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We all want our careers to be an endless upward trend, but that’s not always the case.

Mike Asem, who took a less-than-traditional road to investing, has experienced the wonderful highs and the challenging lows that come with being a venture capitalist. 

While the founding partner of M25–a midwest-focused early stage investment group–has plenty of success stories to share, he’s also graciously agreed to join us to talk about some of the less glamorous aspects of stewarding capital. 

Throughout the episode, he and our hosts, John Coleman and Luke Roush, open up about difficult questions like “how do you know when to let a venture go?” And “how do you protect your identity when you feel like a failure?”

Tune in to hear how we can wrestle through tough realities while maintaining hope in something bigger than our circumstances.

If you like the episode, feel free to share it with others, leave us a rating, and follow the show wherever you get your podcasts.

Episode Transcript

Luke Roush: Welcome to the FDI podcast. I am your host, Luke Roush. I’m here with my co-host, John Coleman. Good to have you with us.

John Coleman: Luke I’m feeling very great being the co-host today in your capable hands. Glad to be here.

Luke Roush: This is a plot twist. It’s the plot twist. It’s always exciting. We are overjoyed to have as our guest today. Mike Asem. Mike is a co-founder managing partner at M 25, has been an early stage investor for a number of years. Has a great background at the Great College of Purdue University and is going to talk to us about a number of topics, one of which is when do you know it’s time to let an investment go and to not continue to invest? And so. Mike, welcome to the show.

Mike Asem: Thanks, Luke. Thanks, John. I’m happy to be here and looking forward to this.

Luke Roush: So we can come back to some of the challenges of being an early stage venture capitalist. But let’s start with the positives. So how did you go from being a public relations student at Purdue to becoming a venture capitalist? Walk us through that journey.

Mike Asem: Yeah, no, I appreciate that. I mean, it’s kind of funny. I tell people I went to Purdue and those are familiar pretty, are familiar with all the great STEM programs it has, and they asked what I study. And it was public relations and rhetorical advocacy, which is in the liberal arts College is one of those majors that comes in and out as they kind of decide if it’s worth having or not. And, you know, I appreciated it because I was really interested in how organizations communicate and people relate with each other, but it was not your traditional path to venture. For me, I think it was, you know, a lot of divine scenarios I was put in that helped me get to where I’m at. I was a really bad student entrepreneur at the time. I had some really bad ideas but some really good energy behind them and kept meeting great people like Rusty Rueff, who I know is very involved with Faith Driven Investor Faith Driven Entrepreneur and and see some opportunities. I ended up at one point first year out of undergrad working for a nanotech company. So the running joke against all my buddies who studied engineering was Hey, look who’s mixing electrode material and assembling 80 micron thick supercapacitors thinner than a human hair in a bio clean room first year out of undergrad. So my way of saying some really interesting opportunities happened and I’m fortunate where I’m at right now.

John Coleman: Your friend’s idea of a joke is not super funny to those outside technical disciplines.

Luke Roush: Well, talk us through Mike. I mean, it’s super interesting just in terms of that entry point, but talk us through the anvil, which was a co-working space that you helped to co-found. Love to hear more about that.

Mike Asem: Yeah, so I put a lot more of good energy behind my efforts in this category. So when I was working on some bad startup ideas, I also had a student organization that I started called the Purdue Gold Standard, and we were focused on promoting physical fitness, financial well-being and leadership development among students at Purdue. That was kind of my goal and a lot of that’s entrepreneurial and tie that to my, you know, like I said, that hobbies. I got invited to a lunch by an alumni who was an early gentleman at Oracle did quite well and was back on campus looking to talk to entrepreneurs and leaders about how to solve entrepreneurship on campus. And I was really energized. I raised my hand when he asked who who like to put together a proposal to give to the president of the university to solve the problem. And that proposal for me turned into six months later me opening the doors to a place called the Anvil, which was a separate five one C3 nonprofit that I started the sole purpose of supplementing the existing resources at Purdue and creating mentorship and coaching and other resources for entrepreneurs on campus. And we ended up launching the first Purdue companies to go to Y Combinator. For those familiar with some of the top tier accelerators in the country and subsequently have had multiple acquisitions and lots of venture dollars raised across the companies of that program. So again, that was something that was kind of my first data on my resume. I guess as I got into tech and entrepreneurship, I mentioned the role in the startup after that and yeah, that’s how it came together.

John Coleman: It’s really cool trend that’s been happening and it sounds like you were pretty early in it. This ability to meld the energy and the youth and enthusiasm of a university with the ability to structure startup world and provide the right support for it is kind of a magical combination. I wasn’t aware that Purdue had that kind of program, but it’s really neat to see that happening. And I think you see more and more great startups coming out of the same type of incubators on college campuses or university campuses today. You know, one thing we wanted to dig into Mike, obviously you’ve started things. You’ve also been a venture capitalist for a while now. There is a ton of joy in venture capital. We know we do it. We do it as well. But there are also a lot of struggles or challenges. What surprised you on the challenging side since you got into venture capital?

Mike Asem: Absolutely. I think I kind of go in semi chronological order of my realizations of some of these challenges. But, you know, if you go back to my roots, which was primarily the anvil and then being a first employee, it was a venture backed company and then subsequently actually joining the Purdue Research Foundation as a director to help do similar things. I did the Anvil, but more within the pretty proper house of their incubation systems. My career was very much on the operator slash operator support side of the house. My job was very much about meeting with entrepreneurs and saying like, okay, but how can this work? How do we make this work? Let’s let’s make this happen, Let’s build this, and here’s how we’re going to build a strategy for success. As soon as I crossed the other side of the table, it very quickly became how do I apply very rigorous skepticism and say no as many times as possible? I mean, I that was probably one of the first realizations that really struck me was not only the amount of times I had to say no, but the type of quality of entrepreneur I had to say no to. Oftentimes for even things that weren’t even an issue for them, maybe they just want to fit for our fund model or our fund pieces. And I’d say that was a big realization, I think as and we’ll get into this, but there’s definitely some learnings as well, and you model out that not every company will make it, but seeing how some of the companies don’t make it and and going through that process with that entrepreneur has definitely been a learning, especially as someone who they look to as I think you can actually solve my problems because I just need more. I just need more money. Right? And that can be a challenging reality to try to confront.

John Coleman: One you’re right as an investor, you have to be a fiduciary for the people who’ve entrusted capital to you. So you’ve got to maintain this objectivity. At the same time, you know, this is the biggest professional thing in the other person’s life and that they’ve really got everything at stake on this. And it can be a challenging thing to say no initially or eventually to move on. You mentioned you kind of model in the fact that a number of these companies will struggle. Could you just talk us through examples where you’ve seen a company struggle and you as an investor or you as a team had to think about then moving on from a person or a venture that you really believed in when you made the investment, but you know, it’s time to move on.

Mike Asem: Sure. Well, I think the framework is a lot easier for me to speak to because, you know, when you make an investment, to your point, what got you so excited at the beginning versus where you’re at in the current state of affairs? I think it’s always been helpful for us as we’ve continued to draft our own internal memos and build upon them. We are definitely trying to spell out very consistently our thesis about the investment. What has this excited about it, what we think it can become and why? Because over the course of time you’re definitely going to see those things come into fruition or not. You know, I might think this company is a great business because I believe that CEO will have the ability to attract a great CTO and a great sales team, and we’ll go from this revenue to that revenue in this amount of time. And the way that industry will flow is going to be in this direction. And in 24 months, maybe half those things are true or none of those things are true, or rarely all of those things are true. But that can be a really objective way, I think, for us to and we like to apply to think about why we are not so excited about a company. And then the other thing I think is with that founder, you know, once you’re invested, you’re on the same side of the table and it’s really important for that to be really felt and owned by both parties. And to the extent that’s true, I have said many times that the best founders are true truth seekers. They’re not afraid of the truth, whether it’s convenient or not. And more often for founders, that truth is very inconvenient. But what do you do once you get that truth? And if a founder is able to not only own the truth, but also pivot off of it or adapt to it or find successful paths through it, that’s where I think you can continue to maintain conviction that you are involved in the right company. You’re spending time in the right things. The founders that shy away from that tend to be the ones where you add up those objective measures and kind of these subjective pieces, and it’s easier to start to look at it and say, this is probably one of those that’s not going to get through. Yeah.

John Coleman: Luke I mean, we’ve dealt with the same types of things. I mean, any observations on what Mike just laid out? There are examples where, where you felt like you’ve lived through that.

Luke Roush: Yeah. You know, one of the things that we talk a lot about is in the underwriting and original investment, we always try to understand like, what are the things that can go wrong? And then in the postmortem, if it works out, did they succeed for the right reasons? If it doesn’t work out, did they fail for kind of the right reasons or the wrong reasons? And there can be good reasons why, you know, companies don’t make it right. Sometimes a new drug or a new medical device doesn’t get approved and, you know, be impossible to understand how the FDA interprets a new application, but it just doesn’t make it past that step. Sometimes the market shifts. Sometimes there’s a competitor that barges in and just starts to, you know, create a red ocean based on pricing behavior. Those are kind of the right reasons that early stage companies don’t make it. I think where we have focused more is sort of like when companies don’t make it, there are some kind of wrong reasons. Some of them are within our control as the investor. So like we try to be really objective in like understanding what is the go forward financing risk of this business, how much more money is going to be required, and are there tools of capital for the company to be able to draw from? You know, and so that’s kind of on us as if we’re leading around. It’s on us to really look around the corner and see what’s likely to be required and do we know where we’re going to go to be able to get that financing rounded up if we can’t do it all ourselves? There are also, you know, I think the most challenging situations that we face are when, you know, the market’s there, the product is there, but just execution isn’t there because that involves people, right? And other things are more easily addressed. People are hard to address. Sometimes it’s founders that can’t make the jump from kind of an early stage company to a later stage company. Sometimes we hire the wrong person, maybe somebody from a big organization that we think can come in and they just can’t make that shift into more of an entrepreneurial environment. So I think in the most challenging situations that I think of when I look back over the last ten years is where we had great people that just for whatever reason, didn’t have the right supporting cast or couldn’t individually do the work that was required.

Mike Asem: And I love what you just said there. I think though, where I would. And so on on one hand it’s really hard. On the other hand, it’s really easy, right? Because there is the personal side of Mike. There’s the emotional side of Mike right that I need to temper, right as I’m, you know, continue to be the best steward of capital I can be. And sometimes I think it’s the hardest when the founders are really good executor. But there’s not that business there that we thought was there. Right. Or for whatever reason, like this outcome is not what we thought it was going to be. Maybe it’ll be a great lifestyle business, but it won’t be a venture fund returning type company. And that’s gets really tough because then you’re like, I think about as a human being, I’m like, you know, this founder, She’s doing everything. She is amazing. She’s a rock star. She’s everything I asked her to be and more. It’s just this wasn’t the right company. And then you start to have some do some really tough decisions. Where do you let it fail? Do you keep investing? How do you support? Whereas if someone’s just really not delivering the mail and consistently doesn’t deliver the mail, that it’s pretty easy for me pretty fast because I can say, I mean, I’ve time and time again, we’ve seen companies where, let’s say the thesis for the business is this, but I know that I’m no longer an operator, I can’t run this company for them. And the biggest mistake I can make as an investor is like invest in a company because I know what I want it to be, but I haven’t really captured what the founder wants it to be or what they’re going to actually do with it. Yeah. And so, yeah, that’s what I would throw into this piece.

Luke Roush: So what you just said is so on point, Mike, because it’s the difference between falling in love with the founders vision for where they want to take the company and falling in love with our own vision for where we want to take the company. And none of us has time to be able to effectively do that across the portfolio. I want to just maybe talk a little bit about, you know, when things aren’t going well. We talk a lot as investors about identity and sort of what is our identity rooted in and how do we make sure that the business failure doesn’t mean that I’m a failure as an individual or that you’re a failure as a founder. Maybe just talk a little bit about how you navigate through that with portfolio company CEOs that you’re part of.

Mike Asem: Yeah. And sorry, just to clarify, we’re talking about my identity or the founder’s identity?

Luke Roush: Both.

Mike Asem: Both great. Okay. Yes. Yeah. So I’ll start with the founders identity. So I try to start really early by just trying to establish a lot of trust and rapport with the founders I’m invested in even before we made an investment, because I want them to know that whether it’s whether negotiating a term sheet, whether we’re negotiating a future CEO compensation package, whether we’re negotiating whatever it might be, that they know where my heart comes from and they know the. Type of man I am. And they can trust that we can have a meaningful conversation. And I also want them to know that I see them as more than their company. I think that’s a really hard thing, even for a founder sometimes to see themselves as, especially as they get really into it. But it’s really important. I wrote an article a couple of years ago called Founders Need Stewards, Not Masters. And part of that piece was around this topic, and part of it was outlining a good friend of mine story where I cut to the chase. His business situation was very trying and he considered taking his life. And it wasn’t for outside of him hearing the voice of God tell him to stop doing what he was thinking about doing. He might not have had his son. He might not have kept going. And of course, now looking forward, he’s built an amazing business. He’s got an amazing family. He’s amazing man of God. And that could have been all for nothing if he would have been convinced that he wasn’t more than his company. And I firmly believe that whether it comes from a point of I’m just understanding the side of the human or even more selfishly understanding that, hey, again, let’s go to that counter. Who? She’s amazing. This isn’t the right business. I want to be there for the next one. Right. I mean, there’s we all know we’ve met entrepreneurs, very successful men and women who are rock stars, not once, not twice or three times, but however many times God has decided. Right. So that’s where I try to just kind of lay into that and and make sure I’m checking in on them outside of the business. And then for myself, I think, you know, it’s really tempting, especially in a world like jam packed full of egos, whether it’s the entrepreneurs or investors like myself or whatever. You know, I think we’re all tempted at times to check the ego and be like, man, I’m, you know, this is great. I’m a self-made fill in the blank, you know? And in the same way that we can say that, you know, God, you know, I’m here because God’s blessed me with talents and abilities, but he’s also blessed me with opportunities. And he’s also made things happen through me. Right. And I think that’s the way you have to look at it. Like the same way success happens through me is the same way. You know, failure happens through me. And we all know that God uses all things to his glory. And I don’t know how a failure is going to positively impact me or the founder or someone in relation to this that I don’t even know. And so I think there’s just taking root in that helps me at least think about how I know that my identity is I’m a child of God. I’m here to do my best. And so long as I’m actually working my tail off to do the best, my ability and glorify God in the process, then like I have to take that on the chin to take this one on the chin so that, you know, I can continue to fulfill the mission. So that’s where I believe that.

John Coleman: Well, we are. I mean, almost everyone in this field is at some level a competitive person. Right. And we all want to be successful. We all want to do well, even if we have good motivations for that. And when we’ve done very well, the temptation is always to credit ourself a little too much. And when things have gone poorly, the temptation is to wet our identity to that and not really think about it. And it’s, you know, it’s kind of ditches on both sides, right. You’ve got to find a way to stay anchored in truth. You know, one thing that you touched on is with that entrepreneur where you do have to make the decision to pull out of additional financing or maybe even to wind down a company, etc.. Sometimes you do invest with that person again, sometimes you don’t. What do those relationships look like for you after you’ve made a decision to part ways professionally with an investment? And how do you maintain those after that?

Mike Asem: Yeah, I think that’s a great question. I think it is highly dependent on the individual. I generally have a stand of if I’ve ever gotten to a place where I’ve decided, like I’ve underwritten you as the founder that I’d like to back and participate in. I think that’s something I like to retain is an offer like I’m not changing my phone number. You can still reach out. My email is going to be the same. Probably the [….] note if it changes and you know, didn’t come with any particular promises, but at least on a human level, you know, I’m there. And, you know, I think it’s interesting. We’ve seen some really good opportunities, not just for them to start a new company, but sometimes founders also realize things about themselves that tell them, hey, maybe I shouldn’t be a founder, but I am a phenomenal technical lead, right like or I’m a phenomenal X, Y, Z, and we like to pride ourselves in our ability to continue to help our founders, you know, bring another great people into their vision. And so that can be a way that we do that as well. So I would say, you know, outside of of course, you know, unfortunately, if we do learn something through the process of being an investor, your business, that I couldn’t recommend you to be a part of someone else’s company, then that’s a different situation. But but for the most part, I think, you know, being partner with people of high character and high integrity makes it easy to say, Yeah, let’s stay in touch. And if opportunities arise, we’ll be thinking of you and and vice versa.

John Coleman: So much of that is a heart orientation. Mike I love what you’re saying. And it you know, this springs to mind for me too, about founders wanting to be careful about who their capital partner is. Right? That that financial capital does have influence. The person across the table matters. And what I love you saying is, I mean, you can just tell your heart orientation going in is that you actually want to see that person flourish. Right? We say we love God and love our neighbor through investing. Love of neighbor can look like different things. I mean, certainly it can be encouraging them, cheering them on. It can be delivering hard truths. It can be helping them come to decisions that are ultimately better for them, even if it’s hard. But if you’re doing that from the perspective of trying to also help that person achieve what’s best for them, I think that can make all the difference. And Luke. I always think of our we have a colleague, Jake Thompson, who I think you know, who I think is just extraordinary about this. Right. Because he actually does really care about and love all the founders he’s interacting with. And I think that makes a huge difference in the way those conversations go. So I want to pivot to another topic. If it’s okay. You know, right now we’re living through a downturn in venture. Arguably, this will be the most pressing adjustment in venture in 15 to 20 years or so. And we’re already seeing compression evaluations. The economy may be heading into recession. We just got additional inflation numbers where inflation continues to proceed at a pace that’s problematic. And what a lot of people are having to sort through now is whether a venture is in temporary trouble because of the economic environment. Right. Or whether there is a structural problem with the business model. And to Luke’s prior point, you know, whether you should then continue to bridge financing to help them get to the other side of this temporary blip or whether there’s something structurally wrong. How are you? And in M 25, thinking about this right now in terms of the portfolio, and how are you trying to determine how much of this is a temporary economic problem and how much of this is a structural problem where we do need to exit?

Mike Asem: No, it’s a great question. And in that for many of us is the question right now, especially for those of us in our profession that, you know, haven’t been through a cycle or haven’t been through anything that even closely resembles what we’re going through right now. And, you know, I’ll throw a disclaimer here is you’re getting this from a someone with a public relations and rhetorical advocacy background prior to venture. And then from there, my exposure is really through early stage venture capital. So take that for what you will. But I do think that fundamentally, if you look at where we were before things started to look uglier can only be described as a remarkable moment in venture capital in the way that valuations were happening, in the way that, you know, rounds were getting done and the amount of capital being invested in these companies. And I think that that was just, you know, inherently unsustainable. Like I think everyone that was participating in it understood it. But for a lot of folks, it still made sense to participate. I think if you even just think about the, you know, incentive structures within a lot of the VC firms that may have participated in some of these rounds where you maybe have more junior partners or folks that are they have dual authority, but they don’t have the same sort of like responsibility and stewardship and ownership in the firm as a more long standing general partner. That’s where you start to see some really strange incentives where if a person like that can get their name on a logo that gets them a partner role at another firm, but you start to see some really weird rounds start to shake out. I think you look at stuff like that and you ask yourself, Do VC firms need to be a little bit more careful and a little bit some of their practices and that sort of thing. But as far as like valuations and things of that nature, I still think the reality is that good businesses are good businesses. There’s still a lot of great companies building with great business fundamentals. I think one of our favorite examples recently is a company that is building verticalized [….] software for salvage Yards. It is not exciting. It is salvage is software projects. Unless you like great business models and great like totally antiquated industries right for digitization and disruption. Then it is exciting. And this company has been kind of an outlier in this space where, you know, we actually preceded the company not too long ago and they’ve already had a significant markup and things are going great. We’ve got companies in the logistics space that have similar stories, right. So I think that, you know, our view at this moment is that, well, first and foremost, we need to be the best stewards we can be. And for myself, my partner Victor, who and many of you know, Victor, we’re both younger than your average general partner per se, and we are very focused on surrounding ourselves with great mentors who can advise us on how to be great stewards, how to think about markets like we’re currently in, but being very precise on how we make our decisions on this is a company, we’re going to lean more into This is how we are thinking about cash reserves. This is how we’re thinking about their ability to actually grow in a macro environment like the one we’re considering and don’t need to depend on some very like very theoretical ideas versus. No, this is something that we can actually build a business model around and understand. I would say that’s at a high level how we’re really thinking about it, but I wouldn’t be shying away. I think another great mentor of mine is is a managing partner at one of the top five firms in the country. And he told me years ago that one of his regrets, if he had one mind you, this is a very successful venture capitalist I was talking about, was not being a little bit more aggressive in 2012, nine, ten, ten, because the deals that he did then were some of his best deals and somebody else he passed on that he could have done would have maybe been even better. So I think about that. I think about the ability to be contrarian. I think about the ability to run a sophisticated strategy even through scary conditions when others are pulling back the upside on that can be, you know, game changing.

Luke Roush: Yeah, one of our little bit of partners who was just on the phone with earlier today likes to say that the time to buy is when the cannons are thunder and the time to sell is when the violins are playing. And, you know, against the backdrop of the last few years, a lot of dry powder, you know, capital markets, effectively money’s free for the better part of the last decade, there’s been a certainly an orientation amongst some firms to start going full lifecycle. So doing everything from ten or $15,000 pre-seed checks to, you know, $100 million growth equity financings, sometimes doing it all within the same fund, sometimes having different vehicles. So you’ve got kind of that full lifecycle and then you’ve got, you know, things like crypto and blockchain and there’s a real FOMO driven kind of how do I not miss out on this big trend that’s going to change the world? And then all of a sudden SBF happens, you’ve got a denominator problem, you’ve got turbulence and uncertainty in public markets and things start to pull back. And then, you know, it’s a great timing of your comment, which is there’s probably going to be some really interesting things that come up as the market resets over the next two or three years, particularly for businesses that have demonstrated traction. And so I love the example that you gave of like, you know, who cares about, you know, scrap yards except, you know, there’s a lot of people that care about scrap yards. There’s actually a lot of value in there. And if you’ve ever had to buy a used car part from a scrap yard, you realize how much value there actually is in there. It’s not cheap.

John Coleman: One thing I’d add to that, Luke, and we’ve talked about this a little bit internally is to emphasize what you’re saying. Mike Some of the most interesting times, especially in early stage venture, are right after crises, right? Particularly the crises that hit the bigger technology companies are publicly traded, growth companies, etc. Because what people don’t think about is a lot of great engineering talent is there are a lot of great product talent is there. They’ve kind of got golden handcuffs, often with options when the right is going well, when the market collapses. You know, we’re seeing massive layoffs in tech right now. A lot of people’s options are worthless. And so there tends to be a boom in early stage venture startups. So among founders, right after a correction among bigger tech companies, because these folks go out and they no longer have any disincentive to start something. Right. And so there’s just emphasize what you’re saying. I think it’s obviously a difficult time, but it’s also an exciting time to get into markets and try and think about these folks who are now leaving and starting really phenomenal ventures. And we love scrapyard type stuff. So you speaking our language.

Mike Asem: Yeah.

Luke Roush: I’d love to actually transition to just the origin of your firm’s name M 25, Where does that originate from and how do you think about it with Victor?

Mike Asem: Yeah, absolutely. So M 25 comes from Matthew 25, specifically the parable of the talents. And I think, Victor and I you know, it’s interesting when we get asked this question, for those who do not know our fund, we focus on Pre-seed in the Midwest, there’s a lot of folks that are like, Oh, I just kind of assumed it was Midwest 25. But yeah, what does it mean? And we’re like, what, 25 would apply? Anyway, we’ll keep going. But it applies to Matthew 25, the Parable of the Talents, and we get a chance to tell the story. And for those familiar right, there’s a master that leaves his estate amongst three servants and gives them the kind of order to take care of his assets while he’s gone. And when he returns, he finds that one takes appropriate risk and creates value and another does the same to a lesser degree, but still does the same in the third out of fear buries it in the ground and the master greatly rewards the first two and greatly punishes the third one. But what we really derive from this is we see ourselves and aspire to be both master and servant in that we want to find great entrepreneurs that take appropriate risk with what we entrust them with, with our capital and build something of value and return. And for our LPs, we want to be servants in that we want to take appropriate risk. We proper stewards of their capital and creates a meaningful value for them as well. So that’s where it comes from.

Luke Roush: Maybe share. Before we go, the Lightning Round, which John, I know is excited to kick off, maybe share just a moment on how your faith informs your work daily, right at a macro perspective. M 25 Matthew 25 is awesome, but how does it actually impact what you do daily? And maybe talk a little bit about the artwork that’s behind you?

Mike Asem: No, absolutely. So how my faith impacts my work daily? I mean, I think, you know, first and foremost, we do have a bit of a lens in that we won’t invest in anything that we think is destructive. We don’t invest in anything in the vice categories and try to stay away from anything that we frankly think is has a risk of not being kingdom building and being destructive to society. Outside of that, I mean, I think, you know, I mentioned the piece on how I try to be a really good ally to my founders, a confidant, someone that they can trust and try to, you know, be that light and a hill for them and that like they can at least experience what it’s like to work with somebody else that’s hopefully highly competent and and skilled in this area that can help them, but also has some strong belief in values and faith behind what they do. And I think maybe the larger, more like categorical view is I just get a lot of passion. John, you mentioned liking to see people flourish. I have a big heart for access and opportunity and seeing people be the best they can be and, you know, to God’s glory living out like their purpose in their lives. And, you know, I really feel energized and fulfilled by being able to provide some sort of tangible value, helping them along their journey, having God kind of help them through me in that way and be, you know, I think sometimes it’s easy to be just a cheerleader in those ways, but also be a trusted accountability person. I think that we’re talking about something where letting companies go the markets tough, dealing with tough times, you know from Romans that suffering, please, the perseverance, perseverance, character and character, hope. And this is a lot of times working through founders, through the tough times, although it’s not the funnest part. The funnest part might be the violins. Luke, But it is a rewarding part because these are some of the moments that really kind of become cornerstone moments, I think, for people oftentimes professionally, but also very oftentimes personally. And so it’s always something I’m thinking about is how can my work continue to be more redemptive? But those are the things that I think thematically kind of carry through how my faith affects how I approach my work.

John Coleman: That’s awesome. Mike So we like to insert in the middle of these conversations a lightning round. And the only rule of the lightning round is 60 seconds or less for the answers. So we’re going to hit you with a different set of questions. Some will be fun, some will be serious. I’m going to throw your big time softball at the beginning based on a couple of your prior comments. You are engaged with a bunch of nonprofits and a bunch of causes that you care about a lot. Are there a couple you’d like to tell us about today?

Mike Asem: Yeah. So I would say like Equal Justice Initiative is one that I think is a really important philanthropy. So they focus on individuals of color that were unjustly charged and prosecuted for crimes that they didn’t commit when they spent a lot of time in areas around incarceration and kind of redeeming individuals in that way. So I love the work that they do. And I would also call out very specific [….] a group called Black V.C. I also lead the Midwest chapter based in Chicago, but I also sit on the national board, and this is a nonprofit focused solely on exposing and engaging and helping promote individuals of color in venture capital, because as we know, there’s not a lot of folks that look like myself in venture capital, and especially not, you know, in senior positions or check writing positions or areas of advancement. And so we’re really trying to create equal opportunity and just kind of help individuals from diverse backgrounds.

Luke Roush: That’s great and love the fact that you’re taking initiative and taking leadership and having your voice be heard in shaping that discussion. So that’s awesome. Mike, I want to switch gears and on a slightly less serious note, we had Shundrawn Thomas on a couple of weeks ago and we had a spirited dialog around the great Chicago and traditions of Italian beef sandwiches and deep dish pizza. Today we need to know which is your preferred cuisine, deep dish pizza or Italian beef?

Mike Asem: Well, the answer is definitely situational in and what it means is if it’s game day, then it’s probably Italian beef.

Luke Roush: Let’s go.

Mike Asem: If it’s not game day, then you’re probably going to deep dish pizza.

Luke Roush: And what is game day for you? Are you Bears fan? Are you a Cubbies? Talk to me about what game day means.

Mike Asem: Oh yeah I’m I’m a Chicago sports diehard. So for better or worse. Hey, look, we’re having one of the most aggressive rebuilds I’ve ever seen in the NFL, so I’m putting my hope in that. But yeah, for better or worse, go Bears.

John Coleman: I was ready to accuse him of waffling, but that was actually a pretty good response. On the situation ality of the cuisine there. That was that was solid. Mike, you know, apart from the bears and deep dish pizzas. Why the focus on the Midwest? Why is that important to you as a venture capitalist?

Mike Asem: Yeah, I’m from here, Victor is from the Midwest as well, we feel like we have an unfair advantage here. We understand the culture here. For better or worse, it’s like it’s a different cultural reality in the Midwest than New York or San Francisco or pretty much any other part of the country. And so given our network, given our roots, also given what we feel is like an underserved reality from a venture capital perspective in the region, we thought we had a good opportunity to win and create a lot of value here.

Luke Roush: Next question is around your one of your hobbies, which is actually making wine with your dad. So what’s the timeline around being able to anticipate some vineyards being available at the local grocery store?

Mike Asem: Well, it’s a great question. The well, first of all, it’s fruit wine. So we have made wine from grapes, but generally we make it from blueberries. And I do have a really good strawberry that’s won a couple awards locally, but unfortunately for a few reasons. One, we don’t want to make our hobby our job to I have drinking a lot more wine since then. I actually am not sure how good it is. And three, you know, just selling alcohol at the grocery store. I know if that’s in the cards for me. So TBD.

John Coleman: That’s great. As a Southerner, I can tell you even the mention of strawberry wine brings to mind nostalgic memories for country music fans. We’ll do the last question of the Lightning Round right here, which is in this tough season, what advice would you give to other investors going through this for the first time? Young investors?

Mike Asem: Yeah, I mean, I would lean towards surrounding yourselves with individuals who have been through a season like this before and gleaning as much wisdom as you can. You know, we know that the pursuit of wisdom never lets us down. And I think this is definitely one of those times where it’s the most valuable and also like watch how that unfolds because especially if you’re young in your career, there’s likely more and more time ahead of you where you’re going to be able to put this experience and learning to work. And it’s going to be extremely valuable and learn some lessons. And, you know, I think back to the ego. You’re more than your career. You’re more than the next deal, you’re more than the losses you’re building right now. And odds are, if you’re in your career that your losses will help, you have an unfair advantage for the wins you gain in the future.

Luke Roush: That’s great, Mike. That’s an awesome word for all of our listeners. I want to pivot just to how we always like to close each episode by asking what God is teaching you right now. So what have you found recently in God’s word that has stuck out?

Mike Asem: Yeah. So I’ll go with a recent piece and a kind of life piece here. So the recently my wife and I are 20 when you read through the Bible again and this morning I read the story about Balam and the donkey, that that was not helping him out and then spoke to him directly. And it reminded me that, you know, a lot of times we’re trying to force a square peg in a round hole. I think a lot of times God puts things on our heart or we have things in our heart that maybe God says, just like we’re not getting that signal to lean into this and we’re trying to force things and, you know, being able to like, step back and try to listen for God’s voice and like feel from the spirit, like we’re actually we should be moving forward. Is this God’s will or my will? So that’s the word that I think hit me recently as of this morning’s reading. And then I’d be remiss if I didn’t point back to the painting behind me, which I know you guys can see. But it actually it’s this local Chicago artist that did this and I had them paint R 12:2, for Romans 12 two, which is my longtime favorite life verse, which is do not conform to the patterns of this world, but be transformed by the renewing of your mind. That way you can attest and approve of God’s will is his holy, pleasing and perfect will. And I love that verse because I just love how much it speaks to how, you know, God wants us to be critical thinkers. God wants us to be constantly pursuing knowledge and have strong intellectual curiosity for the purpose of fully owning and understanding his will for our lives. And in some of these deeper questions, because, you know, I think having that spiritual relationship as well as that pursuit of intellectual curiosity is something that’s very God ordained and like makes life as a Christian really rewarding.

John Coleman: Mike That’s a good word. We have loved this conversation today. Obviously super encouraged by what you’re doing at M 25 and beyond with the different things that you’re involved in. You’re just such a bright light for the industry. I know our team thinks incredibly highly of you, and entrepreneurs would be very fortunate to partner with you and with M 25 And so we’re grateful for you coming on today, sharing some of the more difficult things. With vulnerability that you have to go through. And also just providing a great example for the way that a Christian can navigate those. So really appreciate you coming on today, Mike. Thanks for sharing with us.

Mike Asem: Yeah, thanks for having me. It’s been great.

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The collapse of institutions like Silicon Valley Bank sent ripple effects around the world and brought many to a place of fear, doubt, and instability.  

So how should we faithfully think through these recent events?

We tackle this topic on this special episode of Marks on the Markets.

Host John Coleman is joined by Justin Speer, a Principal and Senior Analyst on the Public Equities team at Sovereign’s Capital, and Zack Mansfield, who has over 15 years of experience working with high growth entrepreneurs, venture capitalists, and other members of the innovation economy. 

As the current Managing Director of Venture Banking Group at Signature Bank, Zack has a deeply personal connection to this conversation.

Join these three as they wrestle through challenging questions and discuss how they have found hope in Christ despite the instability surrounding all of us.

Episode Transcript

John Coleman: Welcome back to the Faith Driven Investor podcast for our monthly Mark’s on the Markets episode. This is John Coleman and I am very privileged to have with me today two guests to speak about the banking crisis, the recent banking crisis that’s kind of erupted over the course of the last several weeks. Obviously, this is still real time, although some of the biggest movements have settled a bit. And we’re trying to figure out what happened as well as what the banking sector will look like moving forward, what venture banking might look like moving forward, and how investors in Faith Driven Investor should think about the marketplace to explore this topic. I’m really privileged to have two guests on the podcast today. The first is Justin Speer. Justin, who was one of the portfolio managers in public equity at Sovereign’s Capital. I’ve been privileged to be getting updates from Justin throughout, and he’s just a really wise person on public markets generally and also on what’s happening in the financial markets right now. The second is Zack Mansfield and Zack, maybe new to some of you, but he’s not new to us at sovereigns. He was one of the original architects of the firm, one of the original investment committee members, and is one of the most senior executives in venture banking in the country. And Zack is currently hoping to lead the venture banking group at Signature Bank, which has obviously been a part of the news that’s come out over the last several weeks and and will be able to provide us with just an extraordinary insider’s perspective to this as well as a perspective on the banking sector generally. So Zack, Justin, thank you so much for joining today.

Zack Mansfield: Good to be here.

John Coleman: Well, and I know I should note upfront, we’re going to talk about a lot of real time issues right now. These are not advice to buy or sell securities. They’re not advice on where you should bank or how you should bank. But we do want to try and visit this topic. And and the first thing I want to dive in on before we try and dissect what’s happened is just where we stand today. And maybe, Justin, we could start with you. You know, the last couple of weeks have been very rocky, but where does this mini financial crisis that we’ve experienced stand today?

Justin Speer: Well, we’re certainly not out of the woods, but it now appears that some of that fevered panic has been quelled by some important moves from regulators, the Fed, and from large banking institutions. In the past couple of weeks. They’ve done some things that we’ll discuss today in more detail a bit, but their efforts have been very important in quieting some of the fever panic that was cropping up across multiple lenders.

John Coleman: That’s great. And I think we’ve seen that in some of the stock prices leveling of these banks that have swung so wildly and they’re still down pretty precipitously, especially the regional banks. But those prices seem to be swinging with less volatility at the moment. Is that accurate Justin?

Justin Speer: Correct. Yeah, we’ve seen significant pressure. We’ve seen 20% declines in regional banking equities with the most challenged banks. And we’ll talk about those banks down 90 plus percent, but we’ve stabilized here. The broader regional banking index has stabilized here in recent days, and we’ve learned that deposit outflows and withdrawals have begun to stabilize as well, which is a real good sign. After about 5% withdrawals from banks U.S. wide in the week following the two bank closures. So we’ve seen some stabilization. A real important thing that we’ll be watching very closely in the coming weeks and months.

John Coleman: That’s right. We’ve ended up with effectively three major bank failures that happened really in the course of that first week and subsequently haven’t experienced any major failures. We’ve seen SBB sold to first citizens now and stabilizing the infrastructure that’s left there. Zack, obviously you work at Signature Bank, which the FDIC took over over the weekend subsequent to the Silicon Valley Bank failure. What was your personal experience like there, if you wouldn’t mind walking us through that?

Zack Mansfield: Yeah, it was a really wild few days. It turned into a week or two. I was actually traveling. My kids were on spring break. We had just gone over to the UK, we were in London and then we left on a Wednesday evening and the news was just coming out that I should be was looking into and I think ended up announcing plans to do a stock offering to help cover some of their issues on their balance sheet related to the securities portfolio. And that was big news. My experience over the last 17 years or so has all been in the venture banking world, and that should be is really the proverbial 800 pounds gorilla in that space. They dominated the market. And to see that was really huge news for us because they had been such a steady, you know, powerful bank and we knew it was going to hit their stock price. And yet the reaction to that was fairly immediate. And there was a lot of, you know, basically panic and concern from their customers who then started to pull deposits. And that just started this ripple effect and we began to see it the next day. So on the Friday of that week, we all remember we actually be started to really experience those outflows, all of the banks, including ours. I think most of the regional banks started to experience similar questions from client. Around the stability of other banks. And so our team really started working feverishly with really one main goal, which was to try to make sure that our clients deposits were as safe as possible. And really, that was, I think, the one kind of resounding message from every bank was like, we really care most about the deposits and making sure people feel safe. And there’s a bunch of different ways that we could look at doing that, including certain products that we had and had been offering clients and were, you know, in an effort to try to get more people into those fully insured products. And really it was a whirlwind of that day where everyone was trying to do as much as they could to get into the weekend and sort of everyone did. And at that point SVB was taken over and then everyone had a chance to breathe a little bit, and yet everyone knew that it was fairly unstable still. And so, you know, I guess I’ll stop there. It was wild, it was hectic. Our teams who were dealing day to day with clients, I had a guy tell me yesterday he opened nine months worth of insured cash sweep products for customers in five days. It was that sort of volume and just frankly, incredible, incredible efforts by folks, you know, in the trenches to deal with this madness. And yeah, so in some ways, it was really heartening to see everyone pulling in the same direction. And yet in other ways, you know, it was kind of mad.

John Coleman: Yeah. And I think that can get overlooked, honestly, in a crisis like this is people caricature institutions or segments of institutions. And my experience in general with a lot of these institutions, Signature First Republic, others included, is they’re staffed by awesome people who really want to do the right thing, who want to serve clients. And that gets lost in the noise sometimes of a panic like this. And that’s been disappointing, although predictable probably in the way that these things are reported on or reacted to. Exactly. If I might ask, on the personal side of things, you’re a person of faith. I mean, it had to be a stressful weekend week, two weeks. How have you personally reacted to that or what have you leaned on during that time as a person of faith as you’ve endured it?

Zack Mansfield: Yeah, absolutely. Yeah. One of my first reactions, you know, really, frankly, with the SVB News, at first I mentioned they were just this behemoth was just this realization that like all of the institutions and things of this world that seem just so strong and powerful, like at the end of the day, are relatively fragile. All of our systems, all of our you know, that’s not to say that there’s not value in that. I think there’s great value in them. And yet at the end of the day, there is a lot of fragility that was really exposed. A lot of it has to do with the interconnectedness of relationships and the ways that things can move at really rapid speeds nowadays. And so ultimately you have to choose how you’re going to deal with that. You kind of touched on it a second ago. I was really heartened by the response of so many people. The immediate reaction is like you’re in a sort of a crisis like this, is are you going to sort of deal with it emotionally and just kind of lose your mind and go crazy? Or are you going to dig in and, you know, strap together and work together? And you really did had a sense of being with others in a way that was different that you only experience when you go through crisis. And also it just opened people up. There was emotions, there was hurt, there was the ability to kind of come in and meet people where they are and do it in a way winsomely as you could, and do it in a way where you kind of do have to look at something beyond, you know, sort of the here and now in any sort of material. There’s a lot of material wealth that was lost. And so you look at that and sort of say, well, what actually does matter? And, you know, for me it ended up being a chance to dig deeper into my faith and to understand what makes me tick and what really matters. And, you know, in a lot of ways like all sorts of things like this in life. They’re really hard. And yet you end up with a little bit of time perspective to look back and with gratefulness, because you do realize that there are much bigger things in life. And I was on a spring break trip with my kids and, and it gave us opportunities to talk about what’s going on. And this is what’s going on with dad’s work. And, you know, those are things that we don’t take for granted, the opportunities to live intentionally in that and then talk about what is the reason for the hope that we have. And for us, you know, it’s our faith in Jesus and in sort of the stability and long term internal perspective that that offers.

John Coleman: Yeah. Thank you for that perspective, Zack. And I know from my perspective, most of us have spent the last 20 years or so in financial markets. We’ve experienced a couple of crises during that time and probably been impacted in different ways. And when I’ve been impacting those crises, it’s been such a reassurance to me to know that my identity is in something greater than my work in the present moment, which for a Christian is just the kind of distance that you need. I think to put things in perspective and certainly work hard for people, but also have comfort that, you know, your future is in the right hands. Justin, as we turn to you, just what happened several weeks ago at SVB, because we’ve you know, we kind of seen the outcome of that. But what happened? Was it bad assets? Was it a bank run? Was it both? What precipitated this crisis?

Justin Speer: It was a bank run. It was deposit withdrawals requiring the sale of assets that had unrealized losses. And so this isn’t a credit performance issue. It’s simply an interest rate and duration mismatch issue. Sizable unrealized losses were ultimately realized to pay off depositors, and it resulted in banks being unable to cover their uninsured and insured depositors. So $42 billion of deposits fled Silicon Valley in 6 hours was shocking speed. And we learned that there was an expectation that if they didn’t shut it down. The FDIC thought another 100 billion would be gone The next day was just simply a mismatch in asset and liability duration and a significant surge in rates and draw down on deposits at some of these leading lending institutions that led to this thing really taking place. And Silicon Valley was really at the epicenter of the big shifts from extremely loose monetary policy that led to a big surge in deposits and risk appetite post-pandemic, particularly in the venture capital and startup realm. And that shifted because of inflation to extremely tight policy beginning last year. And unfortunately, Silicon Valley got caught up in that shift with just risk management that just didn’t see this, unfortunately. And so when you see central banks tighten monetary policy, particularly the speed, that’s what’s really sets this one apart, the speed with which it tightened conditions, this has dramatically impacted the value of the longer term assets on banks balance sheets, including commercial residential mortgages and treasury bonds and other similar types of securities. And I’ve seen estimates of as much as 10 to 20% haircuts, unrealized losses on the held to maturity assets for banks. In aggregate, an estimated $2 trillion of unrealized losses are currently in the background here. This was very large. So if deposits don’t flee, it’s not a problem for the banks can help. The assets. The maturity and the value of those assets will mature at par. Supposing that they perform and right now they’re performing again, it’s not a credit risk issue, but if deposits flake, the depositors withdraw their money and banks are forced to sell those held to maturity assets to fund those depositors, this can lead to this mismatch. And if a bank’s liabilities exceed the realized value of its assets, it can become insolvent. And that’s what’s happening.

John Coleman: Zack, Does that resonate with your understanding of what happened, and was it different between Silvergate SBB and signature in your mind?

Zack Mansfield: Yeah, I think that characterization is exactly right as it relates to SVB. Yeah, I think Silvergate had its own sort of story, which was definitely more tied up within crypto. They had defined a lean for themselves that was almost entirely, you know, correlated to crypto assets, you know, and then ultimately, you know, if you look at the ripple effect after SVB, their issue was as Justin described, and then the resulting sort of movement of deposits had the effect that it had on them. And then it did ripple down to other banks, including, you know, signature or some of the others. You mentioned First Republic. There was others that were in really all the regional banks that were, you know, at risk of the same efforts. And as you saw, you know, the Fed and others sort of step in. They were trying to provide support and liquidity and comfort to just stop that sort of changing of deposits every which way. And and that was really the thing that was causing this whipsaw effect. And really, yeah, the flight was happening too fast to respond to it, and they felt like they needed to step in and provide the stability.

John Coleman: And it really was in my mind, I agree with the characterization entirely. This is different than 2008, In 2008, we had a series of truly toxic assets, securitization of assets that was poorly understood, a crisis in the mortgage industry and inner linkages between assets that really put balance sheets at risk in a substantial way. For me, this was the kind of modern version of a 30 style bank run. And what was interesting is a lot of the things. That have made banking so much better, actually made the run so much easier. So from my point of view, frictionless banking, the ability to do banking anywhere at any time remotely on an app or online, you know, some of the banks that we’ve mentioned were extraordinary at that actually. Great customer service, great to deal with. You could move your money very quickly and you never had to visit a physical branch, right? The opposite of that is as easy as it is is to put money in. It’s easy to take out. Right. The idea of, you know, in the 1930s, taken out 42 and a half billion dollars from a bank in 6 hours would have been literally physically impossible. And now, of course, it can move quickly. And then the second component of that is just social media and communication now. And I think, you know, originally one of the big problems, as I understood it, was a lot of the big venture firms started to hear about weakness or potential to tell each other about weakness, which became its own narrative. And then they have these Slack channels and the signal channels and other things where their venture portfolio companies were on and they started telling all their workers to withdraw funds at the same time, which is the source of these rapid deposit flights. And then that became too spread on Twitter, right. And other social media platforms. And so what was interesting and what is almost more difficult to deal with than toxic assets in some ways is this idea that a bank run can happen so quickly with modern technology and with social media. And what I still grapple with is how do you protect against that moving forward? Right. I mean, that type of run seems to be difficult to guard against.

Zack Mansfield: It’s a really interesting point, John. I think you’re spot on. And the thing that makes it so interesting is that each person that was involved, each person that was deciding to pull money out, was making that decision in a completely logical way, in a way that could be justified as a fiduciary, as you say, hey, I’m doing my duty as a board member to call my CEO and tell them, Hey, do you have money? That should be should you be thinking about pulling it out and you can make a logical case or even like this is your role, this is your duty as a fiduciary to make this case. And yet, as you interconnect all this together, it ends up spinning the hamster wheel faster and causing the issue that exists to just be exacerbated. And is this like you hear about flywheel effects that are positive, right, when a business really starts humming and this got it moving in a different direction in a negative way. And I really you know, so when people described it as prisoner’s dilemma or ways where people are making it what they thought was a rational choice for themselves and yet collectively it wasn’t good for anyone, and then really for the venture market, for the VCs and their portfolio companies, you know, SVB not existing in the form it did prior to this is not ultimately good for them, right? Like, we don’t know what will happen with SVB within four systems, but the pain that this market has felt now is ultimately it’s painful for the entire asset class, but is the unfortunate result of everyone acting in a way that they thought was sort of like in their best interest, but maybe not?

John Coleman: Yeah, and I think we’ll come back to some of the longer term implications. But as you mentioned, Zack, apart from instability in the financial system, there’s a whole sector that’s dried up right now, at least temporarily, venture debt that played a role in the ecosystem. And that I think that’s an under-explored element of this particular crisis, at least in most circles, because of the impact that that will likely have. You’ve both touched on some of the other banks that thus far have managed to survive, received support, and whether the crisis First Republic Park West, some of the other regionals. Justin, as those banks became the center of attention coming out of the weekend, so impacted SVB and signature, how did they survive that attention? What’s happened so far that’s allowed them to persist?

Justin Speer: Well, yeah, Before I get into that, I just a little perspective, just in the immediate, broadly aftermath of the SVB and signature failures, the pressure has really been more acute within the regional community. Banks small plates lost about 120 billion in deposits and a portion that led to large institutions the quote unquote, too big to fail institutions in the week following the seizures of Silicon Valley and signature. So those seizures again sparked fears of a potential for a run at other banks and net outflows of nearly 6% from all U.S. banks, all 4800 institutions. So there’s been this particular focus on companies with a higher proportion of uninsured deposits. So deposits are the primary funding vehicle for these banks that make a spread on those low cost deposits, which they did lend out or put to work in other financial securities like U.S. Treasuries. So that reliance on the riskier, less sticky deposits was one of the things that really sealed Silicon Valley’s signature state. I think they just carried a lot of risk. In hindsight, we came to find that 97% of Silicon Valley’s deposits were uninsured deposits and 90% of signatures were uninsured. So in this current interest rate environment, that created real risk of deposit flight and even a hint of deposit flight when combined with the mark to market losses that we discussed on the asset side of their ledgers, it just led this uninsured depositor run. They made this rational decision, in my opinion, to flee, which left the banks with liabilities that outstripped their assets and that put them out of business.

John Coleman: But one interesting insight on that Justin just to interject, is I think the narrative has become, you know, Silicon Valley Bank, 97 and a half percent uninsured deposits were bailing out these wealthy people. The reality is, I understood it that basically the business model at those banks, the ones that came under pressure, was banking businesses. Right so dominantly the deposits that fled were not wealthy individuals. They were typically companies that were banking their deposits. And that was one of the big worries coming out, was not like, hey, we’re bailing out the wealthy, although I’m sure there were some wealthy people there, but there were a lot of companies that, at least in our portfolio, that were worried about payroll coming into the weekend. Right. And that’s been a misperception, I think, around the industry is like, oh, this huge number of uninsured deposits. But actually, as I understand it, the vast majority of those were business accounts with companies trying to meet payroll and things of that nature. Is that understanding correct?

Justin Speer: Yeah. So if you look at First Republic, their uninsured depositor base is lower than the two banks that went under. They’re at 68% of their deposit base was uninsured. So still well above the industry average Park West is another one had about 52% of its deposits are uninsured, not too far from the industry average, but they’re both regarded as capital providers to the venture capitalist startup community. So that was another stress point, as those companies tend to be heavier consumers of cash. The other thing going on in the background that we haven’t talked about, the venture capital funding was slowing during this tightening phase when tech stocks were coming under pressure in terms of valuations. And so that also led to more consumption of the deposits, more deposit withdrawals from these entities that are consumers of cash. And so we learned last week that nearly 40% of First Republic’s deposits were withdrawn from the bank, roughly about 20% at PAC West is what they disclosed. 20% of their deposits left the firm since the beginning of the year. So given the unrealized losses on the asset letter for those banks, their capital base came under significant pressure. And what we’ve also noticed is while depositors have been taking care of the equity holders and the bondholders have not, and so the equities have seen a lot of pressure positively outside of government intervention. For first Republic, we saw 11 of the big lenders, the consortium of 11 big lenders, including Jp morgan. They passed 30 billion of deposits at First Republic. And so that large bank stepped in to help inspire confidence, help stem some of the tide a further flight of capital from that institution. We’ve seen the FDIC and Fed step in with communications and facilities to help calm some of the fear and hopefully restore more confidence in depositors across the banking landscape. It still remains to be seen whether or not it will be enough to save the equity holders and some of these banks and some suspect that with some downgrades of first Republic to job by the ratings agencies, unfortunately, that a suitor may need to ultimately come in to fill the void.

John Coleman: Zack Maybe to dig in on a couple of those topics really quickly, Justin started to unpack what happened in the two weeks since both at the Fed and FDIC, as well as in the private sector, where some of these big banks have come together, effectively giving back some of the deposits that have fled First Republic onto their balance sheets. They parked back at First Republic. And I mean, it’s worth noting we’re talking about regional banks here. But first, Republic and Silicon Valley Bank were both a couple hundred billion dollars in deposits. These were very large institutions. The difference is there is a category of institution for our listeners who aren’t familiar called systemically important financial institutions. I’m blanking on the exact threshold there, but they’re basically the 12 largest banks in the United States. There’s a set of global systemically important financial institutions, and effectively they accept higher regulation in return for an implicit government guarantee of their balance sheet. And so people view those as too big to fail. As you mentioned, Justin is a safe spot, which is why so many fled to these systemically important financial institutions. Zack, if you don’t mind unpacking a bit more, picking up where Justin left off, what have federal agencies or entities done to try and stem the crisis and what have you seen happening at the banks as well?

Zack Mansfield: Yeah, I think I alluded to in one of my answers. Yeah, the real concern was how do we stem the deposit outflow and the ripple effect and how do we just sort of like stop the game of musical chairs so that everyone can just take a breath? That was really I think if you try to create the analogy, that’s what they tried to do. And so they’ve done a couple of different things. They did step in after they took over signature and bridge and created the Silicon Valley Bridge Bank and signature Bridge Bank. They put not just implicit guarantees, but actual guarantees on any deposits that were at those institutions, which, you know, for us like what that meant for us was, you know, we were able to call our clients on that Sunday evening and say, here’s what happened. This is what the FDIC is doing. And hey, by the way, what they’ve told us is all of your deposits are 100% FDIC insured or they’re guaranteed. I’m not sure if they. Exactly which is FDIC insured, but which means they’re safe. And what that meant is that allowed those companies who were companies who, you know, had lots and lots of employees who were trying to think through how do we make sure we can send payroll out on Monday? That was literally the exact conversation I had a dozen times, which was how do we make sure that we can send payroll out? Because that’s what’s really important and we’ll solve for the other stuff later. And really, that was kind of the interesting thing, you know, underlies all this, is that, yes, these were quote unquote, startups or companies in the innovation community for the most part. But they really are the drivers of a lot of economic activity in this country. And the underlying employees are not the super wealthy venture capitalists, PE funds, etc.. They’re just the folks who live in your neighborhood. It’s the software engineer or the marketing manager or the sales development rep, and you just wanted to know if they were going to get paid. And so that’s why the federal agency stepped in. And I think, you know, Justin touched on a couple of the banks also stepped in, and there’s been really this thrust to say, hey, let’s make sure that everyone knows that the banks are safe. And then beyond that, there’s a much bigger conversation around regulation and all the the other parts of it. But really, I think it was about making sure that there was safety and then enough liquidity in the system that if there were more deposit outflows, that the banks could cover the liquidity either through borrowing from the discount window or from, you know, other federal entities.

Justin Speer: One of the approaches used by the Fed, in addition to the discount window, was that the bank term funding program that they installed, that was a new innovative feature that I thought was well-placed given the problem. So what they’re doing is they’re providing additional funding to banks by extending loans with a one year term limit to par value of eligible pledge collateral so banks can utilize their eligible help to maturity loans, which are currently trading below par value. The way I understand it is the Fed will lend them funds up to the par value of that underlying collateral that’s eligible so they don’t have to realize a loss on the books which would put them in jeopardy of running insolvent. But it was important facility and through last week I think institutions had drawn about $50 billion against that facility and over 100 billion, I guess, the discount window. So my question is, is that something that you’re aware of and how does that work? What are the eligible securities that they will take?

Zack Mansfield: Yeah, that’s for me. I don’t know. I did read the same thing and I think it was really like, if you think about what happened to SVB, you know, if that program had been in place prior to when SVB went under the issue on their balance sheet around the market, they’re held to maturity securities portfolio. They would have been able to access liquidity in a different way had that program been fully up and operational. And so I do think that that was a reaction to that. And so I think it was an interesting, you know, solution, unfortunately for us to be it was maybe a bit too late for them. But I do think it’s an interesting piece as you think about the picture you painted earlier, which is these are ultimately not toxic assets. These are securities for the most part, you know, government, you know, backed effectively securities that will pay out at par over a long period of time and yet do the way you have to account for them. You know, there are unrealized losses on the balance sheet which do impact the bank’s balance sheet.

John Coleman: And that’s why this it’s so interesting what people kind of understand and don’t understand. To me, this is a feature of fractional reserve banking, right? I mean, this has been the case for hundreds of years actually, where in a model fractional reserve banking, where banks only are required to keep a small percentage of cash on hand to cover deposits, and then they lend out those others, which creates economic dynamism. Right. That’s why it was invented in the first place, literally hundreds of years ago. But the weakness of that has been in a panic. There can be a bank run, right? I mean, you remember it’s a Wonderful Life with people lining up outside Jimmy Stewart’s bank. And I mean, this was a regular feature actually, in banking prior to the feds stepping in and offering FDIC insurance and things like that. It stabilized it. But more recently, we saw elements of it in the financial crisis, and now we’re kind of seeing it again. I want to switch topics just a bit here. You know, the other big thing that was under scrutiny was the Fed’s interest rate. Policy. And obviously at the time that the banks were in crisis, especially over that first weekend, the Fed was planning, many people thought, to raise the interest rate by another 50 basis points, as many people have noted, including you, Justin and Zack. Those high interest rate raises over a short period of time caused the duration problems in banks. And so people began to debate, Is the Fed going to lower rates? Should they? Is this going to pop the economy and lead to a decline in inflation? There was this big, big debate about Fed policy. The Fed came out and ended up not going 50 basis points, but 25 basis points. But that was more than a lot of people thought it would be. They thought maybe it would stick at zero or even decline because the Fed would be worried about a liquidity crisis. Justin, maybe I’ll start with you, but we’d love to get your perspective as well. Zack was 25. The right numbers, the Fed pursuing the right policy right now.

Justin Speer: You know, my opinion know, I think they wanted to send a message that they remain vigilant in combating inflation and are confident that they can confine and contain the damage from the banking failures. I think that they have done nothing after just a couple of weeks saying they intimating 50. If they’d done nothing, I think that would have maybe inspired a little bit more fear. So the market expects however, you know, the Fed has their plots. It’s interesting that the market expects that there’s a high degree of likelihood that the Fed is going to need to cut rates fairly dramatically by the end of the year. The Fed swaps suggests the market believes this banking crisis may potentially spill into the broader economy. So I think that’s a little bit of a debate that we all need to wrestle with. But from my perspective, at sovereigns prior to this crisis really coming to light, we’ve been on the opinion that the Fed has already done more than enough to snuff out inflation, and we’ve been hoping that they would cease hiking rates. We’ve yet to see the full impact from the actions They’ve already taken a dramatic increase in the Fed funds rate. We’ve seen M2 actually contract in December, money supply, broader money supply contracted for the first time in at least 60 years. And it takes time for that to ripple through the economy, 12 to 24 months for monetary policy to really ripple through. And now this banking pressure is a symptom of those measures and will likely result in further slowing in the broader economy in the coming quarter. So we’re hoping that they pause here because we’re of the opinion that even before thinking about the banking pressures that we’ve seen, the by the third or fourth quarter, we’re going to see a marked deceleration in inflation and potentially some pressures in the economy that we’re going have to deal with.

Zack Mansfield: Way outside of my sweet spot in terms of expertise. I don’t think that my opinion on this is all that much value. I will say, you know, the rate environment with how it affected, you know, the venture debt world, Right. So, you know, Silicon Valley Bank ourselves, a bunch of others that are involved in this, you know, a couple of different ways this affected it. Number one, and this is also maybe not as well understood point. It relates to the deposit profile. Any company that had commercial venture debt with Silicon Valley Bank or any of the others, part of the loan agreement was you needed to maintain your primary and banking relationship with the debt provider. And so the reason that most of these companies had all of their deposits with SVB or with us or whomever was because they had a loan facility, a debt facility that required it, and there was a part of that that wouldn’t allow you to have this diversification of deposits. And so a lot of those companies had all their deposits with SVB. And then for the longest period of time when rates were effectively zero or very low, no one really cared what their deposits were doing, right? There was no yield to be had. And yet over the last year, as rates have risen so rapidly, we started to get a lot of calls from folks are. Hold on, wait a second, what are my deposits doing for me? And there is this kind of like risk on mentality a little bit with their deposits around, you know, Well, actually, if I can get 4% of my money, like if I have $10 million in the bank or $20 billion because I just raised a big venture round that’s actually, you know, real money that could pay for another developer to or that could pay for some projects that we want to run. And so you started to see this sort of mentality and psychology that flowed down even into the operating companies. And then all of a sudden that mindset has completely shifted where no one cares at all what yield they’re getting. All they want to know is that the deposits are safe. And it really goes back to this broader question of like, how will this impact I mean, credit, definitely this is not a credit issue, but it definitely has tightened credit significantly. Right. And so there’s all sorts of psychological effects of these unrelated things which all play into this macro story, which I think I agree with what you guys said. It takes a really long time for that stuff to fully play out. And so the policy is going to be the policy and they’re going to make the decisions, but it’s going to take a while to figure out how these sort of unrelated and yet interconnected things are all going to work together in the economy.

John Coleman: So I want to ask one kind of quick question about where we are in the future, and then I want to switch to a couple of spiritual topics, if we could, given we’re on the FDI podcast. A simple question and maybe start with you, Zack. Is our banking system fragile and what have we learned here that we can do to improve our banking system moving forward?

Zack Mansfield: I think it’s the overarching sort of view is that the banking system is not fragile in the sense of I think people’s deposits are safe the way in which, you know, the reactions came and the magnitude and the manner in which the Fed and lawmakers and just everyone involved stepped in, It is very clear. We want everyone to know that the banking system is going to exist. We’re going to step in to protect it. So I think in that sense, it’s secure in all of the senses that we’ve talked about, about there are parts of it that are related to technology or the interconnectedness or the ways that there are a lot of ways that they are ultimately secure and yet very fragile. Right. And that there’s ways that people are going to have to look at the regulation. They’re going to have to look at what are the rules that we put in place to help make sure that we don’t have to come in and do this kind of like emergency stability. And we can just have an operating sort of structure that’s safe for everyone.

John Coleman: Yeah. Justin, any thoughts?

Justin Speer: I just add that, you know, this is a cyclical business, it’s a cyclical industry. And maybe start just offering a little perspective for why regulators and industry participants moved as they have. And it is encouraging that they have done as they’ve done. But in a recent academic research report on the subject that was published in mid-March, there were at least a couple of hundred banks that were seen as having potential for serious contagion risk due to unrealized losses in the asset portion of their balance sheets and the high exposure to uninsured deposits on the liability side. So before the Fed and the FDIC and others stepped in, as they did to help restore some measure of confidence for depositors, it was likely that these roughly 200 at risk institutions, if they would have witnessed half of their uninsured deposits, the part that they were withdrawn, they would have been taken over by the FDIC. Very high likelihood in a truly extreme scenario. Just to give you a sensitivity here, if there were such a panic that 100% of uninsured deposits bled all 4800 banks in the United States, nearly 1600 banks would have gone bust. And so there is a system of confidence and trust that needs to be instilled in the marketplace. I do think the measures taken by the FDIC and the Fed have been really good at ring fencing this thing. But there’s just been this race to determine which bank several largest uninsured deposit base is the degree of unrealized losses on the asset side of the balance sheets. I think that race is starting to calm down now that the deposits seem to be more secure, but it was a pretty big problem. So if you think about the weeks following the seizures, we have about 5% reduction in withdrawals for all banks. And that’s something that we’re certainly going to want to continue to monitor. Feel like that fever pitch is gone, as I mentioned earlier. But as we kind of zero in on this thing, the small and medium sized banks in particular are under a microscope. There are several headwinds for mid-sized banks. The uncertainty about their deposits in deposit costs, declining asset values due to higher rates. And and really important and new is the impact of regulatory headwinds that are likely to be on the horizon. And then lastly, if there’s any economic damage that results from this, then we’ll be forced to really turn our attention to the performance of bank loans. So we’re not out of the woods. The banking system fragile. I actually think it’s done pretty well in refinancing this thing around the woods now, but it’s certainly cyclical. And John, you harken back to 100 years ago. I think I’ve seen some interesting corollaries with the SNL crisis, gas and oil crisis from the eighties to the early nineties. So about 3000 institutions that buckled from the fire in interest rates. I’m betting that the moves that we’ve seen may hopefully can find that to a much smaller number by maybe invited to what we’ve just seen. That would be great news, I think so. I think our banking system has learned and hopefully will continue to learn from past mistakes.

John Coleman: One more quick question, guys, and then I’m going to ask you a question we always close with on the FDI podcast, which is to just share something you’re learning from God through Scripture right now that might be relevant to others. Before we do that, just any thoughts on how Christians should be thinking about this crisis and continuing to create a more redemptive financial ecosystem over time? And Zack, maybe start with you, if you don’t mind.

Zack Mansfield: Yeah, I mean, obviously I’ve been reflect a lot on that over the last couple of weeks and I think it’s in line a little bit with what I said earlier, which is there is an element of all of this which points to the fact that, you know, everything in this world will ultimately go away and you know, you’re going to die. Some everyone’s going to die some day and you can’t take everything with you. And, you know, there’s an element of like, you know, like I lost assets, right? Like, I had stock that’s not worth anything today. Right. And it’s a blow, right, when something like that happens. We had folks who were really scared and it just causes you to sort of realize that hope in material things is ultimately a dead hope. And so where do you go after that? And so, you know, the financial system and, you know, all the ways that, you know, we kind of sort of connect and, you know, in sort of a financial sense are ultimately good things. They lead to flourishing. They lead to things like credit. And banking also is good, and yet it’s not ultimate. And so that’s like a takeaway is that you can’t put hope in things that are not ultimate. And yet we should try to work to make them the best that they can be.

John Coleman: That’s awesome. Justin, any thoughts on just how Christians should be interpreting this moment?

Justin Speer: Well, you know, because we think about is like, you know, how do you handle these tough times? You know, there’s there’s many passages where God’s telling his people, Don’t be afraid, I’m with you Psalm 27 one and the Lord is my light and my salvation whom shall I fear the Lord is the strength of my life? Of whom shall I be afraid? I know I often forget these things when the going gets tough, you know, but scattered throughout God’s Word are these exhortations from them to just be at peace. And it’s truly one of the great blessings, the great promises from God. I will be with you, Jesus said that I will be with you always. So the challenge for me is really making sure that I’m with God. He’s with me. But am I with him? Is he a part of my walk? Part of my thoughts? Is he in my mind when I speak and when I do things? And so sometimes I notice for me personally, my struggle when I am in the middle of the storm or sometimes even with life, a steady I lose that focus. I lose the focus on my king and the king and glory. The king peace. And I lean on my own flesh, lean on my own understanding without even really considering the one who can handle every situation perfectly. And so as I think about this, I know that I really can live my life confidently and without fear. Certainly, you know, we’re going to face challenges. And there’s really no detailed roadmap for my future. But we have an in-depth strategic planning guide called the Bible. And for every occasion, it works. I have his word and he tells me to trust in him. Trust in the Lord with all your heart. Lean not on your own understanding in all your ways. Acknowledge Him and he will direct your paths. Proverbs Chapter three. So I think knowing this, these things really gives me the ability to face this uncertain future, because I really know that God is with me and he’s the one directing my paths and that peace that God offers. That really is a true blessing for us, and a lot of us fail to reach for it. But it’s there if we’ll have it.

John Coleman: Amen. You know what? Those are two great answers to end on today, I think, actually. Justin, thank you so much for your commentary. Zack, obviously right in the midst of the storm, just so grateful for you taking the time to talk to us and the maturity and perspective that you’ve brought to this. And I know that our listeners will be super grateful to you all for helping them interpret this crisis and think about the system moving forward. And also just think about what it means to process uncertainty as a Christian and as a person of faith. So thank you both for coming on the show today and hope to have you back very soon.

Justin Speer: Thank you.

Zack Mansfield: It’s a joy. Thank you.

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They say not to bring up religion and politics at the dinner table. Throw business in there, and you have the recipe for quite a complex conversation.

We tackle all three in this episode of the Faith Driven Investor podcast.

We’re joined by Michael Hall and Tim Hurley, two Christian leaders whose private organizations have partnered with public institutions to seek the common good in their communities. 

Michael does this as the VP of acquisitions for Launch Capital Partners, an impact private equity firm that welcomes refugees and internationals while promoting thriving communities through a relationship-oriented property management model and community partnerships. 

Tim Hurley is the executive director of the Movement Foundation, which is the philanthropic vessel for Movement Mortgage to pour profits back into their communities. The organization focuses on funding much-needed infrastructure, education and support to underserved areas in the U.S. and around the world.

The two join us today to talk about how Christian organizations can partner with the government to advance the common good while sustaining profitable returns for their stakeholders

Episode Transcript

Luke Roush: Welcome back, everyone, to the Faith Driven Investor podcast. What comes to mind when you think about Christians partnering with government institutions? Well, for many, the idea brings up quick responses about separating church and state. Some are understandably skeptical about how these two worlds could even work together. There’s a reason people say, not to bring up religion in politics at dinner parties. Well, you throw business in there as well, and you have the recipe for some pretty complex conversations. But Christians aren’t called to shy away from complexities. Sometimes we’re called into difficult spaces because they might lead to a greater sense of flourishing for more people. That’s what happened with our guests, Michael Hall and Tim Hurley. They joined the show today to talk about how Christian organizations can partner with government to advance the common good while sustaining profitable returns for their shareholders. Let’s jump in.

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman, one of your hosts here with Luke Roush today. And Luke looks like he’s at his home in Nashville after a lot of travel. How are you doing today, Luke?

Luke Roush: I’m doing great and this is an important conversation that I’ve been looking forward to for a while.

John Coleman: It is an important conversation and we’re joined by two extraordinary people. The first is Tim Hurley, who’s the executive director of the Movement Foundation, which supports movement schools, among other things, a charter school network that’s been building started in North Carolina, but spreading out around the country. And the second is Michael Hall, who’s the VP of acquisitions at Launch Capital Partners. Good morning, guys. How are y’all?

Tim Hurley: Hey, good morning. Glad to be here.

Yeah, doing great.

John Coleman: Well, today we’re going to talk a lot about using private investment to solve public policy problems or public problems, and especially partnering with public organizations in the way that we do that as we dive in, given that this is such a unique space. Tim, would you mind just telling us a little bit more about the way that you handle that and what movement schools and the Movement Foundation do?

Tim Hurley: Sure. So I lead the Movement Foundation, which is a foundation that actually derives its profits from movement mortgage. And we do those profits. You know, I would say 95% of them is actually purchased, distressed or abandoned real estate that we then retrofit into a beautiful public school space. And we then rent that space out to movement schools, which is a separate private 1c3 that takes that space, turns it into a great school to serve primarily marginalized communities. And then on the foundation side, we also partner that with the faith based after school. So after the public school day is done, we have a program called Rise Christian after School that the foundation runs for parents that are interested in that.

John Coleman: Yeah, and that’s such an interesting model. I know that the integration of faith based programs on the premises of public schools, but outside of normal instructional hours has been something that’s been occurring for decades now. And it’s such a neat complement to the day to day school life that you all have incorporated. And then building the facilities for these charter schools that run through movement schools is an extraordinary service to those where you do deep partnerships with others. Michael, I know that Launch is a firm that we’ve talked to here on the FDE podcast before, but maybe to refresh us. Talk to us a little bit about Launch Capital Partners in the work that you do.

Michael Hall: Yeah, absolutely. So we are a impact private equity real estate firm and we sit at the intersection of the affordable housing crisis and the global migration force migration issues. And so we’re the largest refugee housing provider in the country. And so we are a for profit entity. We raise the source capital and acquire naturally occurring affordable housing and preserve that housing and seek to transform that into affordable and hospitable housing to welcome in newly arriving refugees and other people who need affordable housing. And so housing is the largest issue facing refugee resettlement in the United States, with only about 15% of landlords are willing to rent to newly arriving refugees. And so we do this in a vertically integrated model. So we manage all our own property through what we call relationship centered property management. So while most landlords are trying to automate and outsource things to apps to third party companies, we’re trying to create as much relationship as possible with those new arrivals so that we can help them integrate into a community and meet their your physical and spiritual needs. And so we partner with State Department, refugee resettlement agencies, local nonprofits, and then local faith communities and churches who do work in our partner communities.

John Coleman: And I want to dive into this kind of public private structure where you’re not conventional nonprofit, either of you. I mean, Tim you’re coming from more of a nonprofit focus, Michael. You’re coming from more of a for profit focus but integrated with other entities. Tim, I want to start with you. What made you choose the model that you’re pursuing where you do have this blend of almost private sector practices with building and leasing back to schools? You’re partnered with government entities. You’ve also got a conventional fundraiser or philanthropic structure. Talk to us a bit about how that structure works and why you chose to pursue something that wasn’t straightforward traditional philanthropy.

Tim Hurley: Yeah. I mean, I spent ten years in more straightforward philanthropy leading Teach for America, where it was, you know, we ran based on the donations of donors who want to see that advance with some government partnerships. You know, on this side, I think the main focus is just the product. You know, my desire has always been to build amazing schools, to serve students, especially our most marginalized students who need it most. And thanks to the governmental structures in place, charter schools are an amazing vehicle for that, where you have this sustainable government funding, but with the opportunity to experiment and do in different ways. And honestly, you know, it almost sounds smarter than I am. You know, God presented this opportunity. He put the same thing on Casey’s heart, who found that movement mortgage saying, hey, we want to, you know, use the profits from government mortgage to try to build amazing schools for kids. I know for him, he was motivated by some research he saw on private Christian schools serving the marginalized. And what he saw there was they just didn’t last. You know, they were started by a donor, maybe like him, who funded it for the first ten or 15 years. But then really inevitably, they ran out of money and the schools had to close. And so he was look for what’s a sustainable model that we can use to pour into kids on the education side. And then also, is there a way to also bring our faith based beliefs to bear also? And that’s how we came into this model.

John Coleman: Yeah, that’s great. And, you know, Casey has been a part of the FDE community FDE communities before Founder Movement Mortgage, but also tells the story of getting involved with movement schools based on his own upbringing in relatively difficult schools in the Washington, D.C. area, etc.. So I know that both of you have a real passion for that space. Michael, maybe over to you. You guys come from a more explicitly kind of private sector model that doing a lot of the work that many philanthropists reaching out to immigrants or others might do. Talk to us about why you chose the model you did and how that structure helps you to be more successful.

Michael Hall: Yeah, I think when we set out to start and build launch, there was obviously an inflection point where we could go as a nonprofit with the goal as a for profit. And really the decision was made that if we were going to scale and we were going to do this with excellence, that having a for profit model was necessary just because of the amount of capital that was necessary to get involved in real estate, the debt structures that were required that to go the nonprofit route would really be tying our hands. And so I think at the same time, the model that we have works really well. The refugee resettlement agencies have funding for about 3 to 6 months worth of the refugees rent, which de risks this public problem. So housing, these new arrivals is obviously a very pressing problem for communities all across the country. But the problem’s really thin when you start looking at it, you start looking at the data that immigrants and refugees, you know, they get employed, they start businesses, they become contributing stable members of society. And it is really just that bridge that’s necessary to allow them to get to stability. And so this huge problem is really solved by just giving people a chance. And so our partnership doesn’t really extend much beyond agreeing to allow them to come in. So we have some alternative underwriting mechanisms that allow a resettlement agency to place a refugee into our apartment communities. But we do all these wraparound services because it undergirds our investment. And so we get asked all the time, Well, how much profit are you giving up to do this work with these refugees? And the reality is it’s actually our competitive advantage. And so having refugees who are in our communities, who are building a community for themselves, they are much more stable tenants than a typical tenant base. So the turnover rate’s a lot lower. And all of these things actually undergird the investment by pushing additional profits straight to the bottom line.

Luke Roush: So I think that one of the things I love about the work that both of you are doing is that it’s thinking differently. It’s looking at problems that other Christians have looked at and thinking differently about how do you solve them. And part of that is just being open minded around the intersection between church and state, which are two things that most Christians see as being distinct and should be kept separate. And yet the reality of how you guys have waited in is actually finding common ground with unmet needs and then building this partnerships. I mean, you’ve both spoken to it already, but maybe just what are some of the things that you’ve had to navigate as a believer, wading into that partnership and maybe some things that the agencies that you’ve partnered with in the government, things that they’ve had to navigate and that you’ve had to educate them on in terms of creating this, you know, novel solution to a really significant issue both in education and then refugee resettlement. Tim, let’s start with you.

Tim Hurley: Yeah. You know, I think that’s a fun question because, you know, really for my entire career that’s been working in education and government and throughout this whole time, you know, I’ve been a believer since a young age. And I think about the misconceptions that I think there are. I think even the idea of like separation of church and state, you know, as you all know, that the really that is the state shouldn’t establish a religion. So this concept of, you know, totally separating out church and state, I don’t think that’s what the law is. And also as a Christian or as anybody with a worldview, I don’t think there’s a way to separate that out. What I do believe, though, is I believe deeply that the state shouldn’t be establishing a religion. So for me, honestly, you know, my journey to my career has just been this desire to build great schools for kids and with education. Like, that’s where the action is. It’s in public schools. Like that is a service that we provide. And so as I’ve gotten deeper and deeper into trying to provide these schools and as my faith has deepened, they’ve kind of just come together naturally on a parallel track. And there’s been challenges to that sometimes. But for the most part, I think what your listeners might be surprised to hear is sort of the lack of massive impediments to that. And I think people kind of assume that, you know, if I’m a believer, you know, maybe I shouldn’t go down this path. But the other thing is, if you look at our public schools, they are filled with believers. If you look at any governmental agency, it is filled with Christians. And so I think sometimes I think that’s where often I hate to say it, but I think the way the media kind of wants to get there, you know, a good story is the conflict. The good story is not, hey, this group has been working together for years and delivering some really good stuff.

Luke Roush: Yeah. That’s great. You kind of build a boogeyman in the closet and then it acts as a deterrent for people to actually go down a pathway that’s not that hard to go down. So a little bit of that. Tim. Michael.

Michael Hall: Yeah, no, I think Tim articulated it so well and I like what he said is like, I just want to build good schools. And I think that’s really the thing that if you are entering as a believer into kind of this public space, trying to solve these public problems, you really have to be able to solve the problem. And if you can, there’s usually a huge amount of desire to partner. I think where government entities really get skittish is there’s been disingenuous Christians throughout the years who’ve come and they want the government to fund their ministry while they’re not really trying to solve the problem. So they’ll have cut rate schools or they’ll have, you know, substandard housing. And then they’re trying to, you know, kind of hoist their Bible study or whatever that is on top of these communities. And so I think we have to do a lot of handholding with the state actors and these other nonprofits, like we are Christians and we are motivated by our faith. But primarily we’re here to solve this problem and that we don’t believe in a coerced faith. So we’re not going to withhold services, we’re not going to not repair someone’s apartment or not give someone the same quality education, that if you’re really stepping in and you have the answer and you can solve these problems in education or affordable housing, there’s just not a lot of good scalable solutions in these spaces. And if you have one, there is going to be a long list of people who want to partner if you’re doing that genuinely. And so I think that’s where we have to balance that kind of evangelicalism can shy away from giving people the cool drink of water and just want to talk about spiritual things. And if you’re legitimately trying to solve people’s physical problems, people’s educational problems, whatever that is, you know that there’s relational bridges that are open, there’s afterschool programing, there’s believers who are there, who in a relationship of mutuality with the person you’re helping, you know, can share their faith, but it’s not a bait and switch. I think that’s what everyone’s afraid of.

John Coleman: Yeah. You know, around our firm. So Luke and I work with a faith based, faith driven investment firm? And one of our core values is that our excellence is a witness. Michael, it’s kind of what you talked about. If you’re going to do something as a Christian and kind of make that more prominent, we feel there’s almost a higher standard of excellence that you have to hold yourself to because you realize that the quality of your work is reflecting on your faith. Right? And it has broader implications. And Tim, I love the way that you summed up the relationship between church and state. People forget that it’s not actually a part of the Constitution. It actually was originally raised in a letter from Thomas Jefferson to a religious congregation where he was promising them effectively exactly what you articulated, that the state would not impose a religion on others, given that so many people came to the United States or the continent before it was the United States as religious refugees, you both talked about the ways in which this can work really well. Tim, maybe starting with you, what challenges have you run into in these partnerships? And alongside that, have there been any misconceptions that you’ve had to dispel about faith based organizations with some of the government entities with which you’ve worked?

Tim Hurley: Yeah. I mean, you know, let me just, I think, relate to that. Following up what Michael said about the approach to the work. So I grew up, I would say I was a school brat, like some folks are military brats where they moved around the military. So my mom, she started three different schools, you know, private Christian schools. I grew up in one of hers in Mississippi. And so I was just immersed in the power of what a school could do and, you know, came out of school, taught back in Mississippi, and then went to law school to study really specifically educational policy. I thought that maybe there are some policy changes that are going to help us build schools. And during summer, around that time, I got to see, you know, what I would describe as folks who were coming at these problems from, let’s say, a political advocacy space. So folks who were looking to, I think, on ideological basis drive change. And what I’m excited about this space and talk to some of your investors is what I realize for me is that’s not who I am. I’m a builder like my passion. I said there are some laws we could change at the margin about education that might help. But fundamentally, if every law that I thought was good got passed, we would still have the fact there’s not enough great leaders wanting to go into education. And we don’t have models that actually are proven to work. So I said, you know, that where I want spend my time is let’s try to build something that works. And so I think a big problem comes to your question, John, is when people don’t understand those different sides, are you going to drive an ideological position or are you trying to build something great? And I think it’s different. Temperament is a different approach. And so I think, like Michael said, a lot of times in government, folks want to know, are you coming to just be a test case and drive an ideological challenge or are you actually trying to build something where we have a shared common ground? And I think, you know, Francis Schaeffer had the concept of cobelligerence, right, where he said a co belligerent is someone who I can work with against a common problem as a segue, which from, say, like a full ally, we agree on everything. And so I think there’s a ton of space as a believer, like, you know, our view I am a co belligerent against this idea that we are dramatically failing to educate our kids in the way that I think they could be. There’s a ton of people who want to jump out side with me if it’s I want to drive a specific position on the establishment clause or on freedom of religion. There’s a lot of people that want to jump in. So like, what’s your primary purpose, I think is something to get clear on at the outset.

John Coleman: One is, You know, Tim, I think I have a passion for education in my own right. And the other thing I’d say is, is people who believe in the truth of our faith, that faith does have a lot to say about the formation of a person, right. About what can make a person healthy, how you can help them grow up to flourish. And I do think that without being proselytizing, the values of that can actually inform the way in which you approach the character formation of kids, in the way in which you educate them in such a way that hopefully as adults, they can be flourishing individuals, that they can craft lives that are greater, especially in these difficult schools, greater than the circumstances from which they come. I have a friend who always says talent is universal, opportunity is not, which I know he ripped off from someone else. But but that’s usually true if you believe in the dignity and equality of all people. Michael, how do you see this manifest and what challenges do you run into on the refugee housing side or on housing generally?

Michael Hall: Yeah, I think we’re in a lot less regulated of a space. The bureaucratic state in the space that we play is a lot thinner than it is in education. And so our touch points are not, I think, as numerous and so there’s not as many friction points. I think one of the largest friction points for us is the fact that we are a for profit entity. The notion of a business who’s trying to maximize profit, trying to engage social service providers to solve a problem really is just it doesn’t fit a paradigm that a lot of people have. And so it’s just taken a lot of time and kind of faithfulness with our hands at the plow of the task to prove that. No, we actually we’re not trying to be a slumlord. We’re not trying to just get, you know, a couple of months free rent that we actually care about this problem. And so I think a lot of that actually kind of coalesced around operation allies. Welcome. After the fall of Afghanistan, we ended up kind of sitting on several White House formed task forces, Department of Homeland Security, those type of things. And so it was social service providers, government agencies, and then this for profit business out of Louisville, Kentucky, that was sitting at the table, you know, and actually being able to participate in that setting, trying to help solve the problem, doing things that didn’t undergird our bottom line, but instead were just trying to help these people, help these governmental agencies, these other nonprofits. They feel very hamstrung. And there’s oftentimes things that we can do that they can’t do. And so being able to use that leeway that we have as this independent entity to actually help them in a lot of ways has really just kind of lowered that bar. And so I think we oftentimes think, you know, we have this great idea. Everyone should get on board today and we undervalue longevity of a building, deep relationships and a track record of actually doing good work. And, you know, Tim and movement has done that, and I think you’re worth trying to do that in our space as well.

Luke Roush: One of the things that’s embedded in both of your answers to that question that reminds me of Neighbors prayer, which is the famous Lutheran theologian who prayed God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference. And I think that, you know, when you get invited into a forum like the White House to problem solve what to do with all these refugees coming out of Afghanistan. My imagination would take me to just a temptation to get outside of my lane, get outside. And actually the mission that God called me on or in your case, you in launch on. And I think the discipline and wisdom to be able to stay focused on what the field that God has you playing on and not getting tempted over into some other field or use the opportunity in that forum to try to make a point or try to advance an agenda that separate from the one that is primary. It takes discipline and wisdom to be able to navigate through that. I love that. And actually both of what you guys shared. I want to go back over to just the big picture. And as you think about counsel that you would have for other investors or other educators who are maybe called in this direction of public private partnership, what would be the counsel that you give to them as they embark on their journey?

Michael Hall: I think when you’re trying to solve a problem, you’re in this kind of nonprofit governmental space. Some of the fundamentals of building a venture kind of get dropped of what is the value proposition that you think you’re actually bringing to bear here. It’s kind of, you know, circle back around of do you actually have a solution? Is your whatever your business, your program, whatever you’re offering, whatever you have on offer is actually solving the problem people are experiencing, expressing the need for. And so for investors, for venture builders and starters, I would really encourage them of really honing in on are we actually doing what we say we’re doing, not overselling what you are actually able to do and. Are we actually creating value for these entities? We’re trying to have partnerships with. And so I think it’s easy to look at the state as a funding source and not as a customer. And I think in most of these spaces, viewing the nonprofits, you’re going to be partnering with the local, state, federal government, as you know, kind of a money grab bag you can go and get some grants from as opposed to a shareholder you’re trying to derive value to. And I think that pivot really changes the type of institutions you build.

Tim Hurley: I would cosign everything, Michael said. You know, I think for me, I would recommend I’d say, don’t start with trying to build a public private partnership. Start with, you know, what do you desperately want to build for me, for 20 years, I’ve been chasing this idea that we can build dramatically better schools for the most vulnerable kids. And that has driven me down different lines. And I think that’s the fun of it, right, is like, what problem does God put on your heart where you’re going to make your impact? But then once you have that, follow that wherever it goes. And I do think it often will go back towards some kind of interaction with government and my exhortation instead of coming in sort of with preconceived notions or pushing back on it, hey, maybe just come in open and say, you know, how can we solve this thing together and then see where God takes you on that path?

John Coleman: You know, I love this conversation, and both of you are operating in areas of such great need, right? On the one hand, Tim to your point, talent is universal. Opportunity is not yet the United States public education system is all too often failing kids. Right? And there are kids who just don’t have equal opportunity in that system. And Michael, obviously, this idea of housing, particularly for immigrant communities and refugee communities, is huge. There is a long standing record of Christian individuals or institutions engaging big problems like this, right. I think of the Red Cross, for example, which has been around forever. I think about Habitat for Humanity, where our friend Jonathan Reckford at Habitat, which some people don’t realize is an explicitly Christian organization that’s been working at the intersection of these problems from a nonprofit perspective, but leveraging for profit models for a while and even at the presidential level, there’s been activity here. You know, George H.W. Bush had the Office of Faith-Based Initiatives. As you all look out beyond launch and beyond movement and have done your work, are there models that you’ve seen? Are there organizations that you’ve seen that you really admired or other entrepreneurs in these spaces that you’ve admired that have inspired you in the way that you do business? So our listeners can go find other models that they can learn from as well as they take on their own problems. And Michael, if you don’t mind, I might start with you on that question.

Michael Hall: Yeah, you know, I think unfortunately, I think it’s a space where the church has shiy away in many regards from stepping in and engaging the state as it’s trying to solve this problem. So I’m thinking, you know, I’m racking my brain and most of the organizations that I’m really inspired by have kind of just done it themselves. And they’ve almost made a parallel entity because the state’s not either partnering or is allocating money in those spaces. I think, you know, the comment was made of what plays well on the news isn’t always what reality is, and so there’s just not a lot of state spending on a lot of these really pernicious social problems of homelessness, of education. And so I think most of the groups that I can think of would probably be in this charter school space. The movement that Tim is in. Yeah.

John Coleman: Well to your point, Michael, I would say just the intersection of those worlds for a moment and then come to Tim, I sat on a big public school board for a while with about 100,000 kids in it, and about 8000 of those kids were refugees, many more immigrants and refugees. It was in DeKalb County, Georgia, which is a very diverse immigration landing spot. And the challenges that those kids would face, you know, there were problems with how the schools were structured, but we’d have kids come from war zones where they had lost limbs, where they’d lost their families, they’d come in at ten or 11 or 12 years old with no prior education, formal education in the school. I think we had something on the order of 120 languages spoken in the schools. I mean, just unreal. And there were structural challenges that would have required community investment, right? No school system is equipped to hire 120 interpreters. No fourth grade teacher is equipped to bring in alongside her other 30 students someone who’s never been in school and who’s experienced that kind of trauma. And so there really is, especially in these most challenging problems, I think, an opportunity for partnerships that can enhance what can be delivered. Tim, Any models that you’ve looked at in your history?

Michael Hall: You know, a couple come to mind. I mean, one is actually a group that we work with at our schools there. A counseling program is called C4, C4 for stands for Christ Centered Community Counseling. And so this is a program that was founded by JB and Melinda Bell, who were both black, and they looked at their community. And felt like, you know, when they looked at where the really office around the community were place, they were not in historically black communities or currently black communities. They said, we want to make that available more to black folks because we believe it’s beneficial. So they started to build this program for profit counseling program, but with, you know, a very mission driven focus. And so as we look for ways to care for students, that movement schools, they’re amazing practitioners. So they actually practice out of movement schools. But when you go see them, say, within the movement school, their context, the social context, they don’t counsel from an explicitly Christ referenced curriculum. Right. So they just give you the methods of family therapy, counseling. If you say, Hey, I’m a believer, I’d like to see part of it. They’re happy to add that in because that’s what they are, but they don’t have to do it from that perspective. My dad used the same model. He was a professor at Reformed Theological Seminary for 35 years and ran a counseling practice out of that. And he said, You know, I’m going to work from this frame, but that’s not the frame we’re in. And I’m glad to actually just counsel you with, you know, what he would call the God given methods. And I think the reference of that is I think our greatest challenges are being addressed by Christians already. Same thing for public school teachers. If you go into most of the traditional public schools that I work in, it is filled with believers. I think there’s a question, I think a little bit about music. Like I remember that like when I grew up late eighties, early nineties, there’s like the Christian music scene, right? And a lot of cultural arts they got on there because they just like slapped Christian, you know, on that label. But then you look at a band like, you know, I’ll date all of us, but right, like U2, where you’re like, Oh my gosh, this is just an amazing band. You’re like, Wait, But I think they’re believers. And then when you read some of their stuff, like, I think they’re clearly believers. I think with some of the stuff, it’s like, Are you okay with more of a YouTube model where you’re just delivering amazing services and answers and, hey, if anybody wants to ask and find out, of course you’re Christian or does Christian have to do the finding piece, you know, the most out front piece of what you do or can you let your product serve and then also say, Hey, if you want to know where this come from, it’s my work in serving Christ. But if you wanted to go the YouTube model like you were hard pressed to find a social issue that Christians are not already flocking to.

Luke Roush: Maybe speak Tim just because you share this with me before, but about the programing that you guys offer for families that opt into the after school program and movement.

Tim Hurley: Yeah, so, you know, we offer and this is through the foundation separate from the schools just a Christian after school program my kids were part of it. They said it was a combination of Sunday school and recess. So the kids come in and we focus on great homework, help activities, but then also teaching, you know, religious lessons from the Bible. And so it’s something we make available for families that want it. And I would say as a family, if you ever want a Christian after school program or you just want good after school program for your kids, like a lot of our families may not be explicitly believers, but they’re comfortable with it and they know it’s a great value program. So it’s like, hey, you know, go ahead, be a part of it. So that’s part of what we offer.

John Coleman: One, to your point Tim, you know, what’s interesting is the desire for some of those types of programs is, if anything, disproportionate among communities of color and also among less economically advantaged communities. I mean, that’s where you find some of the greatest prevalence, actually, of faith, Christian faith and other types of faith. And there’s a real hunger for that, I think, in many of those communities. And I imagine the parents are quite excited that that’s an option. You guys probably hear a lot of positive feedback, I would guess.

Tim Hurley: You know, we do. And this also I would say that this is the most I ever really talk about the rise Christian after school and movement schools in the same sentence, because really in our practical lived our day to day lives they operate separately and also I think in accordance with the law. So this it’s interesting cause this really is the most if you were to follow me throughout my week, I’m not talking about them in the same sentence because they actually run two separate entities, which I think is helpful. And for our movement school families, if you ask them, Hey, did you know Rise actually is run through the foundation to be like, No, I really do. We just run them as separate operations?

John Coleman: Well, guys, this has been a very fulfilling talk. What we’re going to do now, I can see Luke getting anxious. His favorite part of the FDI podcast is a lightning round. He will probably ask you about your favorite food in some city at some point, but maybe not. The exciting thing about Lightning around Luke is we never know where it’ll go exactly. We’re going to do that. And then just be forewarned, the last question we always ask folks on the podcast is just what you’re learning through Scripture right now you’d want to share for others. So we’ll have both of you after the lightning round, but maybe I’ll kick it over to my partner in crime here. First, Luke, I want to dig in and the point of Lightning Round, by the way, is 60 seconds or less answers to questions that are of variable quality. Very highly variable quality, Luke start us.

Luke Roush: The best answers are 30 seconds or less, but no pressure. So I want to know what one thing each of you guys do to unwind and rest and just be renewed.

Tim Hurley: I can go disc golf. It is the choice for the entrepreneurial investors to look at the growth numbers on its amazing golf as peak ball golf as I call it. Disc golf is on the rise.

Luke Roush: Even relative to pickleball.

Luke Roush: Would you look at all the stuff? I wouldn’t go that far.

John Coleman: Yeah. Tim, I’m getting a ninties flavor from Tim right now. He was vaguely referencing like DC Talk and Audio Adrenaline.

Tim Hurley: How you knew I was too.

John Coleman: That he’s talking about disc golf now.

Tim Hurley: Oh, speaking of DC, talk about seven DC to.

Luke Roush: Get your members and Lee jacket on. It’s awesome.

Michael Hall: That’s awesome. Yeah. So I love hiking. So if I don’t get out in nature in some solitude, at least once a week, I find my mental, spiritual, physical health all suffers dramatically. So hiking, backpacking, that type of stuff.

John Coleman: That’s awesome. All right. What is something that you do at your job that would surprise people? Michael, why don’t we start with you?

Michael Hall: Yeah, I think a lot of people will chat with me or they’ll see me an FDI or a Praxis man or something like that and feel like I’m an investor. You know, just this week was crawling around and making abandoned apartment units, stepping through unspeakable filth, trying to evaluate properties to make good buys and reposition them. So still very hands on, picking up trash, doing that type of stuff.

John Coleman: As the parent of four small children, I feel that I’m crawling around in a dilapidated space through unspeakable filth almost every day. So I can absolutely.

Michael Hall: I got four kids, so I just do it 24 seven. So that’s some of it. I’m paying for. Some of it I’m not.

John Coleman: Tim, what about you? What would surprise people that you do at work?

Tim Hurley: So last summer I was following around the snow cone truck. Well, it went to apartment complexes handing out information about the launch of our newest school. So I was slinging snow cones last summer.

Luke Roush: That’s good. That’s good. Give us one thing that you would say to Christian investors or entrepreneurs who are considering working with the government. One piece of advice Tim to you.

Tim Hurley: Just do it. It’s good.

John Coleman: That is a lightning round answer.

Tim Hurley: I can and I like it. He’s got it down, I’d say, Yeah, focus on your product, focus on your offering and be excellent.

John Coleman: All right. We got two more lightning round questions, and then we’re going to go to the scripture question. I know both of you are very philanthropic guys generally. I know you care about causes outside of the ones that you’re working on in your full time work. Is there an organization you’d like to pump up that you think is doing great work that you like to support outside of your day jobs, so to speak? Michael, maybe we’ll start with you.

Michael Hall: Yeah, I actually sit on the board of and have worked with for a long time an organization called Scarlet Hope, and they have locations all across the country, but they reach out to women who are in the sex industry or are being trafficked in some way, shape or form. And Rochelle Starr is an amazing founder and leader. And they’re doing a really, really, really cool and good work in very dark spaces.

Tim Hurley: Yeah. I mean, I would say your local church. You know, I think giving faithfully to your church and asking if you can give more, there is a pretty good place to start.

Luke Roush: Some of our audience members maybe want to know more either about Movement schools or the RISE program after school or Michael, you know, some folks may want to know more about refugee housing and what options exist for folks and what’s the best way for our audience to be able to learn more about your respective organizations? Michael.

Michael Hall: Yeah, FDI did a great video. If you want to see kind of high level, you can find that on the FDI YouTube channel. And then on our website you can fill out a contact form and we’ll reach out and be in touch.

Tim Hurley: Yeah, well, if you want to about the schools go to movement schools dot com. If you want to know about rise Christian after school go to rise Christian after school.

John Coleman: And Tim, are there ways for people to get involved in either of those at this point or is it I know you guys are dominantly funding it independently. There any ways in which people can be involved?

Tim Hurley: I’m so glad you asked that, John. Yes, especially for our Christian after school program, because that is a place where we do more traditional fundraising. So if you go to the rise, if you Google a rise, Christian schools would come up for you and there will be a donate link. If it’s not up there now, it’ll be up there by the time this comes out.

John Coleman: Excellent, of course, the mechanism. All right. You guys have been so great. Let’s conclude with the question about Scripture. And Tim, I’ll start with you. What is God teaching you through scripture right now that you’d like to share with others?

Tim Hurley: Yeah. So there’s an app actually, it’s called the Dwell App. Have you heard of the Dwell app? So this is what I would a free plug. It’s a you can listen to the Bible on audio. It’s incredibly well done, but I’ve been driving a lot. So I was listening to the Book of Job but it takes 4 hours to listen to it and 75% of that. So three of the 4 hours are jobs. Friends giving him terrible advice and just living there. Job where you just fess up to what you did before God like just admit it or you got to do this or that. And so I wonder why did God choose to make 75% of it? Terrible advice, friends. But my takeaway, because I’ve had a lot of friends go through some tough stuff recently is like I’m just trying not to be bad guy. I’m trying not to be Job’s friend, trying to like Spiritualized explain something I don’t understand and be more just the person that says what that and said, I’m so sorry this happened.

John Coleman: It’s awesome.

Tim Hurley: That’s good. Yeah. I think, you know, as I’ve journey with Faith Driven Investor and other entrepreneurs and venture founders, I’m just continually stunned by watching some of them kind of grow weary and doing good. And so Hebrews 10:24 has really been resting on me, that is. And let us watch out for one another to provoke love and good works, not neglecting to gather together. And I just that’s really, I think, resonated with me in this season of life. And I love that it’s so evocative of let’s provoke each other, let’s pester each other, let’s let’s stir up each other to love well and to do good things.

John Coleman: That’s awesome.

Luke Roush: Michael Hall, Tim Hurley, we are grateful for your presence on the podcast today. We appreciate the example that you guys are setting and what it looks like to partner with the government and address real systemic issues that exist in our society. So we really appreciate the wisdom that you shared and grateful for you being on the podcast today.

Tim Hurley: Glad to be here.

Michael Hall: Thanks for having us.

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The venture capital landscape has changed dramatically in recent years. 

How can investors move forward responsibly? How can we care for the entrepreneurs we’ve invested in? How do we find hope in the midst of challenges?

We cover these questions and more in this month’s edition of Marks on the Markets.

Host John Coleman is joined by two leaders in the venture capital and growth equity space: Brandon Allen, Co-founder and Managing Partner at TXV Ventures and Phil Jung, Partner at Sovereign’s Capital to discuss how they’re navigating the rocky state of venture capital and growth equity.

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Episode Transcript

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman and I am joined today by two absolutely extraordinary guests who are going to talk to us about the current markets in venture capital and growth equity. This is our monthly marks on the Market podcast, keeping up with the most recent events in markets. And I think the expertise that these gentlemen bring to venture capital investing is going to be really enlightening at a time when venture capital investing has been a bit rockier than it was for the 15 years prior. Joining me first is Brandon Allen. Brandon is a co-founder and managing partner at TXV Partners in Austin, Texas. Then secondly, coming to us from the DC area is Phil Jung, who’s a partner at Sovereign’s Capital in the venture capital team. After a successful career as an entrepreneur, as a business leader and a venture capitalist as well. Brandon Phil, thanks for joining today.

Phil Jung: Thanks for having me.

Brandon Allen: John. Thank you so much for having us.

John Coleman: So we have a lot to talk about because there have been a few things happening in venture capital markets over the last two years. But before we get into the tumult of that time, including bank collapses and all manner of interesting occurrences, I wanted to throw it out to you all. I know you gentlemen are both motivated by your faith, your people for whom mission is really important. What motivated you to get into venture investing and how does that play into your values? And Brandon, I might start with you, if that’s okay.

Brandon Allen: Absolutely. Thank you again for having us John that’s really exciting and just to be a part of the FDI FDE Sovereign’s Capital family, it’s been such a blessing to Marcus and I, as we’ve been starting this fund, I am reminded oftentimes of the Bible that I got when I was in third grade at my church and the verse that was underlined, there was a challenge. There’s a verse to underline within it, Go try and find it. By God’s grace. I actually found it that day and it was Luke 4:18. The Spirit of the Lord is upon me for he hath anointed me to bring good news to the poor. He has sent me to proclaim the innocence of the captives, recovery of sight to the blind, and to let the oppressed get free, such that they can declare the year of the Lord’s favor. And so when Marcus and I think about what we’re building here, we really think we’re just building something for the kingdom. And there’s an incredible social element to that. We want to support through our focus in human performance technologies that actually increase our ability to live happier, healthier lives. We want to build a culture that people want to come into and that people will grow into and learn from. And then we just want to align with great partners and create value for his kingdom. So our faith is really at the center and the core of what we’re trying to do here in every single aspect and the aspects that it’s not. We’re working on it and the Lord is working on us to make it more so.

John Coleman: That’s awesome. Phil, how do you think about it?

Phil Jung: Yes, I’ve spent most of my career at various early stage venture capital firms, both at a firm on the West Coast in Silicon Valley, as well as here on the East Coast, where I currently am based. And I had a stint where I joined one of my portfolio companies as CFO back when it was an early stage company and we were a tech company in the mental health space. So during COVID, we were one of those companies that were very fortunate to be in a position to help a lot of folks in their mental health behavioral journeys. So we scaled very quickly from about 50 to 350 or so employees. So I’ve been very fortunate to have that experience of being both on the investor And then on the operator side, I met Jake Thompson, who’s the managing partner of sovereign’s venture capital firm, something like eight or nine years ago. We actually were neighbors. We lived on the same street in Capitol Hill in Washington, DC, and he had just joined sovereigns from Booz Allen, a consulting firm at the time. And I started my career in consulting. And so we kind of hit it off. And as I was getting to know him, seeing each other at events and conferences, and he shared more about this thesis at Sovereign’s of investing in excellent entrepreneurs that are building great businesses for good market rate return, but also doing so from a place of deep conviction that how you can love your neighbor is through how you steward a business and how you care for one another and love your neighbor through how you scale a tech company. You know, that was a that was a new concept for me. I was a little skeptical at first, but as we continued to grow our friendship and and I got to meet Henry and the others eventually on the team, and most importantly, I met some of the CEOs in the portfolio. And at the time I hadn’t invested in many entrepreneurs, but seeing and meeting some of these entrepreneurs, they had such a clear conviction that they were building these businesses for the kingdom and not building, quote unquote, Christian businesses, but businesses for the world, but doing so from a foundational layer of bringing forth the kingdom perspective. I thought that was really powerful. And so about a year ago, I had the opportunity to consider joining the team. I met folks like John. I was impressed with what the Sovereign’s team was doing. And in fast forward, I have the privilege of helping to support entrepreneurs as they go about scaling and building their tech companies in the entrepreneurship venture capital space. So it’s been great. It’s been a lot of fun and life giving at the same time.

John Coleman: I guess We managed to talk you into joining in spite of knowing Jake for […..] me, the Phil I’m. To throw it right back to you. And then, Brandon, you can jump in as well if you want. Obviously, the venture environment has changed. You’re a nice old man here. You’ve witnessed a lot of changes in venture capital up to 2021. We were really on something like a 13 year bull run, maybe even longer than that. Talk to us about what that environment was like as a set up so that we can now talk about what it’s been like over the last couple of years.

Phil Jung: Yeah, so I started in the investment world in 2015 and it was an interesting time. As every year passed, the market continued to get hotter and hotter. Back in 2018, you started to see more of a drastic, a rapid change in 19, certainly 19 and 20, where the venture capital market was white hot. You know, everything from seeing headlines in TechCrunch or venture beat of entrepreneurs raising tens of millions of dollars where entrepreneurship really became sexy and people wanted to be entrepreneurs. That’s what people wanted to do to all the funding and capital that was being raised around that time and therefore needed to be deployed. There was lots of funding available for early stage startups, term sheet who are getting done in a matter of weeks and sometimes days with a very light diligence. FOMO was very, very real. Rounds were coming together very, very quickly and companies were raising therefore very quickly. Every 12 months or so, for instance, there was an emphasis on top line revenue growth as opposed to profitability targets. And as companies were running out of cash, it wasn’t a problem because they were able to go out to market, get five or six term sheets and raise their next round of capital at significant mark ups from the last round. So it was it was a very robust time to be a startup founder or even a venture capitalist as you were deploying. When I saw this firsthand being on the operator side as well. So in 2019, i joined Mindoula as CFO and head of h.R. And yes, we’re in the right space at the right time. We’re a tech company in the mental health and behavioral health space. So during covid, we’re able to help tens of thousands of people with their mental health journeys. And that was one of the sectors in the digital health space that was white hot as well. Every other week, it seemed like we had VCs and folks wanting to take us public via SPAC to reach out cold. We got term sheets over the transom from folks that did very little diligence. I remember in 2021 we got a term sheet for $150 million in half in equity and half in debt. And at the time we were only burning a couple of million dollars a year. I had no idea what I would do with $150 million. So it was a very different environment, especially in the last few years from a venture funding perspective, and things have just completely changed in the landscape in 2022 and certainly in 2022 at this point in the game.

John Coleman: Now pick up on that thread Brandon because it has changed dramatically. And of course some of that is driven by the most macro of environments, which is the interest rate environment. Some of it is probably a natural pull down from a white hot market. Previously, if that was the environment up to 2021-22. Brandon talked to us about what the last couple of years have been like.

Brandon Allen: Absolutely, I mean, the last couple of years we just got started. I was a freshman in high school in 2008, so I couldn’t speak to the venture mindset as much back then. But, you know, I remember we kind of went through this exercise where every year it felt like the shoe was about to fall right. You know, the valuations on the public markets continued to expand. The valuations for early seed shows continued to expand. You had these huge capital vehicles, you know, the most prominent of which was SoftBank’s $100 billion vision fund, doubling, you know, the size of the asset class overnight that was coming in. And as a result you had a lot of companies raising megadeals. And so it was incredibly hot definitely at the top of the cycle. But to your point, you know, we have now seen that that cycle is now coming to an end. We see it specifically within our human performance sector, which had a little bit of a market cycle from 2019 to 2022 now, but then also in the macro cycle and then also in the venture capital cycle and the capital market cycle as well. To give you an idea, there was 85 billion of deal volume in 2020, there was 125 billion in 2021 and there was 2 billion and there was 200 billion this last year. And so, you know, a lot of expansion, doubling of the asset class, but we’re seeing a huge pullback right now.

John Coleman: Yeah. Brandon, you know, I’m a fan of your thesis because I’m buying new gadgets all the time. I’ve got my aura ring, I’ve got my GPS watch, my Garmin GPS watch. They’re not sponsors of the FDI podcast, but perhaps they should be. As you think about navigating this environment, you know, one topic that keeps coming up are the different stages of venture investing, right? I know both of you are actually more targeted towards the early stage, but for listeners who are less familiar with the market, you know, they hear early stage, late stage growth equity and they hear that maybe the opportunities are different across those different areas. Phil, would you mind offering some thoughts on just what are each of those categories for our listeners? And do you view them in different places right now?

Phil Jung: Yeah, absolutely. So, you know, there’s a certain journey that entrepreneurs are on for those that are raising, especially tech companies on this venture backed journey. Entrepreneurs may start off with an idea. They’ve identified a market opportunity, perhaps based on their years or decades of experience working in a certain industry. And so oftentimes a founder or founding team will bootstrap or raise a small round from friends and family to get an idea off the ground. Perhaps this is to build an initial MVP or do customer discovery to figure out is this a viable problem in a market that is in need of a solution? At that point is when entrepreneurs typically come to institutional investors, we often refer to that as early stage venture capital. This may be an early stage fund like sovereign’s. It may be others. Then there’s been a proliferation of early stage seed series types of funds that have popped up over the last decade especially. So at this stage, Institutional Capital Partners in the Seed and series A are investing in companies that are typically more than just an idea or a concept. There’s a working prototype. There’s customers. There’s revenue being generated. And entrepreneurs are looking to add fuel to the fire, start scaling the technology or solution out there. So investors are pouring capital in, hoping to invest in marketing or further building out of a sales team to really start scaling this effort of bringing this idea to life. As companies continue to mature into different parts of kind of the life journey of a startup. So perhaps in the mid-stage you now have built out at this point fully fleshed management teams and are building out departments now, you’re building more of a repeatable sales cycle. So it’s more of a rinse and repeat type of playbook. So you may raise capital from VCs or other institutional partners that may be focused on call it the series B or the C rounds. And as companies continue to mature from that point, they’ll hit the growth or late stage part of the ecosystem where these are big, big funders, oftentimes in the billions of dollars that are looking to void capital and companies that are preparing right before they go public. And so this market in that late stage mirrors a lot of what we’re seeing in the public markets most closely, because as a next kind of life stage of the company. So these companies have an eye towards profitability if they aren’t already. There’s an absolute focus on strong repeatable unit economics and margins that investors hope to see a return on. And even in terms of valuation, it’ll most closely mirror what we’re seeing in the public markets, what the goal of these companies eventually going public and becoming IPO’d and providing a return for investors. So there are different funds that focus on different parts of the market segment and happy to touch on any of those segments further. And Brandon can probably share more expertise as he does early and both a little bit of mid-stage investing as well. But at sovereign’s and in the group that I help lead or focused on the early stage typically around the seed or series A.

John Coleman: A Yeah. Brandon, pick up on that if you would.

Brandon Allen: How would you double click? One of the big things that we saw, one of the really huge major trends was the emergence of micro VCs, which Phil just pointed out. And so you had people like Brandon Allen and Marcus Stroud getting an opportunity to raise a fund. If you’re raising your first friend, you’re typically not going out for $500 million or $1,000,000,000 or a billion and a half because you have to prove yourself out. Right, So start small and then grow larger. There was a cultural emphasis on really getting people into business. This is where we get the whole concept of emerging managers. And so when we look at it, we see the capital markets, you know, some of the cultural trends that were happening there, emerging managers coming in and then driving the availability of capital for early stage ventures. And so there was nothing better to be than an early stage founder over the past couple of years that has now definitively changed and changed in a couple of ways. Number one, just anecdotally, in the data that we capture through TXV, we’ve noticed that people haven’t even been coming in to do priced rounds. Right. And so when we talk about seed valuations or C Plus or series A, we’re talking about things that are defined in announced. We’ve seen a lot of investors or excuse me, a lot of companies coming in and saying, oh, we need open ended capital arrangements, we need a convertible note, we want to do some debt, we want to do other types of things. We want to extend our last round. And so that just reflects that. It’s a pretty tough time in the seed markets right now. Another thing that’s happened is even within the seed investing within our sector, we’ve seen about a third drop. And so while a typical seed funding would have been about 8.8 million just last year, now it’s dropped 29% to 6.2 million. And that’s reflecting, you know, just a larger drawdown in valuations as well within human performance. One of the craziest things that’s happening. And this starts to shift over into the growth equity in the later stage is that 40% of the digital health funding was accounted for in the mega deals that happened over the past quarter, too. So 40% of all the funding in the market went to basically about ten deals.

John Coleman: Oh, wow.

Brandon Allen: Which is crazy. So, number one, it’s is that there’s not a lot of early stage version is happening right now, within human performance. And secondly, there’s consolidation at the end of the sector where people are saying, okay, we have all of these companies that have had all this availability to Koppel so far. We need to, number one, choose some winners, and then we need to number two create operational efficiencies within that. Those stories haven’t always been uniformly positive. We think of the example of Tono, which is a really hot, connected fitness device. You put it on your wall and used ML, trained you, and then it used electromagnets to simulate the weight that you were pushing out. We had the operation to look at it back in 2019, Marcus said. We didn’t have a lot of conviction around the early stage connected fitness. At that time we thought Peloton and a lot of these other things were simply, you know, logos slapped on things that we already had. Internal actually just had a round where they lost 90% of their value. Wow. Firms, you know, multi, you know, an over billion dollar unicorn to now needing to take, you know, 110 million because of problems with supply chain because they were growing too fast in a bunch of other different reasons as well. And so, you know, this is new. This is changing. We’re seeing it, you know, again, from the capital markets into the early stage. Markets are down. And that’s really the entrepreneurs who are at the end of that, their behavior has changed as well. And so we’re seeing the feedback cycle come from the LP. So there is founders and back.

John Coleman: Wow. You’re painting a relatively dire picture, Brandon, of the market. We’re going to come to a more optimistic picture here shortly, but I want to pick up on that thread. You’d mentioned how a lot of companies really are struggling with the business model that have been supported by this easy money, low interest rate environment that we were living in, much more availability of venture debt, which is obviously drying up a bit. And we haven’t talked about with signature in Silicon Valley Bank and others, you both have portfolio companies already in the portfolio, entrepreneurs who are living now in this environment where capital is not as available, where they’re having to do layoffs in certain circumstances, reprice rounds down to raise additional capital, to try and extend capital, you know, longer so that hopefully markets recover. As you counsel the entrepreneurs that you’re partnered with, what are you advising them on right now? And Phil, maybe you could start how were you counseling those entrepreneurs now? And maybe it’s FDI podcast, so maybe on a kind of technical business level, but also to spiritually, how are you helping them to weather this storm at the moment?

Phil Jung: Yeah, it’s a great question and it’s just a different time today than it was two years ago. And so the advice and how we partner with entrepreneurs looks different to, you know, from a macro funding environment. You know, typically companies have raised every especially you call it the last five years, companies are raising every 12 to 18 months. They’re going back out market. There’s plenty of capital today. That’s no longer the case. We’re telling our companies to plan for at least 24 months in between rounds of funding and to start. Now, look at your budgets now. Every line item there are probably ways to optimize now instead of when you’re at six months before a cash update. We’re working closely with our finance heads and CFOs to help them in the budgeting cycle, to plan for the year and ways to think about profitability as an option as opposed to just waiting to get to the next round of funding when the existing cash runs out. We’re advising companies that 2023 will continue to look challenging from a fundraising perspective. So if you raised last year and are able to stretch the existing runway to get to 2024, we think that’ll probably be a more fertile opportunity to raise where VCs are looking to actively deploy capital, especially as you enter the main or late stage type funding rounds that we alluded to earlier today. And then touch on this for profitability. You know, it’s interesting, it’s not just our portfolio companies, but even early stage companies that are out in market right now. We’re seeing a lot more pitch decks and in meetings that entrepreneurs are thinking about what the clear path towards profitability looks like, not in some distant future, three or four years out, but what it might look like in 12 months and 18 months, and how this round of funding gives them the optionality to get to those goals of profitability. From a spiritual integration standpoint, lots of companies are having to make tough decisions right now. We’re hearing of rifts in the market all the way from big tech down to smaller startups as well. And how do you be a good partner even in those difficult moments? And sometimes it is a business decision, but there’s still a way to honor individuals and employees if you have to make those types of decisions. It’s doing so treating them with respect, being able to communicate very clearly why the decision was made, helping people find, hopefully the next landing spot, vouching for them, or being a reference or being willing to open up your Rolodex of contacts and making intros for folks passing around resumes to your networks or other entrepreneurs that may be hiring and putting in a good word. So there are ways to, I think, honor individuals and employees, even in tough circumstances. And if things are going well, too, it also presents opportunities to really lead by example to be a vocal leader and. Demonstrating, you know, why you’re building what you’re doing and not just because entrepreneurship or startups are sexy or because people want to work at a high growth tech company. But there is definitely an emphasis on the whys today of why you are building, why this company or startup exists and why it’s important, why there is a redemptive element to what you’re building. And I think all of those things matter in where people spend 40 plus hours of their week working and spending time with building.

John Coleman: That background as a CFO is probably helpful for you right now, having run a venture backed startup as a CFO. You know, Brandon, you’ve kind of heard Phil weigh in on this. How are those conversations going for you and Marcus right now? How can you lean in with your portfolio company leaders?

Brandon Allen: Yeah, I mean, we are having those conversations with every single portfolio right now. Some of them are different. Some companies are doing really well, some companies are plateauing. Luckily, we haven’t had any companies that have had a lot of difficulty yet. But, you know, to really double click on what Phil says, you one of the things that we’re looking for, for a company and for a leader is to have a really strong idea of what it is they’re trying to accomplish in this next stage. Right. And so when we talk about even the categories of Seed series A, series B, we’re investing into a seed company. We’re saying, hey, we need to achieve some level of product market fit. We need to know what we’re doing and we need to have an economic story that makes sense by the time we get to our series A. Now, what’s changed relative to what used to happen is now your series A, you get one shot. There’s no Series A one, two and three. You’re not going to have a convertible note before in a convertible note after it. You have to assume that the level of capital that you’ve been able to bring in is largely going to be the capital that you’re going to need to prove whatever it is that that business goal is. On a personal level, yeah, the reductions are really difficult. Market discipline comes for us all. You know, what I found is oftentimes speaking to entrepreneurs, there is such a hesitation to fire people because of the personal relationships that we all have with our companies. But, you know, with the point that we are in the market, you know, right sizing the team and making sure that everything’s operating in the right way is the number one thing that all companies have to be focused on. You’re coming out of that clarity of vision. And so clarity of vision, clarity of operations would be the two things from TXV perspective. We like to help in a bunch of different ways. When we think about platform, we’re talking about capital introductions, we’re talking about help with talent, we’re talking about help with customers as well. You know, in as much as talent is one of the most important things, it is not the most important thing. When you have a company that needs customers. And just the way that we’ve been orienting our scope of action, bringing in customers, making sure we’re really honing the commercial aspect of how the companies are running has been top of mind for us to the point where we’ve actually started saying, Hey, when we talk to our CEOs, we’d love for whoever that Chief Revenue Officer, the Chief commercialization officer, whatever it is should be on or the sales officer to be in on those conversations as well. Because at the end of the day, and this is part of what happens when you don’t have market discipline, people chase these different things, these different macguffins. But, you know, this is a business that has to sell. The economics have to be good. And so just having a focus on that and really walking through those numbers very tightly without being overly driven by a vision of what you could accomplish has really been kind of the conversations we’ve been having with certain entrepreneurs to pull them back a little bit.

John Coleman: And I want to pivot a little bit now because you guys are leaning in with entrepreneurs every day. You’re keeping a close watch on the market. We have painted this dire picture of the last couple of years, and frankly, I’m with you I think the next year. I mean, given what we’re seeing with the financial system, much less financial markets, with the interest rate environment, probably at least staying flat right now, perhaps going up even a bit more depending on things and the likelihood that we are already in a recession or potentially entering a recession. You know, it’s one of those periods that you have to weather. At the same time, I think history would tell us that periods like this create some of the greatest opportunities for investing and frankly, also for startups. You know, my old firm and Jake Thompson and I talked about this, we did an analysis of what happens when tech companies get hit the hardest, like the tech bubble of the late nineties, early 2000. It actually creates a vibrant startup ecosystem because all these folks at big companies that have options that are now not worth as much, you know, the golden handcuffs are off. They go start some new things. You see valuations coming down. So investors have a chance to enter in at a better valuation for companies that are likely to be long term successful. And there are always innovations needed in market, right? Life doesn’t slow down. I mean, I think the most obvious example right now is artificial intelligence, where I think everyone is paying attention to what’s happening with chat GPT right now. And you know, many people saying this is the biggest thing since the Internet, right? Artificial intelligence. So I don’t mean to leave the witness there, but Brandon, maybe start with you. As you look ahead and as you think about investing right now, what are the opportunities that you see in this market to make great investments?

Brandon Allen: Yeah, you need to double click on what you just said, you know, just because we are in a different point in the macroeconomic cycle or the market cycle or the tech cycle does not mean that opportunities is not out there and it doesn’t mean that people should be pursuing opportunities. Right? We had a long ten year bull market run driven by monetary loosening that results in the situation that we’re in now. It is very natural and correct for there to be some sort of rebalancing in that. And all of the people and all of the resources that are being redistributed throughout the economy will hopefully go find the types of companies that we’re talking about right now. And to your point, John, one of the most exciting things that we’re looking at is AI right? And so when we focus on human performance, we’re talking about the modalities of eating, sleeping, moving and mental health. Health care, the healthcare industry writ large is actually one of the industries that is the toughest to go in and to digitize and to go in to innovate because of the heavily structured regulatory environment. What we’re seeing right now is that outside of health care is where a lot of the innovations are being driven, especially through tech. And with the emergence of technologies like AI, we’re going to see a fundamentally different everything over the next couple of years from a, you know, just a human being in front of a computer, chat GPT is amazing. And what happens when chat GPT then becomes integrated into all of the different applications that we see across human performance? What does it look like to have a new generation of companies being built upon emerging technologies? That work is being done right now. We’re starting to see a resurgence, see companies come in that don’t just put AI in the deck, but that have ai really built into their core model. And that technology is really going to even in the limited way that we’re understanding it as a natural language model through chat GPT. There’s going to be a lot of things that are going to change over the next couple of years, and we’re excited about the companies that are going to do.

John Coleman: Yeah. Phil, what are you looking at right now?

Phil Jung: Yeah, and just to really highlight one of the points that you alluded to, John, of why this is a great time to build a company. And what we’re seeing on the investor side, you know, when comp packages for engineers and developers are no longer in the $500,000 a year packages, startups can actually hire great engineers and developers. You don’t have to compete with these big tech firms that are offering these types of packages. And even if you’re working at some of these bigger tech companies and you’re feeling uninspired or don’t feel a call to the mission of an organization, you know, it gives them opportunity to build something that they actually care about. So we’re actually seeing a lot more companies being built from teams and founding teams that are being very intentional and passionate about what they’re building. And you’re able to access talent much more easily than you were able to even two years ago out in the tech market in terms of opportunities that we’re seeing. Yeah, we see everything from large generative, AI, ambitious companies to a lot more unsexy businesses too, that are definitely worth and deserving of outside funding because of the problems thay are addressing. You know, one of the most recent investments that we’ve made from our team is in a company called Relay, or it’s a hardware enabled SAS platform that equips frontline workers. And in today’s world we often think about engineers and white collar jobs, but we don’t think about the front lines. And with the labor shortages that many industries are facing, you think about retail, our restaurants, or even at our hospitality chains. These are workers that are looking to boost productivity and find safer and more compelling opportunities for meaningful work. But these categories of folks are often left behind in terms of how technology can advance the productivity and the work that they do. So Relay as a company that equips them with a hardware enabled communications platform where everything from providing data analytics on tracking to where they can optimize a place in a hospital, depending on where a patient needs are and where your labor personnel are staffed at a hospital to providing panic buttons for hotel workers who unfortunately, there’s been some statistics that have shown that up to 25% of hotel workers made workers have been sexually harassed at some point in their careers. Really, it provides and equips these frontline workers with technology and tools to optimize productivity and communications. So that was a recent investment that we made. We also look at, you know, when it comes to A.I., there’s been a lot of buzz and really interesting and compelling use cases of how AI can apply for everything from shooting movies without having to animate a single sketch, you know, creating music or art, which is all great, and creating LinkedIn photos, simply uploading three or four side shots of your face and creating AI image of whatever context and background that you can desire. But we also think that some of that pickax and shovel plays as it relates to A.I. is going to be where big opportunity lays. So data, place. Everyone needs access to data. So do you have proprietary data that you can support a lot of these AI companies for their training models, for instance? We think a lot of these infrastructure types of unsexy industries and infrastructure, there will be really big opportunities that present themselves in the current cycle.

John Coleman: Yeah, it’s interesting. I do think AI is a real phenomenon right now. I mean, you can’t look at what’s happening with chat GPT with images. Etc. without thinking that it does carry echoes of the whole distributed ledger technology blockchain thing though, where I’m sure a lot of companies are just going to slap artificial intelligence on the name of the company or in what they do and hope that that uses the the valuation guy a lot. It’s got to be discerning about it. And I am entirely confident that the very last field that artificial intelligence can replace will be venture investing. Right. That’s certainly those jobs are safe.

Brandon Allen: The thought has occurred to us or like I say, positioned pretty well over here. You know, no, AI bot is going to talk to John Coleman and we are going to.

John Coleman: Ironically this is actually chat GPT creating this podcast listeners we wanted to spring that on you at the end. Listen guys, I think this has been remarkably informative to our listeners. We’re going to move to this idea of a scripture or a lesson that you’re learning from Scripture that’s moving you right now to conclude the podcast. But before we do, I just wanted to ask you if there are any final thoughts that you would leave our listeners with as they think about investing in venture capital this year? And Brandon, if it’s okay, we might start with you.

Brandon Allen: Absolutely. One of the things I guess we didn’t touch on was Silicon Valley Bank and oh, yeah, you know, I personally and I’m sure I join with a lot of people and just mourning the loss of that bank, especially in the way that it actually ended up turning out. While it was clear that the bank didn’t have the risk management that it needed to. There was a degree to which tech cannibalized itself and created the conditions around a run on the bank that we should be a little worried about. Obviously, with First Republic Now, which is also a big player in our industry as well, and having a stronger balance sheet, having had $30 billion placed on it by some of the bigger banks and JPMorgan still having to come by it. It is unfortunate and there is a degree of capriciousness, I would say, in what’s happening. But, you know, it’ll all buff out and we’ll see how it all lands. But yeah, it is for sure an incredible time.

Phil Jung: One of the things that we’ve been talking about on our team and as we support our portfolio further is especially as capital allocators, the role that we play. Yes, we can do our parts as VCs as investors. You know, we have certain levels of influence where that you may be on a board where that’s formalized as a board vote on certain items. But even if you’re an informal adviser, we have influence. And so how you support the entrepreneurs or companies that you’re backing, maybe it’s, you know, quietly as you’re praying for the companies that you’re partnering with. And they may never know that because you’re doing that in your personal quiet time to sharing insights of what you’re seeing in the market in real time, to being willing to roll up your sleeves a little bit more than you normally would in a different environment, you know, offering your expertise to review a financial model, going out of your way to make a couple more intros than you normally would to potential funding sources or potential customers leaning in to help with HR related issues at the executive level or even at the manager level or below, helping to recruit an interview because your HR team may be a little bit more thinned out than it was a couple of years ago. There are ways that we as capital allocators can have influence on our companies asking how entrepreneurs are doing outside of work right with their home life, with their communities, and just putting aside the business for a moment to care about an individual and their whole self. You know, all these small and big ways we can have influence on the ecosystem. And so I challenge all of us to not lose sight of that. Then even though we support our LPs, you know, Brandon has raised from outside partners, At Sovereign’s, we have as well, you know, keeping them abreast in a period of rapid market dynamism and uncertainty, keeping them updated on how we are thinking through our operations, whether it’s your banking relationships or your portfolio, because in the absence of communications, people will tend to worry or perhaps assume the worst. So being a sound of a steady hand and the sound of reason during a period of otherwise market uncertainty, I think those are all slow and big ways that we can play a role in supporting the broader ecosystem.

John Coleman: That’s great. That’s great. And Brandon, I will mention that our crack producer, Joey Honescko, texted me during this and said to remind people that just last month the marks on the market episode was about the Silicon Valley bank collapse with Zach Mansfield and Justin Sphere. You should check it out if you’re a regular listener because there was a good explainer. Brandon It looked like you wanted to add something there as well.

Brandon Allen: Yeah, we think about the parables a lot here and about verses in a way that they play out in terms of just any of our interactions. And one of the ones is kind of top of mind for us now is a friend loveth at all times, and a brother is born for adversity. And so, you know, when the markets are up and everybody is happy, it is very easy to be a friend that love is at all times. But right now, you know what? We are trying to be just as Christians, as people, here at TXV is the person that you call upon in adversity. You’re not going to call us and we’re going to eat. A lot of companies are going out for follow on rounds. It’s easy to say, Oh, well, the market, you know, we’ve had to pause right now. But having those more difficult conversations both about the companies, about, you know, the willingness of people to strip checks right now and about what may need to change within the company and the leadership in a way that’s loving and really honoring of Christ, I think is one of the things that we’re thinking about at this point in market cycle.

John Coleman: That is an awesome spiritual lesson that the concluding question we always ask on the podcast is just what is God teaching you through Scripture right now that you want to share with others? And Brandon it feels like a pretty good encapsulation of a lesson that we could all learn that you’re ruminating on right now. Anything you’d add that God’s really pressing on your heart right now?

Brandon Allen: Parable of the Sower, you know, reflects the ways in which, you know, you make bets, you spread the seed over the field. And this time, just as you know, an investor or some of those responsible to other people. Just wondering, you know, looking back, why did we take the bets we took? How are they doing? What are the conditions in which we actually made those and how have people responded to it? And so, you know, in that verse in particular, it talks about the different types of things that can happen that would result in a seed not flowering. And, you know, that’s very top of mind right now as well.

John Coleman: Bill closes out on a high note here. What is God teaching you through scripture at the moment?

Phil Jung: You know, what’s been lately on my heart is, you know, the concept in scripture over and over of God’s promises and his covenant with his people, you know, in Genesis with Noah after the flooding, promising covenant to never do that again to the ultimate fulfillment of God’s promises in Jesus Christ, in the gospel message. And I’ve been reading this book, Habits of the Household, at the beckoning of some of my colleagues, and it’s been great, or I have been reminded of the commitments and the promises that we’ve made, for example, in marriage to your spouse of, you know, despite how you may feel or despite what you may cost you as an individual and your desires and what your wants may be at the time that you’ve made a covenant to support and love that individual. And I’ve been thinking a lot about that. We have a young child, we have a puppy. So sometimes, you know, patience is thin, but we’re being reminded of that has been top of mind and it actually has permeated through how I think about our portfolio to right when we enter in a partnership with a company, you know, one of the promises that we’re making not just to be there when things are good, but to go the extra step, to go the extra mile despite what it might cost me on a time and resource perspective from our connections to really care and serve our entrepreneurs and our companies, especially during this market time, that’s been something that God has been challenging me on.

John Coleman: Phil, Brandon, we’re really grateful for you joining us today. I know you guys are experts at what you do. You’re doing a great job throughout these markets and it’s a privilege to be able to host you on the Faith Driven Investor podcast and I hope we can get you back very soon or maybe a year from now. We’ll do a Mark’s in the Market podcast about the recovery in venture capital markets and get to revisit. Thank you both for joining today.

Brandon Allen: Thank you so much, John. So encouraged by you and the rest of the sovereigns team.

Phil Jung: Thanks, John. Thanks, Brandon. It’s been fun.

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Most of us know the verse in Genesis where God says it’s not good for a person to be alone. 

But do we let that affect our view of investing?

We understand the truth but still find ourselves going through our careers in isolation. 

We keep our guard up and our heads down. 

What would it look like to change that narrative? What would happen if we rallied around each other, both personally and professionally? What would that lead to?

Brent Beshore and Marcus Stroud join us today to talk about how they’ve found great joy in building a community of investors and to give practical guidance on how others can do the same.

Check it out wherever you get your podcasts and don’t forget to review, follow, and share the show with others.

Events mentioned in this video:
Main Street Summit: https://www.mainstreetsummit.com/

Episode Transcript

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman and I am very excited about our podcast today, both because of the topic and the men we have with us today. Today on the Faith Driven Investor podcast, we want to talk about community and the role that community plays in investing and in this world that we live in, where we’re all working together to be capital partners, trying to serve a cause greater than ourselves by investing together in service of that, we have two of the most interesting investors in the world, I think in very different segments of the market, which I’ll let them describe. First off, we have Marcus Stroud. Marcus is a remarkable early stage investor, founder and CEO or managing partner of TXV Partners. We had his partner, Brandon, on the podcast recently. They invest in a variety of technologies, including human performance. And one of the things that Marcus will talk about today is a human performance summit that they’re actually putting together along the lines of this community that they’re building. Second up, we have Brent Beshore, Brent is a celebrity among middle aged men all over the country. Brent is a Grade A Twitter personality. He’s the founder of Permanent Equity, one of the most interesting private equity vehicles in market. That’s done a remarkable amount and some of the most interesting businesses in Missouri and elsewhere in the country. He is the informal mayor of Columbia, Missouri, I think, and we could talk about that more and is also the founder of Capital Camp and the forthcoming Mainstreet Summit, which will dig into which are just two of the most premier gatherings of investors and also people building businesses in the country. And these two gentlemen know a lot about faith. I know a lot about investing and know a lot about creating community. Marcus and Brent, thank you so much for coming on today.

Brent Beshore: John Thank you so much for having us. And I just want to say thank you for telling so many very gracious lies about at least about me. They’re all true about Marcus, but I’m grateful for you.

Brent Beshore: He’s like the guy that runs on that stage before the concerts and, like, swings the towel, you know, he’s like.

John Coleman: I am a hype man, I’m a hype man, actually, like the mighty, Mighty Bosstones, who used to just jump up and down. Is that to Yes. Reference at this point?

Marcus Stroud: Yes. Yeah, I know, I know, I know. what you are referring to, my man, oh this is amazing, super fire up to be here.

John Coleman: Well, before we get started, guys, just a little more about you, Marcus, maybe you could start off tell us a little more about TXV and human performance.

Marcus Stroud: Yep. So we are a multi stage investment firm focused on human performance and software, and we just added a new strategy where we’re investing in minority stakes within sports teams. And so we’re based in Austin, a small team, roughly ten people. And our idea is we believe the next dimension of health care is going to be a consumer oriented approach. And so we’ve tried to model this thesis out by investing in companies such as oura, which is, you know, one of the top sleep wearables in the country right now, as well as level’s health, was continuous glucose monitor. I see my guy John rocking the ring. It’s incredible and other technology in that category. And so everything that we invest in as a thematic investor touches that principle. And we believe there’s a lot of connectivity between, you know, this new dimension of health care as well as sports, which has led us to our new strategy. But yeah, really, we are really tied to share more, but we’re building.

John Coleman: A note for those who are listening. Audio only. Brent Beshore use the opportunity that Marcus supported by mentioning levels, which is a continuous glucose monitor by a friend of ours, Sam caucus that you wear on your arm. Brant used that as an opportunity to actually pull up his sleeve and flex on the podcast, which was a real way of intimidating both.

Brent Beshore: Mark I don’t know if you guys can see it. I’m wearing the levels right now. Look at let’s.

Marcus Stroud: Go, let’s go. I love it. I love it.

John Coleman: Marcus That’s awesome. And before we move on and I want to get to Brent and permanent equity, what was your path to investing and why Human performance in software?

Marcus Stroud: It’s a great question. And so I had a very unique path, not as unique as Brent. As you guys will hear, Brent has the most interesting story. Like John said, in all private equity, this guy truly is a celebrity. But you know, I was fortunate to have played football at Princeton and at Princeton. I was around so many incredible investors that would come back to campus. And I knew early on that was kind of the career path. I wanted to take that unique background in which my father played the NFL and I was around so many athletes growing up. And so this idea of health and wellness and sports selectivity was always kind of like right in front of me. I think as we started to move into investing, you know, progressing through the career ranks, I started to just get this idea of what is an area of the market that folks were deeply interested in are actually pretty consequential. Software has been arguably the most consequential technology of the last ten, 15 years. The reason we’ve had such an incredible bull market know software is the world. You know, I was a firm believer and Brent was a firm believer that human performance and this kind of consumer oriented approach to health care would be kind of this next dimension of growth within our economy. And so that’s kind of what led us to invest in this area. It’s something I’m deeply. I set about, as are a lot of people, because I see you’re wearing the warrior ring and what was also obviously you guys both care about your health as well. And so that’s what led us to invest in the space.

John Coleman: Brent and I need a little more help on our health than you Marcus. So we’re deploying any device that we can at this point. Brent Beshore, you founded I think Permanent Equity in 2007 or eight, and it is such a unique model. Talk to us a little bit about permanent equity in your path.

Brent Beshore: Yeah, I appreciate that. You know, not all of us are equally blessed. And John, you and I did not get the, you know, maybe the looks or the physique of a Marcus Stroud. You know, I just some of us are built more like Greek gods, and some of us are built more like not Greek gods. So, you know, we’ll leave it there. Yeah. So I joke that I’m the Forrest Gump of private equity because I’ve never taken a finance class in my life. I can barely open a pixel. I’ve never worked at another firm. It was really, truly me falling backwards into the world of private equity. I was an entrepreneur, started a business, started a number of businesses kind of around that. They were okay, they weren’t super successful. And then I had a mutual acquaintance, a should meet this guy. He got left at the altar for the second time trying to sell his business. I said, Oh, well, obviously that means that I should try to go buy it, right? He had no idea that’s what was going to do but meet with this guy. And I was, let’s see, 24 at the time. I looked about 14 and the guy literally said to me, What am I doing here? Like, two grown men have tried to buy my business. Like, what are what in the world? How could you do it? I said, I don’t know. We’ll figure it out. Anyway, seven months later, bought the business. Lots of trial and error. Did well with that investment started rolling cash flow paid off the SBA loan early. But I took out I asked my newly married wife to sign a personal guarantee. She was like, What’s that? I was a guy. Don’t worry about it. They’ll be fine.

John Coleman: Marriage advice from Brent Beshore.

Brent Beshore: Yeah, yeah, maybe that’s a whole separate topic. But anyway, it and it working out quite well Started rolling cash flows, bought a number of other businesses and then in 2017 partnered with the O’Shaughnessy family, the Vlasic family, and raised a $50 million fund and then in 2019 raised a $3 million fund. But in many ways, we’re kind of the opposite of traditional private equity. So traditional private equity, a joke that employs the buy lever strip and flip model, we’re doing the exact opposite. So we’re buying with no intention of selling the business. We’re typically using no debt in our transactions and really trying to be long term with all the stakeholders and have it be a win win, a sustainable win win over a long period of time. So we’re really trying to be thoughtful towards not only the seller but the executive team, the employees, the suppliers, the customers and the community, maybe even regulators, depending on the industry. So very different form of private equity. And we love it. We think it’s a privilege and an honor to be able to help steward family owned businesses that are really the backbone of this country. And so hence I’m wearing my American flag shirt that I don’t know if people can see today, partially because I’m just trying to keep up with you and your, you know, your dashing looks and Marcus and his snappy dressings.

John Coleman: That’s great, Brent. And you know, it’s interesting because this topic of permanent capital, I feel like has become a really hot one. You guys were very early in this space. I know we’re starting to experiment with it and as you mentioned, for the right type of company and it’s an excellent model because you can carry things out in perpetuity and you know, you don’t know how long that will last. It’s a Berkshire Hathaway type model you can’t hold forever, although you don’t necessarily have to. You obviously, things move in and out once in a while, but for some opposite’s a great model too, because it reduces the friction of reinvestment. It can reduce tax consequences to individual investors, for example. And so it’s interesting that you guys were really a pioneer in the space, you know, starting more than a decade ago now, 15 years ago.

Brent Beshore: Yeah. I mean, I would say it’s actually the optimal structure for every investment. It is just providing optionality. So, I mean, that’s one of the key things that when we talk about and I would love for everyone to raise functionally permanent capital, I mean, we have an initial 30 year term on our capital, which is functionally permanent, like technically permanent. But that long time horizon doesn’t mean you have to hold the assets for that long. It means you can hold the assets for that long. And the dumbest thing you can possibly do is be a forced buyer or forced seller. And unfortunately, short duration funds both cause you to buy stuff that you don’t want to buy and sell, stuff that you don’t want to sell, which is definitely not good for the investor, but is even worse for the companies. And when you add in a heavy amount of debt onto that, which is what traditional private equity has done, you create this really volatile cocktail that you’re taking an already difficult company, right? I mean, you know, small companies don’t stay small on purpose, right? These smaller companies are going to be more volatile. And then you add on top of that the fuel of debt. And then on top of that, you add a forced selling. I mean, it is not a good situation. And this is where you see a lot of carnage, unfortunately, with especially amongst the employees, but also with customers and suppliers. I mean, there’s a volatility, too. You know, when a private equity firm buys a company, everyone kind of stops and cringes. Right. Everyone’s wondering what’s going to happen next. And there’s a reason for that. Now, there’s a lot of great people in private equity not to say that there aren’t, but in no ways can you tell me that. The traditional private equity model is better than the model that we have.

John Coleman: So interesting, you know, it probably warrants a whole podcast on fund structures at some point because there are so many innovations today and I would love to spend time on it for the purposes of today. I want to pivot a little bit to community, if we could. And Marcus, I might start with you. You know, community is obviously important to us. I think faith driven, entrepreneur and faith driven investor were set up with this idea that living a life of faith in the context of building a business or building an investment firm or trying to invest in opportunities is actually better in community that by coming together, the weight of the community can be better than any of us can be in isolation. It can be an encouragement to us in our faith and certainly in sovereigns. We have seen that as well. Why is community important to you in the context of the work that you do at TXV and how does that manifest?

Marcus Stroud: That’s an excellent question. I think I didn’t really understand the significance of community until I was probably 20 years old. You know, growing up, my mom would always say, You guys have to go to church four days a week. So we’d be in church on Sunday, We’d be in church on Monday. It would be in church on Wednesday, It would be in church on Saturday. And she was so serious about the groups we’d be around within the church and she was like, Your friend group from the age of 10 to 17 has to be the kids in the church. And I was just like, Why are you doing this to me? And then I realized she was trying to instill the significance of community, how, you know, to your point, you can spread the good, you could spread the bad. It’s so good to have folks who truly do life with a real meaningful and vulnerable way. And so community became super important for me, I would say, at that age. And then as I got to business, I began business as a pretty isolated guy. I would take a lot of stress that I had by myself. I wouldn’t go to anybody. I would just help on my own. I’d go to my business partner. But after a while, you know, it starts to just continue to manifest the stuff, just the two of you, you know, because then it affects your friendship, affects your relationship with your personal relationships outside the business relationship. And I think it wasn’t until this is actually crazy how this was all kind of full circle. It wasn’t until I was on a plane with Brent and he was sharing his story with me, and Brent was so kind. We were at a men’s retreat in Texas, and he was so kind to fly me back to Kansas City with him and just sharing his story. And after Brent and I had spent a lot of time together on that plane. I just started doing a lot of research on capital Camp, started doing my research on Brent. I started reflecting on the time we had spent together in Texas at that men’s retreat. And I thought to myself, Why did I feel so hurt and love and seeing at that time? It’s because it truly was a meaningful time where we could really use this to really open up. And so I think as that relates to me as an investor now, as we run a firm, as we invest in performance space, it’s just a unique opportunity to just truly grow together. I started off in venture capital as very competitive, like we all want to work with that firm over there. We don’t do any of that with these people. Screw those people. We want to win. I don’t want to share deals with them. I want to be isolated. But we realized that there was so much more to be gained working together, building together, sharing wins together, sharing loss together, sharing together, sharing together, then apart. And it’s insane. The relationships, the places in the opportunities that have come as a result of us really starting to put emphasis on community. You know, we’ve had chances to go to Africa, we’ve had a chance to go to Madrid, just go to Brazil. It’s truly incredible the things that this community has brought us in with the faith driven investor community has been an absolute game changer for me. Say, okay, I’m not going to be too busy to do this. I’m going to actually lead a group and I’m actually going to really make sure that I have the set aside time. Every Tuesday morning might have been one of the most consequential this is in my life, because now the newest partner we hired was from that group of people. And.

John Coleman: Wow, Is that right?

Marcus Stroud: Yeah, literally. So we got a testimonial whenever y’all want it. And, you know, we had that time together. And I’m going through life with one of the persons in that community right now who’s going through a really heavy season with health. But it’s just so cool that this group of ambassadors could come together over this zoom every week from all over the world Singapore, Africa, Alabama, Missouri, Texas, and truly do really meaningful life together and really makes me understand that God had put me on this earth just to be on this campus. There was so much more behind that, and community really helped me understand that concept in a real and deep way. And so, yeah, I give a lot of this credits. I think I’m serious. I think if you ask any person, Brent’s a pioneer in the space of truly creating meaningful community and sovereign capital as well. The chance to go to the some in Colorado that you guys had and I was like, Wow, this is different. This is insane. To see the portfolio companies right beside the investors and the limited partners together. I’d never seen anything like that. So really do life together. It’s really, you know, share ups and downs together. And I was like, this is just so different. And so those things have led me and Brandon and the rest of our team to really try to create meaningful ways. Incorporate true community experiences.

John Coleman: What an awesome story. Marcus and Brent, I want to ask you about that conversation, if you remember it with Marcus and where that came from. I will note Marcus was so kind to mention faith driven investor does host these weekly small groups. Basically, the next cohort is starting in June, which is what he was talking about it last nine weeks for one hour a week. And it’s basically almost kind of like a church small group. But around the topic of investing, you meet weekly, you get to talk about things that are great leaders like Marcus. And I know FDI has now had more than 1500 people go through their small groups. I think faith driven entrepreneur has had 30,000 people go through the small groups at this point. And full credit to that team, to Henry and Justin and others for creating those experiences. And awesome to hear your testimony about that. Marcus. Brent, I mean, you obviously made an impact on this guy. Do you remember that plain conversation and kind of has that always been the way you’ve been wired, or how did you come to this community orientation?

Brent Beshore: Yeah, I mean, I very much remember the conversations that that one of my favorite conversations I’ve had in the last, gosh, by five years, I don’t know. You know, we are blessed to have community at the highest level. If you think about, you know, Yahweh, the God we worship is three in one has been an everlasting community. And so the grain of the universe is to be in community. I mean, just what we’re doing now with the three of us just coming together to have a conversation like you can feel it. This is a beautiful thing. This is a highlight of my day. I feel like.

Marcus Stroud: You’re better preach, brother. You better preach.

John Coleman: Amen.

Brent Beshore: No, I mean, it’s just, you know, when I met Marcus at that men’s retreat that we were at, you know, I felt my heart pulled towards his, and I had no idea where he was trying to go. And when I heard he was trying to come into my neighborhood, I said, Hey, what if we traveled there together? Let’s get to spend some more time together. And the conversation on the plane was just a beautiful thing. It was about life and really deep, meaningful things, hard things. And I think that is the key is to be real. I feel like that, especially in the investing world. But, you know, amongst men and we’re all trying to build, right? We’re all in a build phase right now and there’s so many masks we put on like, right. That is the temptation to be whoever we should be to the people were around. And the bad part about that is that what we think of and this is the way that the devil works is the lie that we’re told, right, is if we’re really who we are, we won’t be loved. We won’t be successful if people knew us for who we really were. So what should we do? We should hide. And so I feel like that most of my life was me hiding in plain sight. And I just. I’m tired of it. You know, the consequences are dire. It creates isolation. You know, when you’re wearing a mask and somebody says something good about you, it hits the mask, it doesn’t get through. The only thing that gets through is the negativity. And so I live my life in a way, really, until I was rescued by Jesus, where I was terrified I’d wake up every day. I had sweaty armpits, sweaty palms. It felt like I was in a knife fight every day and, you know, unbelievable anxiety. And I was just desperate to prove myself, to try to build myself into something worthy. And I know I wasn’t worthy. And it’s just been beautiful what’s happened ever since. I mean, I feel like God’s grabbed my heart. And the more that I lean into him and try to empty myself and just be filled with whatever he wants to fill me with, including wonderful people like you who put into my life. The better life goes for me and everyone around me, and I get to see these amazing things happen. Which I mean, again, I joke that I’m the Forrest Gump of private equity. Like, there’s no way to explain how we’re doing, what we’re doing other than God’s got a plan and we’re just along for the ride.

Marcus Stroud: You see why that plane ride is 3 hours of fireman. You see the gift this guy has? It’s unbelievable, man.

John Coleman: This is why he has 100,000 Twitter followers, too. I mean, this is unreal. So good. Brent No, I mean, legitimately, what an amazing testimony and so heartfelt. And I’ll tell you, I mean, just briefly on my story, you know, I came to sovereign’s a little over two years ago out of the kind of mainstream investment world. And I think one of the biggest changes is exactly what you described, Brent and Marcus, where everybody is super open handed. You know, we’re as much collaborators as No one, I think, feels like a competitor, really. Marcus To your point, we have no problem putting our LPs and portfolio companies and our investment team together because we’re all in the same mission, right? Sometimes getting to that mission is a little bit bumpy. Sometimes you have to deal with tough stuff, but at the end of the day, you’re all striving to do the same thing. You’re doing it for the same entity, you’re doing it for the same God, and your values are the same, right? So it’s really just working out how you get there together and encouraging each other along the way and being there for one another along the way. And, you know, just such a radically different approach to investing. I think on every side, if I could get a bit tactical with the way that you. Do it. Marcus, I want to come to the summits that you guys are hosting in a moment, which are these very concentrated community events. But in the more informal way that you deal with portfolio companies, limited partners, your team. Marcus outside of these very formal structures, how do you seek to build community amongst those different groups and what does it look like for you to encourage them?

Marcus Stroud: Yeah. So one thing we did last year and one thing we’re doing more of this year is just truly bringing people together. And so by that we brought four of our portfolio companies together early last year. We all went to the Rams football game and fortunately we have a few friends that play for the Rams. It was an incredible game. Those Baker Mayfield first game actually as the Rams quarterback and he had a heck of a game. He had brought them back. They’re playing the Raiders beautiful stadium. It was amazing. But, you know, these portfolio companies, these guys and gals, they were massive football fans. But football is just such a unique place to gather together because you’re sharing a experience where you’re champion somebody and the outcome is just easy to become invested in. And so it was really cool to see them just jump up and down and have that excitement together, but then also start to kind of share some of the things that they’re experiencing with each other, their portfolio companies, their ups and downs they’ve been dealing with in business. And then you were able to remove this kind of veil of like, you’re the investor and we’re the portfolio company. Like they need to be the super on edge the whole time. It’s like, no, no, no, no. We’re all trying to figure this out together. Your success. My success rate was my failure, but let’s really just get to know each other. A personal and real level and the vulnerability that came from that, that small investment wasn’t a great investment at all. One of the large investment, but that small investment. It’s insane how, you know, the multiple that has returned. We have such great relationships, those for portfolio companies in general, because it was an experience they never had before and it was just so much more ability displayed. I think within our team internally, we’ve tried to do that as well. Brent and I, we have our on site summit this week and with each person when we hired them, we really invited them into who we are. We are a firm that has a lot of different views and belief systems across the team. But we were like, This is me and Brent’s belief. We believe in the Lord. You know, we are followers of Jesus. We came together as friends over a shared testimony. This guy helped me through one of the darkest places in my life. And it’s really cool because that vulnerability has caused other folks, our team, to be more vulnerables as well. And so now we do quarterly dinners, we do monthly dinners for the folks within Texas. We make sure we see the people that aren’t around. And the thing that’s at the center of all of this is just true vulnerability in removing that lens of just like on this buttoned up investor. And, you know, we need to be a certain way at a certain firm. And I’ll be honest, that’s how I want to be. Early on, I would study for hours this equity, I would say 4 hours. Blackstone I would say 4 hours KKR. And I was like, How could I be Steve Schwarzman? How can I be Robert Smith How can I be, you know? Don Valentine And I’m like, Is that really who you want to be? Marcus And nothing against those people. And they listen to this podcast, you guys all great in your own ways, but that’s not who I want to be. I don’t want my colleagues or employees ever look at me as just the investor or the boss or whatever. I want them to like somebody that actually had a meaningful and future life and saw them and heard them for who they are. And I think that’s the beauty of community is really getting a chance to really see and hear somebody for who they are, whom God made them to be. So yeah, that’s kind of like technical how we’ve tried to do it a little in our bigger ways.

John Coleman: Well, you know, being an entrepreneur, as you guys both see every day, is one of the hardest things in the entire world, right? I mean, the risk is high all the time. The stress is high all the time. You’ve got all these competing demands that are impossible to reconcile in it, yet it can tear marriages apart. It can send people down bad paths with substance abuse or with their mental health, with their friendships, with their teams. And, you know, to have capital partners who are just capital partners who are just putting money in, rather than trying to invest in those folks and be a counselor to them through those difficult times, it feels like you’re only really doing part of the job and maybe not even the most important parts of the job, like you said, Marcus I mean, to be able to come alongside folks during those periods.

Marcus Stroud: I mean, you’re a great example of that. I want to shout John out. You know, we both you guys know we had a very tough season last year that was really heavy. And, you know, for John to set aside his time, which is incredibly valuable and there’s a lot of folks running on this calendar for Brent to pull me aside and pray over me. I mean, those things are so important. And I think, you know, that is the beauty of community and that speed of having partners and people like you, John and Brent, to truly walk alongside really, really tough and difficult season because it’s easy for all of us to celebrate. Columbia, Missouri. Things are going really good. And Brent has all these incredible chefs making this great foodie capital. Kip You know, it’s hard when things are really tough and you don’t know if you’re going be able to see the next day. So I just want to applaud you both for being men who truly exemplify that.

John Coleman: That’s awesome. Marcus Thank you for that. And maybe.

Brent Beshore: John, can we talk for a second about like that’s the norm? The norm is what Marcus just said, right? That we feel burdened, right? Entrepreneurs, investors. I mean, I would say that the norm. In our industries of entrepreneurship. Investing is people who feel deeply burdened and are trying to medicate their way out of it in any way they can. And sometimes medication looks like going to church. Sometimes medication looks like alcohol and drugs and sex. Sometimes it just looks like that drive towards achievement or even going to the gym. Right. But we’re all trying to cover that thing up that we feel insecure and fearful about. And I think that’s the norm. And I feel like it doesn’t get enough airtime of like acknowledging that and saying, hey, there’s something in us that is broken. Like, we are lost and we are broken. And until we acknowledge that that’s the case, there’s no healing, right? In fact, there’s only hiding. And so, you know, I would just encourage anybody who’s listening to this, if that resonates with you, if you feel burdened, if you feel heavy, like that is a clear sign that there’s something that you need to give up and that you need to get the Lord involved. I mean, that’s the thing is for me, I didn’t know where to take my burdens. And, you know, when Jesus rescued me, and the more that I can lean into that, the more it can be less of me and just be filled more with him, the more that I mean, Jesus said, my my yoke is easy. My burden is light. So I’ve just realized in my life if anything feels heavy laden, if anything feels burdensome, it’s me trying to carry it and me not giving it up and let Jesus carry it. And so, you know, I feel like that is the norm, though, and it’s completely normal to feel that way. We just got to figure out what to do with it.

John Coleman: Man. What a good word. What a good word, Brent. And, you know, one of my favorite commencement speeches was by a guy who was kind of nominally Catholic, potentially, maybe not even religious guy named David Foster Wallace, who gave a speech at KENYON College called This Is Water, which is one of my favorite speeches. And there’s this wonderful passage in there where he talks about what we can worship. Right. And it’s kind of what you’re talking about, Brent, where you can worship money, you can worship good looks, you can worship all those, you know, the material things. But at the end of the day, those things are going to eat you alive, right? That by turning to those, by letting those be your crutch, the thing that you depend on, the thing that you get value out of all of those things are superficial material, temporary, and they’re just going to increase the burden that you feel. And it’s really only by finding God some connection to something greater than yourself, which we three think is Jesus and think is the God of the Bible. And you know that you can really relieve that and that you can find your place in the universe and you can worship something you can rely on, something that won’t fall away, that won’t eat you alive. And I think that, you know, gosh, I’ll say in my own personal journey, like you, Brent and Marcus, like without that, you know, some of these stresses that we face every single day where, you know, your banks are collapsing, you know, or here, you know, the stock market’s falling, something goes incredibly wrong. A regulator suddenly comes through your door and you’re nervous about that. Like there are just things that go wrong every day. And I don’t know what life would look like if I didn’t have a faith. Allow me to submit that all to God and to kind of trust in his will for my life. And Brent, I think that’s exactly right. You know, we all deal with it in some way. And the question is, are we gonna deal with that in a way that actually relieves that burden and helps us with it? Or are we going to deal with it in a way that potentially makes it worse?

Brent Beshore: And I mean, in that Ken College speech, it’s a beautiful book that was turned into called This Is Water, which is what he said. You know, he has this amazing quote that I remember when I was an atheist and I read this. He said, In the day to day trenches of adult life, there is no such thing as atheist. We worship something. And that was a major shift for me. I mean, you talk about water in the desert. That was me saying, wait a minute here. I thought I was secure in my atheist. Maybe I was an atheist in my twenties, hard core militant atheist in my twenties. And I remember that was a major shattering because when I read it, I was like, That is truth. That is truth and I’m living a lie now. I didn’t know Jesus at that point. I didn’t know who Jesus was, but I knew that I was worshiping something. And it was a realization for me that I wasn’t worshiping nothing. I was worshiping something. I was just worshiping the wrong things and things that were fragile and were going to break and die.

John Coleman: Amen. Hallelujah. Brent. Man, we could continue on this thread all day, and maybe we will, in the context of this next question, I do want to get to this contribution you’re both making to the world. I think with these summits that you’re hosting and the kind of very formal, explicit ways in which you all are building community amongst diverse people, but hopefully anchored in the values that you guys are talking about now, hopefully, you know, offering up people the right way to think about investing, the right way to think about entrepreneurship. Brent, I might start with you and then turn to you, Marcus. I mean, you are very well known as one of the greatest hosts in the investment world. I think I’m not, you know, I’m dead serious when I say that, right? I mean, Capital Camp is this legendary forum right now, which I’d love for you to describe. You’re launching something called the Main Street Summit this year, which is basically the democratization of capital camp to some extent. Would you talk to us about those two forums briefly and just why they were so important for you to start?

Brent Beshore: Yeah, I mean, the joke is for capital camp that I’m running a food and wine festival and my partner, Patrick O’Shaughnessy, is running an investing conference.

John Coleman: So it’s not really a joke, by the way. That’s.

Brent Beshore: Yeah. Well, my hope is that every time he comes to capital camp that even if you don’t have a single good conversation, it was still worth it just based on the food and drinks. So know, that’s the standard I’m trying to hold. Yeah. Look like I think that capital camp. I mean, everything’s born out of a need. And I had a felt need for community and in a way that I didn’t see it happening. So I go to invest in conferences and everyone’s buttoned up and there’s bad coffee and rubber chicken lunches and everyone’s slinging business cards and all, you know, blue blazer top. And it’s like it felt almost like there was this like really boring bad play and everyone had a role in it and everyone’s like, Well, that’s just life. I mean, that’s what, you know, is part of our jobs is what we got to do. And I remember I called Patrick and I got back from one of these, and it was just awful. It was in a ballroom in Manhattan, and I just had the worst time. Everyone was stiff and masked up. And it was just it was not fun. I got back from that. I was like, there’s got to be a better way. So I called up my buddy Patrick. I was like, Hey, I’m just going to launch this thing. I’ve no idea if it’s going to work or not, but I kind of just want to be the Willy Wonka of finance events and just see what we can put together, right? And he said, I’m in just like, Tell me. He’s like, I’ll fund half of it. You know, tell me what we should do. And that’s how Capital Camp came about. So, yeah, so we have 400 ish investors coming from, I think this year, 15 or 16 countries. I think there are a total of four people coming from the state of Missouri. So it’s almost nobody locally. And everyone from the coast comes to Columbia and we try to put on three days of at the end of the day, what we’re trying to do is just have fun. It’s supposed to be unbelievably fun, dress down shorts and flip flops. We have a ton of just interesting people. So, you know, you the option is you can participate in an in-depth discussion on investing in South America. And then next, you can go to butcher a hog, and then the next thing you can do is go break down doors with the Navy SEALs and learn tactical shooting. Right. So it’s like this like smorgasbord of fun activities. And the whole idea is everything is an excuse for relationship. And in general, like, what if we looked at investing and really just business in general as the excuse and not the purpose, but what if people were the purpose and what if business was the excuse? How much different would our days be and how much lighter would we feel? And so I think that’s what we’re trying to bring, whether it’s Capital Camp or Main Street Summit, which, as you said, is a very much a democratization capital camp is expensive, We have to have big budgets to be able to provide all these incredible experiences. Main Street Summit is going to be 500 bucks. It’s in November and we are hoping to get over 1000 people there the first year to really celebrate, learn, encourage one another in operating and investing in small and medium sized businesses. So that’s the goal. But the really the goal is just to be with people and be for people. And I think that if we aim for that, we can’t miss.

John Coleman: I’ll just say little promotion here. I’ve been to Capital Camp in the past. It is pretty remarkable. The food is almost too classy for me Brent and I don’t know what to do with myself. As someone who kind of grew up on Taco Bell Mexican pizzas, it’s overwhelming how classy it is. And Main Street Summit just looks fantastic this November. I know we’re going to send members of our team Sovereign’s Capital. We’re going to refer it out to some portfolio companies, because that community that you’re building there is just phenomenal and unique. Marcus, I know you are in the midst of planning your first kind of formal event like this, you know, building on the type of form that Brent and others have put together. Can you talk to us a little bit about what you’re putting together and what that might look like?

Marcus Stroud: Yeah, for sure. And to echo what you said, John, I mean, Brent it’s just a phenomenal job. And he is a celebrity in our world of doing these things. And like I said, he’s been an encouragement for me to do something like this. And so, you know, we were in Brazil and, you know, so many people kept wanting to talk to us about where we were investing it. And we were like, this is crazy. You barely can speak English, but you understand our thesis to a tee. And it made me realize there is this deep desire for people to have more control and understanding of their health and their wellness because they recognize that this contributed to their happiness in a sense. And so fast forward, we went to this incredible conference in Hawaii called the Lobby conference put on by David Hornick from August Capital, great ambassador, great guy, and it’s really cool conference. But there was a couple breakout sessions and the largest breakout session was a health water session. And you’re looking at all these incredible investors from Redpoint, from Google Ventures, from first round Capital. I mean, all these folks that are premium investors insight partners in software companies, but wanting to learn more about health and wellness for their own personal selves. And so as I started describing our thesis, because I was one of the folks leading this breakout, so many people like Marcus, you guys have to do something. We need to bring all these people together. And so we reached out to an agency that we were very close with, had done some really good events for us that does investment in some of the large firms. And we start calling some of our friends in the podcast space. Some of the professional athletes have had long careers hit a certain quarterback who, you know, we are almost kind of lined up to be one of the keynote speakers and we’re like, Can you come do this? And everybody was like, Yes, this is so important. I would love to be a part of this. And so that’s kind of what led us to do this. Which is just a desire to to really create awareness around this technology, around this information, around this industry that affects all of us each and every single day, and just really create ownership over our own health care. That was kind of the purpose of this. And so this is new for us. This is interesting. You know, at first we were still guarded from doing these things because we’re investors. We’ve only been around for a couple of years. We haven’t been in the game for 15 years, like permanent equity or sovereign’s capital. We’re just getting started and we want to be known as really good investors before anything else. But we realized there was so much value in bringing together people with these interests. So yeah, that’s kind of our first swing at it. We’re really excited. We’ve sent some promotional things out to some of our portfolio companies, people around those portfolio companies, and the interest has been way too overwhelming. We’ve had to kind of scale up. And so it’s going to be the better we open up to a lot more people than we initially anticipated and we’re really excited to get it going.

John Coleman: That’s awesome. Marcus And, you know, I think one of the neat things about these experiences to build on what you said is that, you know, you want to be good investors first, but the point of being a good investor is you actually care about the industry. You’re investing in, the people you’re investing in like you are. A great investor is on a mission about what they’re doing, and forwarding that mission can look like building a community that helps forward it, right? Like you think about human performance, you guys are investing in it because it will make money for sure, right? For a limited partners, you have to do that. That’s the bare bones. But also because you believe in this sector and you want people’s lives to be improved by these tools and technologies for human performance and this convening power to get people together to create more momentum there is ultimately good for the world, at least the way that I know you guys invest, where the things you’re investing in are good for the world. That may not always be true at every firm, but I know, at least for y’all, it is. Sadly, we are coming up on the end of our time together. We try and end each podcast by just asking each person for kind of 60 seconds on something that God is teaching you through Scripture now that you’d want to share with others. So just anything in your study life, anything that you’re looking through in the Bible right now, where God’s teaching you something that you’d want to share with others as we wrap up here and Brent, I’ll put you on the spot first.

Brent Beshore: Well, I just want to encourage Marcus. I couldn’t be more excited about his event. And when you’re thinking about designing the event, you might want to consider John Coleman as the peak of human performance. Man if you want to.

Marcus Stroud: Yes sir.

Brent Beshore: A mascot for the event, I think that, you know, mentally, physically, spiritually, I mean, the man is just we’re in awe of peak performance.

John Coleman: I’ll check my modeling calendar and see all that week if there are no cover sheets anywhere. Thank you, friend. Yeah.

Brent Beshore: Yeah. What is God teaching me? I feel like God is teaching me so much right now. You know, one of the things recently that has has been healed is so for those of you who aren’t familiar with Enneagram, it’s a way of kind of categorizing people into general tendencies. What we would say is how God’s built you and maybe where your flesh is still present. And as an Enneagram three, my worst fear has been a sort of deep emptiness that I don’t really know who I am. And I think this is again goes with mask wearing. So I put on a lot of masks to try to put layers between the world and what I fear might not be something underneath everything. And it was just really in prayer and deep reflection recently that God revealed to me that that is actually the emptiness that He wants, that is the surrender that he wants, and that he will fill that emptiness. And so it’s actually if I can remove all the masks, if I can strip away all the fleshy parts of me, that I shouldn’t be worried that there’s an emptiness there, because there actually is an emptiness there. And that’s okay. That’s actually what God wants is for us to lay it down. You know, we always in church, we go, you know, palms up to receive. But before we go palms up, we’ve got to go palms down. We got to drop a whole lot of the stuff that is junking up our souls and occupying our minds and causing us to focus on ourselves. And I don’t know, there’s just a comfort that I’ve received recently from the Lord in that He will fill the emptiness with something way more beautiful than I could ever dream, and that I shouldn’t be fearful of that emptiness. So I don’t know if that resonates with anybody out there. I would just encourage you to go to the Lord and do the deep work of laying things down, going palms down before you go palms up, because you can only hold things if your hands are empty.

John Coleman: That is beautiful. Truly beautiful. Brent, geez Marcus there’s no pressure, man. That’s. Oh.

Marcus Stroud: Yeah, Yeah. Well, I take layers off the bird, and then the fire got my ears hot and then. Goodness gracious. Wow. How do you follow it up? You know, I just finished his nine month intensive course at my church, a pre seminary course, which is truly, truly so deeply revealing, especially as I’ve been navigating this process of seminary myself. And one of the concepts within that we learned that just has really stuck with me was just the doctrine of Providence and just God’s complete sovereignty and control over everything. And, you know, as an investor, it’s so easy to have this idea of control at the root of everything. Oh, my gosh, I got to do this or this company can perform, I got to do this or these outcomes can take place and manifest. And I think with these bank failures, with these reduction in valuations across these companies and with just the ups and downs, I mean, like I’m 29, this was my first swing at a down market. Know it’s super easy to find yourself measuring your worth in your abilities on what’s happening around you. And just really trusting and believing that God’s providence is real and it is true. And he is in control of everything, and my identity is not bound in our investments. My identity is not found in these reduction evaluations. My identity is not found in these bank failures and having to kind of scramble and figure out how do we support these companies, how to support ourselves as an emerging venture capitalist firm has been really, really, truly revealing. And just like, you know, it’s just been a great way to truly see who God really is and truly see this image that, you know, that is God. Because I feel like for so long in my walk with Christ, it has been sometimes a little too rosy. You know, I haven’t really sat at the meat of my theology because, you know, a lot of Pentecostal folks growing up, I’m not really identified for the culture any more. But, you know, our theology is very much kind of pie in the sky, like worship based theology. I think really how to dive into the meat of what we actually believe, which scripture actually says is true and real about who God is and who God made us to be has been so revealing for me. And this season in particular, it has provided me a piece unparalleled anything. And so I would say that’s been the biggest. There is a little bit longer 60 seconds, but the Lord put some of my heart, so I had to figure it out. But that’s what’s been at my heart these last few months.

John Coleman: Guys. That was phenomenal. Phenomenal words for everybody. You know, you guys are both such a reflection of faith driven investing. You’re such a reflection of people who are motivated by this deep and authentic faith in Jesus that I know you both follow to do the right thing in the world, to treat people well, to invest well. And we’re just so grateful for your witness in the marketplace and for the fact that you are partnering with these companies that can help change the world and change the lives of individual human beings. And and that’s such a service. This is Brent Beshore from Permanent Equity today with us, Marcus Stroud from TXV Partners. We would encourage everyone to go check out the Main Street Summit and Capital Camp. I know capital camp’s in a waitlist right now, but Main Street summit is open to all I think at the moment. Have Google those things and Brent Beshore & Marcus has his Human Performance Summit coming up at the beginning of next year. And gentlemen, I know will pay attention to that. And then just a shameless plug here. If you are interested in faith driven investor groups, they’ll kick off again in June. You can go to the website and find those. It’s nine weeks, an hour a week where you can build community with other investors. But Marcus and Brent, thank you so much for being with us today. Thanks for sharing your story.

Marcus Stroud: Thanks, John. You’re that man. Man, you’re gifted. And thank you so much.

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Sometimes you just have to flip the script and shake things up, and that’s exactly what we did with this episode.

On a special edition of Marks on the Markets, we play a little musical chairs and put John Coleman, who usually hosts the show, in the hot seat so he can field questions about the state of the markets so far in 2023.

He joins Richard Cunningham to talk about venture, the debt ceiling, AI, public markets, and more. Plus, Richard gives some exciting updates about what’s happening across the movement. 

If you like this episode, make sure to follow, review, and share the show.

Episode Transcript

Richard Cunningham: Well, good afternoon. Good morning. Wherever you are tuning in, friends, welcome to the Faith Driven Investor Podcast. Welcome specifically to our monthly marks on the Markets segment. We are really grateful to have you joining us today. And now you might be wondering, hey, why does the voice of the host sound far less astute today than it normally does? And if that is the case, you are spot on in your observation. And that is because I am not John Coleman. My name is Richard Cunningham, and I have the privilege of serving on the faith driven, entrepreneur and faith driven investor staffs. And the reason you’re not hearing John Coleman is because we have a flip the microphone around today, folks. We are playing a little bit of musical chairs. And John Coleman, your normal faith driven investor podcast host, is in the hot seat today and he will be the interviewee as we dive into this month’s segment of Mark’s on the market. So your normal host is going to be the one fielding the question today. This is going to be a lot of fun. John how are you, friend? Welcome on.

John Coleman: Yeah. Richard You guys are really scraping the bottom of the barrel. I’m convinced Joey and the producers just wanted to make everyone feel grateful for the real experts that we bring on regularly. And so they thought they’d give them a glimpse of what the world could look like without that expertise by putting me on the mic. So happy to be here today.

Richard Cunningham: You know, most podcast producers are playing checkers. Joey is playing chess. This is an opportunity to say, Hey, let’s do the guest orientation. Let’s get John Coleman on. And what it will do for future episodes is just something that is just the furthest thing from the case. And here’s why. John, everyone knows you and appreciate you as our podcast host. Let’s take an opportunity now for people to understand your day job, what you do, a little bit of your background because it is expansive. We love you as a writer, as an investor. Your work at Soveregin’s Capital, obviously, but to yourself up a little bit to kind of frame this conversation and just who you are, where you come from, a little bit of your story.

John Coleman: Yeah, absolutely. Richard. So my background is I’ve spent most of my career between management consulting and investment management. I actually graduated college thinking we were just talking about this before the show started thinking that I’d be a journalist or an academic. I read a lot of liberal arts stuff in college, but somehow bounced into a first job as a quantitative energy hedge fund trader right out of school. I was objectively the world’s worst quantitative energy hedge fund trader, and so then quickly moved on to a consulting firm called McKinsey and Company. Spent a few years there before and after graduate school, did business school, Public Policy School, and then before joining Sovereign’s, I spent about nine years at a large publicly traded investment manager called INVESCO in a variety of roles, and then about two and a half years ago had the great good fortune to join the team at Sovereign’s Capital. Luke and Henry recruited me on as Henry was moving over to do more on the ministry side to help lead Sovereign’s alongside Luke. And it’s been an amazing ride. It touches on everything I like to do. I love the investment side of the business and I still get to do a little bit of that. I love thinking about the market environment. I love thinking about trends in the industry, including faith driven investing and how that’s evolving and how we as faith driven investors can get more sophisticated about that, can really develop the right frameworks to make that a positive thing. And then I have retained some of that liberal arts urge in that I still write a little bit as well. So I’ve written a few books over time, write a few articles once in a while, and it’s a way that I kind of process what I’m learning. So that’s a little bit about me.

Richard Cunningham: Man that’s fantastic. I know our listeners will love kind of the opportunity. You’re the one usually getting to ask that question. Hey, tell us about yourself. Tell us about your journey. And so a rare privilege to get to ask the host what makes up their story. And real quickly, double click on the writing piece, because I know there are just a lot of exciting things happening. In your work with HPR, you released a book recently, a hit that real quickly.

John Coleman: Yeah, absolutely. So I’ve been writing most of my life. I started back when I was in high school on the school newspaper. So it’s just it’s something I’ve always loved to do. I find it really cathartic. I joke some people golf, I’m not very good at golf, so I write as a hobby. I’ve done a few books over time. My first book was actually a Christian book with Crossway, which is the publisher of the ESV Bible. And then I did two books with the Harvard Business Review, both of them on purpose, meaning Next Generation Leadership, one called Passion and Purpose about 12 years ago, and then one just last year called the HPR Guide to Crafting Your Purpose. And My beat with HPR is really to write about leadership, personal and professional development broadly. That can be about strategy. It can be about the ways in which leaders lead, but it also has a real focus on purpose and meaning. You know, as a person of faith, that’s always been incredibly important to me. I’ve struggled with how do I achieve greater purpose and meaning in the work that I do. It’s part of what led me to Sovereign’s Capital. Actually, the story for me is I signed up to write The HPR Guide to Crafting Your Purpose in 2019. And in the midst of writing that, it got me thinking about the next phase of my career, about the type of work that I wanted to do, and I figured I’d better take my own advice. And so I ended up joining Sovereign’s, helping out with some of the faith driven investor movement. And it’s been such a joy. I mean, I feel like I’m achieving more purpose and meaning in the work that I do now than I ever have. And in the latest book has been totally off the wall. I actually wrote a novel called Miracles that hopefully everyone goes out and buys at least ten copies of. There is kind of a Christian book and a novel about what would happen if miracles started happening out in the world today. So on YouTube, on social media, Tik-Tok captured on iPhones. If something undeniable was happening, how would people react? In my my guess throughout writing it was that it would still be really divisive, just like it was in Jesus’s time. And so I follow a young woman who’s a newspaper reporter as she’s covering these miracles, and you get to see the world react around her to these miracles taking place in my home city of Atlanta. And that just came out about five months ago, right at the beginning of the year. So that’s a little bit of the writing I’ve been doing. And then I write a little bit for faith Driven Investor for Christianity Today and a couple of other publications on the topic of faith driven investing.

Richard Cunningham: Awesome. Awesome. Well, you heard it go out and buy miracles. And then I just loved the 2019 testimony of writing about your purpose, and all of a sudden the Lord starts doing the work in you and brings you over to Sovereign’s capital. And here we are. We’re on Marks on the market. We’re talking today, you know, just what’s happened inside of 2023. It’s been a full five months. And for those that don’t know and I’m sure you unpack this a little bit more, you know, Sovereign’s Capital is a multi asset investment manager across five asset classes. So you see it across five different verticals, whether it be venture capital, private equity fund investing, real estate and now in the public markets as well. And so with Sovereign’s, you’ve got a vantage point of kind of taking all of this macro data that’s happened in in 2023 and seeing it across a wide breadth of strategies. So, you know, before we dive in kind of on an asset class specific kind of rabbit trail of each of those, John, give us some just kind of macro perspective what’s happened this year, some of the kind of the key events frame this conversation for us, if you will, and kind of how you’re seeing all of that and your vantage point.

John Coleman: Yeah, I think this is one of the most unique macroeconomic periods in any of our adult lifetime. I mean, you’d be hard pressed to find someone who invested through a period that even resembled this. I mean, the closest was probably the late seventies, mid to late seventies, with this intersection of supply chain shocks, global political unrest, high interest rates, raising interest rates, high inflation, potential economic impacts of that, etc. The great financial crisis, obviously in 2007 to 2009 or 2010 had a totally different set of characteristics. It was shocking at first, then led this massive bull run that was supported by extremely low interest rates and extremely easy money. And what we’re seeing now is that popping, right? We’re seeing an end to that period. We’re seeing the restoration of a series of global macroeconomic events, whether it’s the rise of China, whether it’s the Russian invasion of Ukraine and the international response to that, whether it’s all the lingering supply chain issues that were initiated by the COVID crisis, but have continued to filter or on the money side, whether it’s the end of this massive expansion of money where the Fed has raised interest rates from effectively 0 to 5.25%, most recently just a dramatic upturn in interest rates, which we then seen manifest in bank failures. Two of the three, I think largest bank failures in US history just over the course the last few months. And it doesn’t even feel like that’s been one of the more notable stories as you look back given the global pandemic and things like that. And so I think we’re in this incredibly unique time. I think given the bank failures where we stand today, I do think the Fed is at or near the end of its interest rate hikes, especially considering that inflation seems to have slowed and begun to decline. Rising inflation and lowering inflation are always lagging. Right. And so there’s an art and a science to trying to capture those. And I think from my perspective, the Fed likely has raised interest rates enough, particularly given the instability in the banking sector, which is also cause contractions. I was catching up with our public equities team recently. We’re actually seeing a real contraction in M2, the money supply right now, which indicates to us that it’s working. Inflation is so persistent. The late seventies taught us this stuff hangs around much longer than you think it will. But the Fed is constantly trying to weigh different factors, which is how much real economic instability and banking instability are we creating? There is a lagging impact. We don’t want to overshoot and have the economy fall into two deeper recession. And so they’re navigating that right now. I guess we’re within 25 basis points of the peak rate unless something goes wrong. And if I had to really guess, they’ll stop right now and see what happens. I think what everyone’s watching now is the impacts on real economy and whether we fall into. A recession. You know, one of the shocking things about this period from 2021 to present. We thought we would go into recession much faster. Typically, when you raise rates like this, what you’re trying to do is provoke a recession, which will end inflation. That recession is accompanied by rising unemployment and a series of other things, and we just haven’t seen that yet. We’ve seen some big tech companies trimming people. We’ve seen startups starting to trim people, which we can get into, but we haven’t seen huge movements in unemployment broadly, and we haven’t seen us really slip into a recession yet. And so employment and economic growth has remained more persistent than I think folks thought. Even as asset prices, which we can get to in growth, equity and venture etc., popped big time last year, you know, some of those are coming back now and housing prices have stayed up. And so it’s this weird economic environment where I think a lot of the levers that we would typically see being pulled or a lot of the impacts that we would see from those just aren’t working like they have historically. And that’s one thing that makes asset by asset classes such an interesting environment to look at.

Richard Cunningham: Yeah, those are really, you know, intriguing insights there because what you kind of said there at the end is like some of those levers or those things you would expect to move in tandem, almost feel like they’re moving in juxtaposition directions, if you will. And so it’s a kind of a first of its kind and, you know, interesting insight. And I think you’re right when it comes to, you know, the interest rate and the Fed’s and what they’re doing, you know, they’re next time to convene is June 14th. And you saw this morning in The Wall Street Journal recording this podcast episode on Thursday, June 1st. For those listening, their next time convene is the 14th. And it sounds like, you know, there is some mixture views as to if they will continue the hike in rates. But John, your points, it feels like we are reaching an end, if you will. And then yeah, let’s go right there to that specific asset class, the venture. Let’s get as close to the action as you can in terms of kind of the earliest stages the founders building at the earliest stages. Talk about just perspectives in the venture capital markets. What you all are seeing, you know, Sovereign’s is in, I believe, fund four on a venture side. So this is somewhere you guys have been for almost a decade now, if not more than a decade. So talk there.

John Coleman: Yeah. Venture capital has been such an interesting environment over the last 18 months or so. The venture market went on this incredible bull run from at least the financial crisis. I mean, you could argue back to the dot com bust and then the subsequent recovery. It’s been on this remarkable bull run, partially encouraged by these incredibly low interest rates since at least the financial crisis. And that kind of ended at the end of 2021 into the beginning of 2022. You know, we were seeing record deals in venture markets. We were seeing record capital flow into it and all that stopped in 2022. You typically see that begin to impact the publicly traded growth equity and technology firms first, and then that kind of filters through growth equity deals on the private side down that kind of Series B and C down to kind of early stage seed in Series A, And the question was always, will those trickling impacts really get all the way down to seed in Series A and start to impact those valuations? Or will the economy recover fast enough that you might not see as much of an impact there? I think we’re seeing a mixed bag right now. Obviously, public markets got just destroyed last year. A number of growth equity stocks were down really substantially. I mean, you’ve got stocks that are down 70, 80, 90% or more sometimes from their highs over the course of 2022 and that trickle down into growth equity markets. We had a partner show us some statistics probably four months ago now. So it might be a little out of date where the average growth equity multiple. So that’s private deals. But nearing public markets, typically pre-IPO investment in private markets had gone from something like 14 to 14 and a half times revenue in 2021, all the way down to about five times revenue. So about a two thirds drop in 2022. And that was beginning to trickle down into the early stage venture markets. I think that’s continued. Compounding that, the banking trouble that happened earlier this year had a disproportionate impact on venture and venture backed companies. You know, Silicon Valley Bank and First Republic and Signature Bank were all three, some of the biggest supporters of venture capital markets in the market. And so venture firms and their portfolio companies were directly impacted, but it also led to a dry up in the venture debt markets, right, Because Silicon Valley Bank and Signature, for example, were two of the leaders in venture debt. And so some of the capital that you would typically see available to venture firms outside of equity raises dried up, even as fundraising has dried up a lot. And so what we are seeing in early stage venture right now is valuations definitely have stabilized. We’re not seeing quite as dramatic a series of drops, I think, early stage as we do late stage in venture, but it’s definitely come down. We’re definitely seeing a lot more companies being very judicious about their cash, trying to extend their cash runway 18 to 24 months venture. Firms are encouraging them to raise additional cash, even if they have to do a flat round or a slightly down round to secure themselves against the prolongation of this dry up in funding for venture. And it’s just a really tough market. Now the other side of that, which we may get to in public markets shortly, is that the public markets in technology have suddenly begun to recover. And so this year you look at the S&P 500 is up about 10%. The Nasdaq is up about 25%. And if you look at the S&P, it’s really been a rally in megacap technology stocks that has led that. If you take out the seven best performing mega-cap tech stocks, the s&p is actually down for the year. And so they’ve driven this 10% outperformance of the entire index. So that’s a little bit on what we’re seeing in venture. We think it’s an opportune time to be looking in venture and to be investing because we do think it’s stabilized a lot. We do think there’s the ability to do great deals right now, but we’re also just like everyone else, encouraging portfolio companies to be very thoughtful about their cash.

Richard Cunningham: And that’s what I was going to ask you. There is is first off, these are just remarkable insights. So the question I’m going to ask you there is, you know, Sovereign’s capital in the venture space led by Jake Thompson, see the series a investor. And when you net it all out and you think about all of the competing factors, you know, the venture debt market, you know, almost drying up the fund raising trail, it feels like there’s just a remarkable number of funds that market right now kind of hunting that same capital from institutional investors, family offices, what have you. Who is at the advantage, you know, is the valuations coming down to the benefit of the venture investor. Is this just a remarkably difficult time for everyone involved? You mentioned this is a good time to invest. How how are you all looking at it right now? Just kind of from your perspective?

John Coleman: Yeah, liquidity is light in the markets right now. Fund raising, if you’re a venture firm, is very hard fundraising. If you’re a venture backed firm, is really hard raising your seed round or series A, you know, it’s just not as explosive as it used to be. It’s taking two or three times as long. We’re seeing a lot of venture and growth Equity funds delay their fundraisers because of that environment. So definitely liquidity has dried up. You know, our perspective right now is you can never perfectly timed these things right. There are some folks who are just entirely sitting out this period. The challenge with that is if you miss the initial upside of a turn in these sorts of markets, it tends to be pretty damaging to overall returns. Just like, you know, in public markets, you always hear catching the five worst down days is 90% of the losses in the five biggest up days is 90% of the gains. You know, something on that order, you can’t really time a lot of the venture markets. So our perspective is just to remain really steady. Right now. We’ve reset our expectations on what the valuations of these rounds are going to be. We find that because liquidity is a little light in markets, there are a greater variety of deals. So deal flow is looking really good right now because there are a lot of deals that are looking for capital to sustain them through this period and that’s great. But it also means that we have to be very thoughtful about evaluating the quality of those deals. Given that the future is uncertain, the near-term future is uncertain. That said, I think, you know, we are moving forward in a steady way on the investment side because we do see really good companies out there and really good valuations. And ironically, I think some of this can actually be good for the venture backed companies as well. And this is my personal perspective, Jake or Phil, who lead our venture fund, might have a slightly different perspective. You know, I think the valuations that we were seeing were making it very hard in tech world because options were constantly under water. People were convinced as talent that they weren’t going to get the value of their options because valuations were too high. And so it was actually difficult to get and retain talent if you were a big venture backed company before. I think that’s recovering a little bit, especially as labor markets in tech have gotten tighter. And I think this is encouraging some discipline that’s healthy for early stage companies as well. You know, before it was all revenue, even the revenue was all subscriber growth or it was all user growth. And then sometimes it was revenue growth. And now I think there has been this realization that, wait a minute, these companies have to make money at some point again. And so there’s more of a cost discipline, more of a planning discipline than I’ve seen in some time. And I think overall that’s really healthy for the market and I think it’s healthy for those venture back companies in the market, though it can seem painful in the moment.

Richard Cunningham: Well-said. Yeah, a little bit of a reshift in what fundamentals, what things do we have the microscope on and should the bull’s eye be, you know, shifting appropriately at an appropriate level, if you will. All right. Well, let’s go venture before we go into private equity and real estate and kind of transition markets and asset classes, let’s see the maturity of venture kind of into the public markets. You leaned on it a little bit. And what’s happened in the S&P this year and NASDAQ as well. Any commentary on the public markets? And one of the things that, you know, I think everyone. Is reading any type of headline as focused on, you know, go up into the kind of the congressional ranks. Right now, we’ve got this debt ceiling crisis. Some people are throwing that word around there. There’s, you know, just bipartisan efforts to try to pass a bill that kind of potentially prevent any type of crisis. So any commentary there and what you’re seeing in the public markets and what’s going on and how this debt ceiling situation and the approaching ex date that Congress has tossed around.

John Coleman: Yeah, obviously super hot topic right now. I want to make one kind of 60 seconds comment before I get into that even is the Faith Driven Investor podcast. One thing I would note is this is an awesome opportunity for people of faith who are venture investors to support their founders spiritually, mentally. This is a super stressful time. I’m kind of talking about the potential silver linings and things like that for venture investors, for limited partners and certainly for founders. This is a really, really stressful time and we are seeing some companies that simply don’t make it right, which is always true in venture, but I think we’re acutely aware of it now. And my encouragement to the folks that are listening is, you know, if you’re a venture backed founder, lean into your real identity. You know, our identity is in Christ. It’s not in the money that we make. It’s not even in the success of our companies that we want to do well by those who have backed us. And if you’re an investor, whether a limited partner or a fund. Never forget the spiritual component of this and never forget that even in the midst of difficult decisions, sometimes, you know, we’re called to be good counselors to others and encouragers to others. And there are ways you can do that even while making tough business decisions. And so I think for faith driven investors, that’s important to remember as we dovetail into the public markets in this big macro fight, it looks like the debt ceiling fight is over. So again, we’re recording this June 1st. This week, they had announced that McCarthy and Biden had reached a deal, I believe it was yesterday that it finally passed through the House. It ended up that it had more Democratic support than Republican support, which was a surprise. There is a lot of criticism on all sides right now. It is one of the most bipartisan deals I’ve seen lately in the sense that, you know, basically everything we see right now is either know, 100% Republican against 100% Democrat or vice versa. This was mixed. It was mixed, Right. I don’t think anyone’s happy because it was a compromise solution. But I believe they reached a deal to extend through 2025. And so the immediate term crisis of potentially defaulting on the debt has subsided. It’s over. People were worried about that and it was delaying deals. I think it really it caused some tumult in public markets. But public markets have been super interesting this year. There have been a couple of runs that have really defined them public markets over the last five months. I mentioned one earlier, which is these technology based mega-cap stocks that just got crushed last year have been on an incredible run. I did pull up a couple of statistics this morning because I’m a nerd, but I mentioned the Nasdaq’s up about 25, S&P is up ten. The S&P would be negative without the seven biggest movers in tech rally. And if you look at those and this is not an endorsement of any of these companies, I’m just reading off statistics. Apple has been up 36% this year. Microsoft, which obviously did the deal with chatGPT Open ai to incorporate AI, which is a huge thing, up 37%, alphabet up 39%, Amazon up 44%, NVIDIA, which is effectively the chipmaker behind all the artificial intelligence right now, up 159% this year, 159%, Meta up 120%, Tesla up 66% this year. And those seven stocks have effectively created all the gains in the S&P 500 this year. That’s interesting because some of that is simply a reversal of some of the losses last year. Some of that is a flight to quality where these mega-cap stocks, the ones that I mentioned, are largely profitable companies that we know are sustainable, that aren’t going to disappear. I think the growth stocks that are still mostly underwater, those without profitability, where they’re still struggling to get margin, where the companies I read off by and large are not. And then there’s been an interesting artificial intelligence angle to this where, you know, I talked to a lot of people right now and they think artificial intelligence is the biggest thing since the Internet. And I would probably agree actually, this is probably the biggest thing to happen in markets in at least 25, 30 years in AI has the potential to fundamentally transform life right in the way that the Internet did, maybe even more. And so what you’re seeing is companies that may benefit from that, they’re in the mix for that are just exploding like Nvidia, like Microsoft. And I think that’s going to be a persistent theme. The other side of that is that for the first time in a while, Smallcaps have really lagged the mega-cap especially so we’ve seen. Huge headwinds in small caps. And if you look at the statistics right now, I talked to Matt just in our public equity teams, you know, small caps look like a value for the first time in a while. Right now, they’re undervalued relative to the large cap stocks. And so if you’re looking at markets, there’s been a run in growth recently after the big collapse last year, but there might be some value to be had moving down market to small and mid-cap stocks.

Richard Cunningham: I mean, there’s a lot there, you know, you talk to NVIDIA and just kind of the the AI frenzy that is taking place. I believe NVIDIA touched $1,000,000,000,000 market capitalization, which is just staggering, shocking when you think about it.

John Coleman: Has like an Nvidia tattoo. I think I saw somewhere.

Richard Cunningham: Sovereign’s capital tattoo.

John Coleman: Who says I don’t have one? Richard So.

Richard Cunningham: That’s awesome. So one of the directions I want to go quickly before we kind of have you speak to what Sovereign’s is doing in the public markets and kind of some final commentary there is, you know, Faith driven investor podcast. You made the remarkable comments just in terms of the opportunity for investors to lean in with more than just capital in this season, specifically in the venture markets, those that are angel investors, venture capitalists, that you have an opportunity here to be the hands and feet to love God, love neighbor in a very real way. You know, it is for founders who are experiencing a lot of pressure and and kind of on the front lines of what is a tougher time talk about, you know, from a faith driven investor lens, the AI frenzy. There’s a lot of people who are sitting there and saying job replacement, the ethics that can be at play here in terms of how far AI can go. Any commentary or insights there? In a ways, you kind of are looking at that.

John Coleman: Yeah. Wow, such a good question. I haven’t thought a ton about the intersection of the Faith and AI component. I would say, and this is a personal perspective, so not everything I say certainly is on behalf of FDI or Sovereign’s. I think being a person of faith means that I don’t have to get quite as worried about technology trends as some people seem to. You know, that’s good. I think, A, if you believe that Christianity is true, then we are in touch with fundamental truth about human nature that are not going to change. Right? God is sovereign. He has a plan, right? We are following that plan. He has plans for the world are beyond our comprehension. But I don’t think we fundamentally have much to fear either in scientific discovery, because ultimately that’s always going to align with the truth that we know or in technological innovation, because he is sovereign. And, you know, even if AI ended up eating the world and one day the world may end and nuclear crises could in the world, you know, we have confidence that our future is secure because of our faith. And so I probably tend to be a little less alarmist about those sorts of trends in general. I also think from a practical perspective, every time we’ve had a panic about technology ruining employment, making life more difficult, etc., it’s proven false. It’s factually never been true in the history of human nature. So if you go back to the Industrial Revolution, what was it? It was Captain Swing or something. There were all these movements basically where workers of the world were just like raiding factories and destroying factory equipment because they thought it would put everyone out of work and that employment would skyrocket. Only the owners of the factory equipment would effectively have any future. And of course, that didn’t end up true, right? The Industrial Revolution had bumps. It certainly had many negative sides, but at the end of the day, what it actually did was relieved a lot of individuals of incredibly grueling manual labor that was unsafe and improved worker safety standards. It opened up freedom of movement for workers to do more innovative and exciting things over time. The Internet revolution did the same thing right. The automobiles and airplanes that we invented did the same thing, electricity did the same thing. So if I had to guess, artificial intelligence will dramatically shift the economic landscape. It will be a difficult adjustment in the near term, but it will ultimately help improve humanity’s ability to pursue the things that they love. It might even make our lives easier, like most technological periods in the past. I do think that raises a spiritual crisis, right? Because if you look at markets or if you look out at studies right now, we’re the most prosperous, the most safe, the most healthy we’ve ever been in the history of the world, ten, 20,000 years, history of humanity. And yet statistics on happiness, loneliness, purpose are all pointing in the wrong direction. We’re seeing statistics come out right now about, tragically, things like suicidal ideation among teenage girls, loneliness and depression, mental health issues among people of all ages. And all of this prosperity has not helped that it’s actually maybe made it worse. And there are underlying factors for that. And so I think the real spiritual challenge of the age might be how do we deal with the spiritual crisis that can erupt when societies become prosperous, when they become less in need of God, when leisure time increases and when people start to lose hope? How do we deal with that? Spiritual crisis. So I’m much more worried about that than I am an economic crisis on the back of AI.

Richard Cunningham: Really, really good comments. All the more reason to go back to the point you made at the beginning about this of the worship of a sovereign God. Anything happening on this planet did not happen by surprise to him. It did not pass through his hands as a surprise. He didn’t miss this one. And all the more reason to go back to that sovereign God and ask for his will, his design for our specific stories, and then beyond that, our companies investments as a byproduct of that kind of overflow. So great comments. Thank you. Well, hey, I want to close on the public markets and we’ve hit on AI we’ve hit on what’s happening with these mega-cap stocks, just kind of what’s happening at Sovereign’s Capital in the way you are specifically investing in the public markets. I know this is a newer strategy for Sovereign’s. It’s been a really exciting one. Couple of comments there and then we’ll move into, you know, the real estate market. In the private equity market.

John Coleman: I won’t get specific just because of […] limitations on this. Maybe I’ll make a couple of general comments, Richard, just about my outlook on public markets. And I think our outlook, you know, one of the other interesting trends and this will dovetail into the FDI conversation, I want to get your update on where faith driven investing stands as well. I’d love to have a dialog about that. Marks on the market today, June 1st, the last 12 to 18 months, we’ve seen the biggest push back in the mainstream values investing movement, which is basically synonymous with the ESG movement in decades. Right. 23 years ago, ESG was almost nothing. I think now it’s somewhere around $35 trillion. I looked at the latest statistics. It’s been booming. I mean, sometimes doubling in a given year, although that’s slowed a bit. The growth in ESG declined 76% in 2022. And there’s been this massive pushback from the left or from some people that has been a pushback against greenwashing or justice washing this idea that ESG is really a commercial grift, you know, it’s not authentic from centrist or slightly right leaning groups. You see push back on performance. ESG is hampering performance. It’s not in the fiduciary interest of folks or asset managers are voting ESG stuff without telling their constituents that they’re doing it. Denying them that choice is the wrong thing to do. And then I think people on the political right or sometimes people of faith have pushed back on the nature of the policies embedded within ESG, that they’re more progressive politically. They’ve been very focused on things like climate diversity, social justice, so to speak, those sorts of things. And there’s been a pushback on the political right. And so ESG has actually began to retract. And I think correspondingly, awareness of ESG and values investing is the highest it’s ever been, the highest it’s ever been. I think five years ago, the average investor didn’t know much about this. It was driven by institutions and asset managers. Now everybody knows about it. I think that is a massive opening in private and public markets. To do something different is, I think, the right way to push back. If people want to push back on ESG, it’s not to simply say all this is wrong, right? We want to get rid of it. Because to get rid of something, you have to replace it with something. I think it’s an amazing time to posit a positive vision for the future, to say these are the things we don’t like about the existing mainstream approach. But here is a way that we can create love of neighbor and human flourishing in companies in real estate developments. Here’s what is fundamental about our faith and what that implies for human flourishing. How to make people’s lives better, which is what faith driven investors want to do, right? We want to make their lives better because of love of neighbor. And how can we begin to advocate that in public and private markets? That’s what we focus on every day, is how can we advocate for human flourishing, love of God, love of neighbor in the companies and real estate developments that we work with and do so in such a way that leads to outperformance because we believe great cultures are the greatest competitive advantage in business and they have the opportunity to outperform if done well. And so I think my hope right now is because of all this awareness to be the pushback against ESG, people are now more aware of the impacts of their capital, good and bad, in the world. We say all investing is impact investing, right? Just what impact you’re having. And I think our opportunity as faith driven investors in public and private markets is to redefine what values investing looks like, to really set a new standard for what can authentically create human flourishing in the marketplace, and to do so in a way that continues to unleash the innovative and economic power, the creative power of capitalism, which I think is not necessarily in conflict with those things. And so I know that’s not specifically an answer to the public equities question, Richard, but that’s kind of where my head is at right now. And what I think the massive opportunity for us and for others in this space is at the moment.

Richard Cunningham: I think that’s fantastic commentary, John, because I think what you’re advocating there I think is really a good conviction push to our listeners, to our audience is saying, hey, unlike ever before in history. There is an axis of information, there is a proximity to the investment process and methodology that otherwise might not have existed. You know, I’m Joe and Jane Smith, and I invest with my financial advisor and I kind of leave all of the decisions up to them. And I trust that my financial advisors, a good guy or good gal who has my best interest in mind, there is now an opportunity to get as close as you can under the hood as possible and look under that hood and say, Hey, what am I in? What am I actively deployed in? And like you said, there’s been pushback to ESG. You know, just this morning, Delta was sued for greenwashing and a massive kind of class action lawsuit. And there’ll be, you know, multiple years of that playing out. But you’re starting to see kind of mainstream media wake up to the fact of like, oh, we really pushed this hard. And so what is that alternative? What is that replacement is faith driven investors like you’re saying there is a real call to stewardship here, a real call to have the information is accessible, unlike it probably was ever before for you to lean and understand, Hey, this movement of this dollar pushing this capital towards something is almost an endorsement. It’s impact investing. So what kind of impact do I want to have? You know, whose hands I’m going to leave that impact? And so I appreciate your commentary there. All right.

John Coleman: So what are you saying? I mean, you sit at the center of the world here as part of faith driven investor. What are you markets right now? What do you think is happening?

Richard Cunningham: I mean, that’s a world class question. I appreciate you asking, know, quick commentary. I would have, as you know, our one of our co-founders, Henry Kaestner, who I know many of you know on the face you’re an Entrepreneur podcast, is on the feature and investor podcast as well. He’s in Africa right now, and by no means is this an advocacy that the only faith driven investing can happen in emerging markets and frontier markets in places like Africa? But we were talking this morning on the phone this the encouragement he has from the people who are flocking to this concept in an economy like Africa, you know, the big four markets in Africa are Lagos, Nigeria, Nairobi, Kenya, Cairo, Egypt, and then is kind of broadly South Africa. The youth on this continent, like if you look at that kind of population demographic and how much of Africa’s massive population is concentrated at the younger end of the spectrum and how many of these people are well-educated, coming out of school but then do not have access to work because of just a work shortage crisis taking place in Africa. The youth in Africa are building. They’re in the entrepreneurial space. They’re showing up by the hundreds to faith driven entrepreneur events, which is just such an incredible encouragement. And then what I believe is even more encouraging from kind of the faith driven investor aspect is the local capital, the local skin in the game, The folks that want to say, Hey, I want to back what’s taking place in my backyard. It’s no longer that an African entrepreneur or a Southeast Asia based entrepreneur has to fly to New York, has to fly to San Francisco as really the only source of capital. There are leaders in their own economies who can be those friends and family investors, who can be those angel investors. And so that’s one aspect that is just remarkably encouraging is just what’s taking place in emerging and frontier markets, the innovation, the building, you know, the ai frenzy, the Internet, kind of democratizing availability to technology is something that’s remarkably encouraging. I’d say another trend and I’ll finish here is just we talked about this earlier in the podcast as the number of funds and markets just led by exceptional Christ followers who have something inside their thesis that it really gravitates you in from a faith driven investing standpoint. So, you know, sovereign’s, you all invest explicitly in Christ following owners and operators because you believe the best cultures are set forth by those leaders. And there’s alpha to be had there. There’s other fund managers and funds out there and market who are investing in what we’re calling the great wealth transfer. Now there’s going to be $60 trillion handed down from really the baby boomer generation into this next millennial, Gen Z, Gen-Y gen X, next generation. And what’s also being passed down in that great wealth transfer is a number of Main Street businesses and it’s people waking up to the fact of like, well, this is a rare and privileged opportunity to go and acquire these family owned businesses with great legacies that employ dozens, if not hundreds of people. We can go in and compensate the baby boomer for really a job well done at a really healthy, fair. You know, Ebro multiple, whatever it might be kind of in the private markets. And then we can now operate that business, keeping those values intact. And so there’s a number of those funds and markets out there saying, hey, let’s be the next generation, next next kind of owners, if you will, of the baton that’s being passed. So I think that’s really exciting. I think there’s a huge push to philanthropy and generosity unlike we have ever seen. Folks are waking up to the incredible tools within the donor advice fund markets and things of that nature. And a lot of that wealth that’s transferring is being passed down in a state that’s being passed down in charitable vehicles. And so people are saying, hey, what am I waking up to that I’m uniquely called to that. Now I have $500,000 in this trust that I can’t access for my family, but I could potentially access for good in the world, whether that be impact investing, whether that be giving to that charity that I’m extremely passionate about. So that be kind of my general commentary around. FDI and what’s happening in the world of faith driven investing. And I think the last thing I would say is this is not a prescriptive or presumptuous movement. Faith driven investing is just as much backing an early stage entrepreneur and their very beginning stages of growth as it is being a financial adviser, walking alongside families. And they’re primarily invested in the public markets because they aren’t an accredited investor, a qualified purchaser. They’re kind of the retail investor who just wants to be an excellent steward with what they have in their 41 K or their IRA. And so I think that’s just as much the faith driven investing conversation.

John Coleman: And let me take a moment to pitch Richard’s incredible platform, which is if you think that sounds interesting to an investor now has a series of small groups you can be a part of, you go to the website and sign up on those. Richard and team have created genuinely one of the most fascinating libraries of content. I think out there. Experts that we’ve had around the Finny Kuruvilla all over the world, the Andy Crouch is of the world, you know, etc. Shundrawn Thomas, all these awesome, awesome people who are in investment management. And I think you guys do a great job of supporting those who want to lean into this with content like the small groups which people can sign up for, of creating content that help to educate people and also just highlighting the amazing people in the space because there are many more Christians who are very serious about their work as investors and very serious about their faith. And people realize, I think you can clearly see to think that investments is a space without that kind of moral compass. And Richard, you and I know that we meet people at all these amazing firms. We just have Brent Beshore for permanent equity, Marcus Stroud from TXV. We’ve had Evan Beyer from Warren Capital and Victor Hugh from Lumos and all these other folks. And they’re just amazing firms out there doing the right thing. And I think a kudos to you, Richard, for creating a platform. I think that’s so adept at helping people to lean into their faith as they invest.

Richard Cunningham: Appreciate that, John. I think the the commentary I’d give there is this is a it’s a big, large conversation and faith driven investing for us as Christ followers. We do not want to put a box around it and limit, you know, what the Holy Spirit can do in the work of someone’s life and what that actually plays out in terms of how they run their business. As the entrepreneur of the faith, you’re an entrepreneur. And then also how they steward capital is the faith driven investor. And so to the groups portion of what you’re talking about, that’s a lifetime of wrestling to come up with that maybe investment thesis as a family, as a fund manager, as someone who stewarding capital, as an advisor, or maybe just your everyday kind of personal angel investor, It’s a lifetime of wrestling. So that’s what these groups are for. That’s what our website, this podcast, these resources that we produce, are forced to essentially help you take that first step of, Hey, what is practically getting in the game look like for me and my spouse, my family, my children, you know, the generational impact I want to have. And so I appreciate your kind words there, but we are coming up on a close here before I have our kind of legendary FDI question where we get to ask you. So plant a seed here about what you’re learning in scripture. Real quick commentary on anything you’re saying specifically just in the private equity markets and the real estate markets. And then we’ll close.

John Coleman: Yeah, absolutely. I’ll just touch on real estate briefly. What a confusing real estate market right now. No kidding. No kidding.

John Coleman: We’re all waiting on pins and needles to see what happens in office, in retail right now, with rates resetting, with leases resetting. I think I’m nervous about that space in housing, single-family housing and multifamily housing. There was this COVID boom in home prices, the greatest gap between median home price and median income in the history of the United States. We all thought rising interest rates, which have effectively doubled the cost of owning a home because of mortgage rates, would lead to falling house prices. But what’s happened is because no one’s selling their houses and there’s a structural shortage, even though it’s more expensive to buy a house. With mortgage rates rising, the prices have not come down because no one’s selling. So the supply is incredibly limited. And so I think private equity is going full steam ahead right now. You know, leverage is has been a problem. If you were a private equity firm banking on leverage to help you do deals, I think you’re in trouble if you’re more operationally focused. And I think a lot of private equity is doing well. I think real estate is a very intriguing sector right now, let’s say, because the dynamics with interest rates, with office occupancy, with a structural housing shortage, have just created some of the most fascinating moments in markets that I can remember.

Richard Cunningham: Yeah, that’s right. That’s really well. So one of the things I sit there and think is, you know, if I’m a homeowner right now and I bought ten, 15 years ago, whatever it might have been, and I was, you know, buying it with almost free money, a two, 3% interest rate, why would I ever want to go refinance? Why would I want to sell in this environment to go now lock in a new 30 year fixed mortgage at 7% or 6%, whatever the new kind of going rate is that’s available in your local financing context. But then I drive around here in Austin, Texas, where I’m based, and there’s for sale signs everywhere. Once again, it’s kind of those those levers you would expect to move in tandem feel juxtaposed. And I think you’re right, we’re all kind of waiting on pins and needles to see what plays out. So. John, That is remarkable commentary from top to bottom. I know for your listeners there, we hit a lot of markets. We went from venture to private equity to real estate. We touched on what’s all happening in ai the public markets. John, of course, hits all of it with just excellence. He is far more than just a podcast host. He’s proven himself a capable guest. And so, John, we’ll close here. What’s the Lord teaching you in scripture? Take us home there. That’s an encouraging word of what God’s kind of showing you on that side.

John Coleman: Well, the good news, Richard, is anything that I got wrong today, I’m going to hear from the various leaders of our teams within 24 hours of airing about all the statistics I got wrong. So, you know, caveat emptor, the passages that a few of my partners and I have been lingering on lately is Luke 16, 11 through 12, which people know is the true riches passage. It says if then you have not been faithful in unrighteous wealth, Mammon money, right? Money. Who will entrust you with true riches? And if you’ve not been faithful in that which is in others, who will give to you that which is your own. And really, I’ve been trying to reflect on this passage in in effectively two ways. One is this is a call to be faithful in the stewardship of wealth, particularly the wealth of others. Right. Which is the game that we are in. This is my profession is how do I try and take money that others have worked very hard for that supports their retirement, their missions, their charitable giving, and try and help them get a return on them that allows them to do more good work. Right. So it is a conviction that we as stewards of our own wealth and of others wealth, need to take that very seriously. It is also a reminder that money is not true riches. I think the easiest thing to get sucked into when you’re in the investment world, I see this among wealthy people. I see this among professional investors. Wealth managers is you keep score with money. It’s easy to measure, it’s easy to manage. Your world, start to become money. You start to view that as something more important than it is. I saw a shocking Wall Street Journal ORC poll just a few weeks ago that people now in the United States value money more than religion, more than community, more than their profession, more than patriotism, more than this host of other things. They value and trust money more now. And I think that’s part of this hollowing out of society that we’re struggling with. Money has always been a tool. Money is a great servant and a poor master. And the Bible talks to us a lot about serving money, but it warns about almost nothing more than the love of money, right. And being a servant to money. And so we’ve been reflecting on that passage a lot. This idea of true riches, both in terms of how can we be better stewards, but also how can we keep front and center for us and for those that we serve? That money is actually not a good measure of value. That money is not true riches in the Christian faith. That money has a role to play as a tool, but it never touches on what’s so unique about our Christian faith in the eternity that we’re targeting. And so I think that passage is one that my partners and I are batting around, and it’s one that I’m trying to kind of reflect on and understand. And I think it’s one that all people of faith, all people of means should really take seriously in terms of what it calls us to do on both sides of the equation.

Richard Cunningham: Man John Coleman, that’s a fantastic word. Let’s reframe the conversation. Let’s move the balls out of faithfulness and let’s get it off of money as the scorecard. And so, John Coleman, thank you for being on the day of.