like a decade and make a big profit.
Speaker 1 (15:10):
I can imagine some people go into it thinking like
I'm going to make my life in p area running
an HRC company. But you know, most of them are
like business school people, and like they're choosing between this
and private equity, and yeah, they want to do a flip, right.
They want to like buy a sleepy family business that
isn't you know, optimizing everything, and they want to spruce
(15:31):
up the financials and maybe do a few like tuck
in acquisitions and then sell it to you know, a
sort of more scale buyer, sell it to you know,
private equity roll up or something for you know, if
you can buy it at like one time's revenue and
sell it at you know, five times revenue, then they
you know, make a lot of money.
Speaker 2 (15:51):
And so the investors who.
Speaker 1 (15:55):
You know, or you retire or something on it.
Speaker 2 (15:57):
Or you become an investor in search funds. Sure, so
if you invest in a search fund, you're in it
for the long haul. You're in it until there's a flip.
Speaker 1 (16:06):
I don't really know the terms, right, Like you could imagine,
you know, the investors just getting a share of the
cash loough and being happy with never flipping it. But no,
most of them want to cash out, and yeah, you're
in it for a flip, and you know, you say
the long term. I don't know what the holding periods are.
But like you know, again, the sort of alternative to
this is private equity funds. And so yeah, you might
(16:27):
think I'm going to take over an HVAC company. I'm
gonna learn hvac, I'm gonna do some deals. I'm gonna
spruce things up that won't take me more than five
years until I can flip the company, right Like, it's
not necessarily your family business for the rest of your life.
Speaker 2 (16:44):
I have to imagine a lot of these fail I
don't know.
Speaker 1 (16:48):
I don't know what fail means. I mean, right like,
probably some of them, at least of them, they don't
scurce them up, and then they get bored and then
they're like, I were shutting this down and I'm going
back to New York. But right like, you're taking were
like a stable business with customers, and you know, you
like that, You're not founding a business, right like, your
downside is not as bad as if you were founding
(17:10):
a business from scratch, right you know that this company
already has a business and customers and you know, revenue
and employees, and probably in many cases it could operate
on its own that much from you, So you might
not be able to do a flip. You might like
get bored and close it down rather than eke out
(17:30):
a very small profit for yourself every year. But like
you're not going to lose all your money.
Speaker 2 (17:35):
Yeah, that's true. I mean to your point that they're
not founding a brand new business. So I was thinking
about this in terms of, like, you know, maybe these
smart young people with these big degrees, maybe their brain
power would better serve the economy by putting that towards
new ideas.
Speaker 1 (17:52):
Why degrees are not in astrophysics, right, there's there masters
of business administration, right, they've learned to administer businesses. I
think it's like a really good thing for the economy
if like the local sort of mid sized businesses get
really good business administration, Right, if like the Harvard MBA
is instead of just going to work in finance, like
(18:14):
actually go and work for real companies that do you
know HVAC.
Speaker 2 (18:19):
This reminded me, I know these people who there was
a bed and breakfast for sale in a small Pennsylvania town,
really charming, and it was an existing business with existing
customer base who they had a lot of repeat customers
and the owners were retiring and they bought the business
and it's going really well.
Speaker 1 (18:38):
And those people are named.
Speaker 2 (18:41):
Bob and Julia. And Friday is my dad's birthday, So
happy birthday, Dad, Happy.
Speaker 1 (18:46):
Birthday, Bob. I meant to tell you that I saw someone.
Hold on, that's you, Okay, that is me. I mean
it's your's your home studio. You need to go to
the ville.
Speaker 2 (19:08):
It's literally a hairball. He's fine, he's fine. Windsurf windsurf
man buying companies, Yeah, but not really, not really buying
(19:34):
the company. Well kind of set the scene.
Speaker 1 (19:38):
Windsurf is like an AI coding assistant company, and of
course it was in talks to be acquired by open
Ai for a while. The rumor was that open Eye
was going to pay three billion dollars to acquire it,
which I think means to acquired in the normal way,
like buy all the stock of the company. But they
couldn't get to an agreement on some weird terms, including
like sharing the technology with Microsoft. It's open I walked
(20:00):
away and then Google did this weird deal where it
paid two point four billion dollars to Windsurf for basically
like some but not all, of Windsurf's employees. Like basically
Google was trying to acquire like the top talent from
Windsurf to feed into the mall of like having AI
researchers do AI at Google. And they've got like a
(20:24):
non exclusive license to Windserf's product. But it seemed pretty
clear that it was a talent acquisition, but they didn't
buy the company. They got no stake in the company,
but the shareholders of the company mostly got cashed out,
like the venture capitalists got paid off for their stock.
So Google paid for the stock of the company, but
didn't acquire the stock of the company. They just got
(20:44):
the talent and like left of the company on its own.
And this is kind of a weird outcome, in particular
for the employees of Windsurf who didn't go over to Google,
because they were kind of left in this company that
had some cash and like a business, but no more
of its founders. And it's kind of like it loose ends.
And then a couple of days later, Cognition, another AI company,
(21:06):
bought the rest of Windsurf for an unspecified price that
might have been just like here, you're gonna have a job,
and so yeah, that was the deal. It was like
quite controversial. There'should a lot of the deals kind of
like this in the AI space, where you know, you
have very big tech companies that want to pay a
(21:27):
very large amount of money for AI talent, and the
top AI talent often has their own startups, and their
startups often have the effect of proving that their founders
are good at AI stuff but do not have products
that the big tech companies want. And historically the way
(21:47):
that ended was the big tech companies would buy the startup,
shut down the product that they didn't want, and like
give the employees jobs. But that has changed, like that
aqui hier model has changed, and I don't quite know why.
Like the leading theory for why it has changed is
that in the Biden administration there was a lot of
anti trust scrutiny of big tech companies buying even small startups,
(22:12):
and so they stopped doing aqui hiers and started doing
just hires. Yeah, but the other thing that is happening
is if you're Google or Meta whoever, it's sort of
dawning on you, like, well, we don't really have to
acquire the company. We just have to pay the founders
(22:32):
to come work for us. And we have to pay
them a lot because they have the startup. I have
equity in the startup, so like they have to give
up the equity in the startups, we have to pay
them a lot. But like, do we need to acquire
all of the employees. Do we need to pay the
vcs the full value of the company or can we
just like acquire the founders and like let the rest go.
So there's a lot of talk about like the social
(22:55):
contract of startups and vcs being violated by these deals,
and I feel like, so far, actually the social contract
holds up pretty well. We're like the vcs who fund
it Windsurf. You know, they got several times their money, right,
Like they got rewarded for funding Windsurf, even though I
think people would say in a sense like the product
isn't what's making the money. It's just like the founders
(23:17):
are going somewhere else is what's making them the money.
But you know, and the employees ultimately ended up his jobs,
although not at Google, So like the social contract sort
of held, but it's like it just feels like it's
a little bit under pressure, where like, you know, the
next deal Google could just be like, we're going to
pay the founders, you know, a billion dollars each, and
we're not going to cash out of the vcs.
Speaker 2 (23:36):
Yeah, reading this and just thinking about similar circumstances, my
thought was, why don't they just try to poach people
the normal way? Like why is tech this special, weird
place where there is acqua hiring, Like why can't they
just offer the founder one hundred million dollars or something
like that, similar to what Mark Zuckerberg is doing. Why
(23:56):
do we have to go through all the hoops of
you know, buying the company or doing whatever Google just did.
Speaker 1 (24:03):
I think that part of it is like you can
now pay AI researchers one hundred million dollars, but you
can't pay them five hundred million dollars because all the
other A researchers would be mad. And like if they
have a startup, you know, that has raised money at
a four billion dollar valuation and they own you know,
whatever they own twenty five they own a billion dollars
worth of it, right, you have to lure them away
(24:24):
from that startup by giving them a lot of money.
Maybe it's not a billion dollars, maybe they don't think
it's worth what, you know, what it raised that, but
you have to give them something like a billion dollars.
And the way to do that is to have some
sort of M and A like transaction. Right Like, if
you're just saying I'm going to give you a salary
of a billion dollars, that's tough to sell to your
(24:46):
other employees. But if you say I'm going to do
an M and A transaction that technically doesn't involve buying
any of the company, but like there's a licensing deal
and it's like an agreement with Windsurf, then you can
do a transaction that effectively gives the founders a billion dollars.
And so I think that's part of it. Where Like,
the going rate for poaching an employee from like open
(25:09):
Ai to Meta is you know, one hundred million dollars.
But the going rate for poaching a founder of a
startup that like was valued at a lot of money
by a VC, the going rate for that might be
billions of dollars. And the only way to pay that
is in something that looks like an MNA transaction.
Speaker 2 (25:24):
The other thought I had was that there is still
some acquihiring going on. If you think about the recent
example of also Meta with skill AI.
Speaker 1 (25:35):
These are the same thing, Like these are not quite acquisitions. Yeah,
sometimes they're like state acquisitions, but not one hundred percent acquisitions.
And sometimes they're more like the Windsurf deal where it's
like a commercial license and a big payment, but not
one hundred percent acquisition.
Speaker 3 (25:49):
Yeah.
Speaker 2 (25:49):
I was just thinking about the employees who didn't get
picked to go to Google, and that's probably a pretty
lousy feeling, but maybe they're happy a cognition.
Speaker 1 (25:59):
Yeah. It's like there's this incredible gold rush for AI,
and there's incredible variance in people's perceived market value, right,
Like there are people who are you like, there are
people who are multi billionaires because they like were in
earlier and AI, and then there are people who are
paid like, you know, six hundred thousand dollars a year
and they're like, oh my god, I'm so poor, like
(26:21):
like there's a huge range. And some of that is
the sort of classic startup like were you there at
the founding of a hot company? But some of it
is like people's perceived value to the big tech companies,
where like, if you are really really good, a big
tech company will pay you, you know, much much, much
more than one hundred million dollars if they have to.
(26:42):
And then if you're less good, it's like, yeah, you're
on salary. It's fine.
Speaker 2 (26:46):
And where we are in the world right now, I mean,
is this uniquely a tech industry phenomenon and specifically in
AI industry.
Speaker 1 (26:54):
Phenomenally, Like given in tech people have normal jobs like
this is very localized to AI, you know, like they're
not these kinds of bidding wars for people who do
non AI tech business man.
Speaker 2 (27:09):
If I had any practical skills, I'd be thinking I
need to be an AI person somehow, But I think
search fund founder is more realistic.
Speaker 3 (27:19):
Yeah.
Speaker 2 (27:36):
You know who else is in the business of buying
up a lot of companies is it's Vanguard. They are
an index company all the companies. As much as Vanguard
likes to talk specifically to me and everyone else about
their you know, active management ambitions, they are huge. That
(27:56):
means that they own a lot of the shares outstanding
of a lot of companies, including companies that you might
not expect I.
Speaker 1 (28:05):
Would expect, Wait, can I ask you, are they the
biggest total stock market index fund? Oh my god, God
runs you know, a big S and P five hundred
and index fund, and so does everyone else. But like,
I definitely own some of the Vanguard Total stock Market
Index fund, which is not the S and P five hundred.
It's everything, including small companies and including bigcern treasure companies.
Speaker 2 (28:30):
I'm trying to find out because I don't want to
miscall myself, but I think that the Vanguard Total stock
Market Index fund is the largest. I mean, it's it's
in the trillions, so I would imagine that that's it.
Speaker 1 (28:43):
So when you say Vanguard owns is one of the
biggest sholders of companies, you wouldn't expect. I would expect
them to be the big sholder of every single public company.
That's what I.
Speaker 2 (28:52):
Would and they are, and they are, including Strategy in.
Speaker 1 (28:56):
Particular, I'd expect them to be one of the biggest
holders of every non P five hundred company because like,
there are a lot of SMP index funds, but like, yeah,
Vanguard is really into total stock market index ones. But anyway,
but yeah, they're the biggest holder of Strategy micro Strategy
now called strategy.
Speaker 2 (29:14):
I guess I did not appreciate that strategy isn't in
the S and P five hundred, but we're also talking
about a non S and P five hundred tracking fund.
Because I don't know, it just feels like increasingly the
whole world revolves around the S and P five hundred,
but the Vanguard Total Stock Market funds biggest shareholder of strategy.
(29:34):
I say that you might not expect it because the
personality of Vanguard is an asset manager that is deeply,
deeply skeptical slash repulse by cryptocurrencies.
Speaker 1 (29:48):
I know. This is the thing about running index fund.
It's like it doesn't matter what you think, you just
buy it. Yeah, It's like a really good, like disciplining mechanism. Right,
Like you consider that and be like, wow, I think
this company is overvalued, but it doesn't matter to buy
it because you're an index one manager and like that's
what people are paying you for, and they're not paying
you very much. Right, If they're paying you a lot,
then you might be like, well, I'm going to short
this company because like I think it's overvalued and I'm
(30:10):
you know, getting paid a lot from my wisdom. But
they're paying you like two basis points to buy every company,
so you buy every company. It's a really good pass.
Speaker 2 (30:18):
The thing that's slightly different here is that Vanguard obviously
has control over what products that it launches.
Speaker 1 (30:24):
Yeah, but like it's it's products or index ones.
Speaker 2 (30:27):
I know, I know, but this is a relatively new
phenomenon where you have equity companies that just hold bitcoin
and you think about like commodities. For example, Vanguard for
a long time would not launch a commodities fund. They're
never going to launch their own cryptocurrency funds. And okay,
(30:47):
yes they're going to buy every single stock out there,
but it's a new phenomenon where that means you're also
buying crypto indirectly.
Speaker 1 (30:57):
Yeah. Well, the things I like about it is that
a little inside baseball but not really. Bloomberg has this
like view that you shouldn't own stock in companies that
you write about. So like I don't own stock in
you know, Goldman or Apollo or whatever, but I own
index funds they own stock in those companies, and so
I e right, and like in some ways it would
(31:18):
be weird if I didn't. Right, Like to me, like
I should have my savings in like the global financial portfolio,
and if I owned like all of the stocks except Goldman,
then like in theory, that would create a financial bias
against Goldman. I would be like, well, I don't want
any of their stock, but I own every other stocks.
I want their stock to go down relative to the
rest of the market. And then like crypto is kind
(31:39):
of the same, right, Like, you know, we have like
sort of rules that you shouldn't own crypto if you're
writing about it, but like if I own zero crypto,
then I'm sort of biased against crypto, right Like I
you know, I own like all of these stocks, and
I want the stocks to go out, but I don't
want crypto to go because I don't want any crypto.
But now, because on the Vanguard Total Stock Market Fund,
(32:00):
I own some bitcoin indirectly, but like I have some
exposure to bitcoin through strategy, and I think, like more generally,
like it is good for ordinary investors to be able
to get low cost access to like market cap weighted
ownership of like the entire global financial portfolio, right like,
just as like it's probably good for you to not
(32:20):
have to pick which stocks will go up and just
buy all the stocks, like you shouldn't even have to
like pick like which asset classes will go You just
like be able to be like I'm going to buy
the market right, And you can't really do that that
It's not really a thing like people try. It's not
really a thing because like, you know, how do you
decide how much real estate to have in that? But
by smuggling a little bitcoin into your you know, total
stock market fund, it means you have like a little
(32:42):
bit closer to exposure to the entire financial portfolio. And
if you don't like crypto, you'll be mad about that.
But if you're buying the total stock market fund, your
thesis has to be I don't know what I want
to buy. I have no strong views about which companies
will go up, So like you have some bitcoin, why not?
Speaker 2 (32:58):
Yeah? Occasionally Tom Keane invites me on radio and just
kind of bullies me about crypto for a couple of minutes,
and then I get off air and super I don't
I would not describe him as pro christ I'm not
surprised yet he famously calls it bitdog. But in trying
to make him care, I have tried to make the
(33:18):
case that you should care because it's probably in your
retirement account through this sort of indirect exposure, Like your
fortunes in a small way are tied to bitcoin now, right.
Speaker 1 (33:30):
I would reverse that. I would say that, like, if
you don't have a strong reason to be short crypto,
you should be long crypto in proportion to it's like
weight in the market, right, and like that weight has
gone up a lot in the last ten years, right
now trillion dollars. And if you are just like completely
on a blank slate, completely agnostic about everything, like your
(33:52):
weight should not be zero and now it's in your
retirement fund. Great problem solved. I'm not saying you should
buy crypto of like by all means, this is not
investing advice, but like you know, I'm just saying, if
you have no views, like the default weight in your
portfolio for every asset is not zero. The default weight
is like it's market weight, right, And so if you're
(34:14):
just setting it to defaults, you should have some crypto.
And the way to have some crypto is either like, ah,
you go create an account on coinbase, or like you
just you know, own a total stock market index one
that happens to have some crypto.
Speaker 2 (34:26):
So you're a marked cap weighted guy.
Speaker 1 (34:29):
I'm not saying that's the best way to invest. I'm
saying that's the neutral way to invest. I'm saying that,
like anything that you do to deviate from like the
market cap weighted global financial portfolio, should ideally have every
reason ideally not that, not that I you know, follow that.
(34:51):
I'm just you know, as a theoretical matter, like you
should own the market unless you have some reason to
think that something else is better.
Speaker 2 (34:58):
And that is investment advice.
Speaker 1 (35:01):
No, I mean, I don't know how I could get
suit over that, but no, it's not investment advice. The
bitcoin treasury companies are interesting in part because they give
you away to own crypto if your only investment is
the total stock market. But more broadly, they're interesting because
they are a way for equity investors to own crypto
(35:24):
without owning crypto. And I think that there's a lot
of demand for that. Some of it is from like Vanguard, Right, Vanguard,
which let's hypothesize does not want to own crypto, nonetheless
owns a lot of micro strategy. It's like that's like
a good arbitrage, right, Like you have like bitcoin, which
like Vanguard doesn't want to buy and you have micro Strategy,
which Vanguard, against its will does want to buy, and
so like you can like transport bitcoin into Vanguard and
(35:46):
make some money on it. But like, more broadly, I
mean there's a lot of like equity investors who for
one reason or another can or want to buy micro
strategy for bitcoin exposure, can't buy like just bitcoin for
bitcoin exposure. They get an email from one guy saying,
like my hedge fund, our prime broker will give us
(36:08):
sixteen to one leverage on micro strategy, and they'll give
us no leverage on I bet like the bitcoin ETF. Right,
So if you want to get exposure to bitcoin, getting
it in the form of a stock, like a real stock,
not an ETF, like a corporate stock. Getting in the
formu of a corporate stock is in many ways preferable
to other forms of owning it. And that's why that's
(36:29):
part of why the bitcoin treasury companies often traded a
premium to their underlying bitcoin, because like there's a whole
class of investors who can get crypto that way, but
can get it as easily or as efficiently in other forms.
Speaker 2 (36:43):
That's really interesting because after the spot bitcoin ETF's launched,
I think a lot of people, perhaps myself, questioned what
the use case for micro Strategy was.
Speaker 1 (36:55):
Yeah, and the number one answer is index funds. Vanguard's
total stock more good fund does not own ETFs. Yeah,
it owns companies, and micro Strategy is still a company
even though it's a pot of bitcoins. Like that's the
number one answer. There are other answers, because like someone
at some prime brokerage is like, we'll give more leverage
on corporates than we will on ETFs, even though the
(37:16):
corporate is like more volatile than the ATF. But like
the number one answers index ones, and like, yeah, micro
Strategy is not in the S and P five hundred.
It wants to be in the SP five hundred. That's
like the next that's the next frontier.
Speaker 2 (37:29):
It did make it into the NASTAC one hundred, and
that's a big d. It was somewhat controversial.
Speaker 1 (37:35):
Yeah, because like these indexes don't include ETFs, They don't
include investment vehicles with like rare interesting exceptions, right, Like
there's like an argument that Berkshire Hathaway is an investment
vehicle and like you know and then you I don't
if you remember, but friend of the show Bill Ackman
of perching Square Capital Management. Uh, when he.
Speaker 2 (37:52):
Found his way into another episode when he was so not.
Speaker 1 (37:56):
The bird but the actual Bilackman when he was.
Speaker 2 (37:58):
Trying to trow Yeah.
Speaker 1 (38:01):
I haven't even talked about that long. When he was
launching his clothes un fund, he's like, it's going to
be in the S and P five hundred. It was
not going to be in the S and P five
hundred because the S and P five hundred does not
include clothes down funds, but it does include Berkshire Hathaway
because it's not quite a closed un fund, it's a
company and microshrate is the same deal, right, Like, if
you're like, I'm going to launch a fund that holds bitcoin,
(38:22):
that will not be in the S and P five
hundred or even the Nazak one hundred. But if you're like,
I am a tech company, I'm going to almost exclusively
hold bitcoin and talk about it a lot, you can
be in the S five hundred at least the Nazak
one hundred, and that's different.
Speaker 2 (38:35):
Well, that was the controversy around its NASDAQ one hundred.
NASTACK one hundred does not hold financial companies and it
feels like micro strategy. It was micro strategy at the time,
like it was sort of grandfathered in because it is
nominally still a tech company, very nominally.
Speaker 1 (38:53):
Yeah, you're right, that's the arbitrage, right, It's like, we're
not a financial company, we're not an investment company. We're
just the tech company that happens own seventy billion dollars
a bit quin. Yeah, it's a good trade. I'm sorry
that Bill Lackman caught so many strays at the end
of this episode.
Speaker 2 (39:09):
It's okay. I don't think he listened to the end
if you want to say that.
Speaker 1 (39:12):
Like when we mentioned last week that we're going to
name your bird friend of the show, Bill Lackman, we
got approximately twenty emails saying of Perching Square Capital Management.
A lot of people will I know I did that joke,
and we did not, and I'm sorry.
Speaker 2 (39:29):
But very clever.
Speaker 1 (39:31):
We'll do better next time. Perching Square. Yeah, he just
learned to perch. And that was the Money Stuff podcast.
Speaker 2 (39:43):
I'm Matt Livian and I'm Katie Greifeld.
Speaker 1 (39:45):
You can find my work by subscribing to the Money
Stuff newsletter on Bloomberg dot com.
Speaker 2 (39:49):
And you can find me on Bloomberg TV every day
on Open Interest between nine to eleven am Eastern.
Speaker 1 (39:55):
We'd love to hear from you. You can send an
email to Moneypod at Bloomberg dot net, ask us a
question and we might answer it on air.
Speaker 2 (40:02):
You can also subscribe to our show wherever you're listening
right now and leave us a review. It helps more
people find the show.
Speaker 1 (40:08):
The Money Stuff Podcast is produced by Ana ma Aserakus
and Moses onm Our.
Speaker 2 (40:12):
Theme music was composed by Blake Maples and Stage Bauman
is Bloomberg's head of Podcasts.
Speaker 1 (40:17):
Thanks for listening to The Money Stuff Podcast. We'll be
back next week with more stuff
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