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.

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.

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman, your host. And we have a very, very exciting episode today, I think, with a great friend of the Faith Driven Investor podcast, the Faith Driven Investor movement, our firm Sovereign’s Capital. Michael Eisenberg Michael has been on the podcast before talking about his wonderful book, The Tree of Life and Prosperity. But today we’re going to get to delve even deeper in what the Jewish Scriptures and Jewish philosophy say about investing in financial life. Michael is a long term venture capitalist. He co-founded and now leads Alef, a Tel Aviv based venture capital firm that invests in technology companies. He’s a frequent author on many different topics, and we’re going to talk about a massive writing project that he’s taken on with multiple books now. I’ve had a chance to read one. I’m anxiously awaiting the translation into English of the others, and we’ll get into that more deeply. And he’s also a family man, and we can talk about that large family there, all of whom are remarkable people and has been deeply involved in community service and government since he migrated to Israel from the United States in 1993. And so we’re very, very privileged to welcome Michael on the podcast. Thanks for joining us today.

MIchael Eisenberg: Thanks for having me, John. And I’m looking forward to welcome you back to Israel personally and physically so we can share a handshake and a hug.

John Coleman: Awesome. Awesome. I did get to visit Michael last year, last spring in Israel. It was my first trip to Israel, although my wife had been a couple of times and he was a really gracious host in his beautiful office there. So we were very grateful to visit. Michael You know, one of the things that impresses me most is just your remarkable capacity for intellectual exploration, for ideas, for writing. And that’s been a part of your life forever. Talk to me a little bit before we get directly into the investing side. I think this will lead in. Where did you first get interested in writing and grappling with ideas through writing?

MIchael Eisenberg: I had a ninth grade English teacher whose name was Ms. […..]. We used to call her the little lady. She was tough as nails. I mean tough as nails. About five foot one. She yelled all the time at us, but she forced us to write. We read a book, I think it was every two weeks or maybe every week. I can’t remember. And I think it was Wednesdays. She would say 20 pages, write. And you start writing and you had to kind of quickly organize your thoughts. Sometimes she would just give topics and say, seven pages start writing. And I thought she was amazing. And I kind of became interested in writing, I think, through her, funny story about it I had her in both the ninth and the 10th grade, and she taught 11th grade too, but everyone wanted out of her because she would often she put you in the corner. She had this great line. She would say, Do you see what’s written behind the me on the on the blackboard? You know, says, No fidgeting, No, stop fidgeting. And everyone wanted out. But in 11th grade, I wanted to go back there and I went to the principal because they put me in a different English class that I’d like to go back to Miss [….]. They go, Nobody wants to go back to Miss […..]. So no, you can’t. And they didn’t let me go back. But I. I give her a lot of credit for my love of writing.

John Coleman: Well, what I love when I read your stuff and maybe it’s the same for you. I write because I know so little. I feel like when I’m interested in and passionate about a topic, the best way for me to explore it is to research it well enough to write about it, because I figure if I can write about it well and teach others, that means that I’ve actually taken the time to understand it. And I can sense that kind of intellectual exploration in your writing to where you’re really reflecting deeply on the topics that you explore. Is that something similar to the way that you approach it, and how do you pick the topics that you’re going to write about Michael?

MIchael Eisenberg: I’ll start with the second question first, which is how do I pick the topics I don’t is what happens. So I think life happens and in my life I’m an investor, I’m a venture capitalist and a person of faith. And we read, as is the Orthodox Jewish tradition, we read the Hebrew Bible every week in synagogue, and you read one portion of the Bible, and so you run into it every week. And as you kind of run into it, you develop your own lens. And I think we need to take these things seriously and I take them seriously cause you to ask questions, particularly as a modern person. And when you ask questions as a modern person, both of the texts and of other people and you want to take it seriously, you need to figure out both how you apply it to modern times and to kind of what is the intent here, even if the situation is different than an old agrarian economy. And that’s what I found myself exploring. And at the same time, I literally just finished yesterday what you call a […..]. So in Jewish law, which persists, the way it evolves is through questions and answers. It obviously started to evolve through the Talmud and then through questions and answers. And I’ve run into particular questions. When Silicon Valley Bank failed, it was Sabbath in Israel. And so how do you deal with a failing bank when you’re, you know, 9 thousand miles away, and it’s the Sabbath under Jewish law. So I just finished yesterday the a two and a half month journey that describes exactly what you said, which is I got to figure this out. And so I spent together with my study partner and writer of my book, two and a half months deep in this topic. And we sent out the 23 page response yesterday to ten rabbis to get their feedback to see what they thought about the Jewish legal analysis of this problem of what happens when Silicon Valley Bank fails on the Sabbath. Wow.

John Coleman: Wait a minute. I almost have to ask the follow up now. Any early insights into how a faithful Jewish believer can approach that question?

MIchael Eisenberg: So in general, under Jewish law, we have a rule which says that things that endanger your life allows you to violate the Sabbath. This obviously doesn’t qualify as something that endangers your life. It’s very fundamental. There is a a commentator from about 300 years ago. It was called the McGuane Abraham the Shield of Abraham, who writes that in certain conditions of massive financial loss, you can violate rabbinic prohibitions of the Sabbath, but not biblical prohibitions of the Sabbath. And there’s more to it than that. We took an entirely different approach because we think it’s very difficult to figure out how this is a risk to your life. And also, we think the notion of a large financial loss is a very blunt tool. But we think in the digital economy, which is I think was very different here, we had a digital bank run within 48 hours. Depositors withdrew their money and sank a bank. And we think in a digital economy, things both like cyber and digital bank runs fall into an entirely different category that has been lost to the Jewish people for 2000 years. But it does appear in the Talmud because we haven’t had sovereignty. And so what we suggested is that in a sovereign country, businesses and particularly digitally connected businesses are actually part of the piercing of sovereignty when they fail. And because of that, it would be permitted to violate rabbinic prohibitions on the Sabbath in order to make sure that the businesses stand up or businesses are not attacked either by digital bank runs or cyber attacks or whatever it is. That’s the approach we took, you know, still under investigation and dialog. We’ll see how it comes out.

John Coleman: Man, Michael, I love this. I love this. And I want to follow up about this broader reflection on the Scriptures, on the Bible that you’re doing and how that integrates with economics and technology. As I understand it, like you said, you’ve been writing about that intersection for some time on a weekly basis. And I think one of the things that I’ve come to admire the most about my Jewish friends is the deep reflection you do on the Scripture portion every week and how that begins to inform your evolving faith and how much debate there is about that. You know, it’s really an active intellectual life. Talk to me about this massive writing project that you’ve taken on, starting with the Tree of Life and Prosperity and how that intersects between those three things your faith, technology and economics.

MIchael Eisenberg: So first, you give me more credit than I’m entitled to. You described it as a massive writing project. I actually didn’t sit down to do this. It’s kind of happened in waves along the way. I sat down to discuss the topics with my kids at the Sabbath dinner table, and I started writing myself notes. It evolved into longer form items and then it evolved into the first book, and then I became obsessed. And I’m now four volumes into the five books of Moses. So I’ve done Genesis, Exodus, Leviticus and numbers, and I’m already kind of done with the rough infrastructure of Deuteronomy as well in Hebrew. And I think as I was saying before, one of the benefits of being in synagogue every Sabbath and kind of, you know, coursing through the Bible every Sabbath, is that you become familiar with the text. But I find that too often there is a dichotomy between our modern situation, let’s just call it and text that we consider to be eternal, but we actually don’t treat them that way. They’re kind of some nostalgic thing we put on the side, and I consider myself very fortunate that our own rituals put us in this context of the biblical scriptures every week. And so when I sat down to do was to look at how you apply scripture to an active, technologically advanced economy, what are the foundational principles of the text itself? Reread There was a commentary in the Middle Ages because there was Rabbi Samuel, the son of Moses, who was a grandson of the famous Jewish [….] named Rashi. Rabbi Solomon Isaac or a son of Isaac who said that there’s something called the Scriptures that are reinterpreted in every time. What does that mean? If we think they’re eternal, it means that they have meanings that we can then infuse with what’s going on today and then try to apply them as faithfully as possible to the problems we have today. And my own view is that the Hebrew Bible and this may be controversial. My own view is that the Hebrew Bible in particular is not just a set of metaphors and. It’s not just a set of precepts. It’s actually a blueprint for life and society. And if you take that seriously, then one should attempt to apply it to a modern life in society. And I take that seriously. By the way, I think the founding fathers of America thought the same thing. You know, if you believe in the Declaration of Independence as a foundational document, they were talking about people created in the image of God in that way. And they kind of had a blueprint for a very tolerant America, tolerant of religious freedom. But at the same time, much of Christian society in large ways. I know that’s not politically correct to say today, but I think it’s what the founders had in mind. And so they attempted to apply in the separation of powers. I think the same biblical text where the Hebrew Bible had a king, a prophet and judges. Right. And you had, you know, during the time of Ezra, the scribe, who is mentioned in the Book of Ezra, which is an Old Testament book in the Scriptures. He had a council of elders, which I think is the way to think about the US Senate. And so I think they took this really, really seriously. I mean, I think we need to as well at a societal level.

John Coleman: Wow, I absolutely love that. That’s really interesting. And it is interesting if you date back to the beginning, you know, in some respects, not completely, but in some respects, the American founding was the story of religious refugees generally. And there is evidence, at least in many parts of the country, and especially amongst the founders, that Jewish people were part of that They were welcomed with open arms, at least in many circles. And that is hopefully a credit to the country at that time. You know, as you think about the project that you’ve taken up, and maybe this helps us reflect as well in a way that Christians can help to understand the Jewish scriptures more. Talk to us about this book series that you’re publishing that began with the Tree of Life and Prosperity. I think the next book title from Remembering Properly is Everyone Can Be Moses, which is being translated and then the Land of Milk, Honey and Uncertainty, which is coming out. And you’re kind of marching through books to the Bible, talking about really interesting, counterintuitive scriptural lessons. Talk to us about what’s there, what’s that evolving into. And also just how the Jewish scriptures are unique from what we would consider the Christian scriptures, where the difference is there as well as the similarities.

MIchael Eisenberg: How many hours do we have?

John Coleman: As many as you want, Michael. I know I ask a lot of questions, all bundled up in one there.

MIchael Eisenberg: So like I said, I’m for books in on the biblical series. I also have a book I wrote years ago on the Book of Esther, which is about Jewish identity, by the way. Funny story. And the one I wrote on the Book of Esther, I got a call from a Catholic friend of mine in Los Angeles who called me up saying, You know, you could have written that book about Catholics as well, and not just about Jews. So I told him I would, but I didn’t have the same experience. So he was free to take it and adapt it as he saw fit in the biblical series of the five books of Moses. So I’ve done The Tree of Life, of Prosperity and Genesis. Everyone can be Moses on Exodus, what I call Roaring Tribe on Leviticus. I’ll spend more time with that in a second. And the most recent one is Milk, Honey and Uncertainty on the Book of Numbers. And the Book of Deuteronomy, which I’m working on now in Hebrew, doesn’t have a name yet. So Genesis, I’ll start there, takes a look at the stories of the forefathers in the context of, Hey, this is real life. And so, for example, if you look at the story of the Garden of Eden, I view that as a situation of universal basic income. Adam and Eve were fed, you know, Christian doctrine is to look at it as original sin. In Judaism, there’s two schools of thought on that, whether it was a sin or just call it, you know, growing out of adolescence. But, you know, the Bible chooses to tell us the story of somebody in an idyllic society where all his needs are provided for by God and he either sins or grows out of it or definitely does something inappropriate, and then he’s expelled. And as he begins to sweat and work by the sweat of his brow and harvest, he for the first time has children. And I think what it tells us, there aren’t any children in the Garden of Eden. Right. And I think because man and woman, by the way, man doesn’t even talk to woman there. Adam does not talk to Eve. They don’t have a joint project and everything to work on. They have no future look forward to. Everything’s provided for them. They become indolent. And you know, the scholars, the sages say that indolence leads to boredom. And boredom leads to sin. And, you know, I think that happens when we have our basic needs provided for. And man was actually destined to work. I used to joke about a rabbi of mine that he was the first Orthodox Jewish Protestant, you know, Calvinist in that way. And I believe in the value work. And I think the Bible believes in the value of work and in being productive. And so I looked at universal basic income, you know, for something that’s very relevant to today, the story of Noah. You know, if I asked you who was Noah, your obvious answer. That’s the average person on the street, Jew or Christian, by the way. Who is Noah? Well, he built the ark, but we can actually prove through the scripture. Itself. And the rabbis tell us this also that Noah invented the plow. Noah didn’t only invent the plow. Noah invented chemistry because it says he planted a vineyard and grew wine. And when you think about that and you think about our modern challenges of, you know, AI it’s all over the place now in the world. AI is destructive. AI is the best thing that ever happened to man. And yet there is technology, like the invention of the mechanical plow, like the invention of chemistry is a tool. And if we don’t put an Abrahamic ethical framework around it, it’s going to run awry and it’s going to corrupt society. Exactly what happened to Noah and why we had the flood. Exactly what happened to Noah in his tent after he drank too much wine and was castrated or abused by his son. And so every technology is dual use, so to speak. It can be used for good and used for bad. And so I spent most of Genesis working through story after story about what the core values are economically that the Bible is trying to impart to us. And then I spent Exodus and everyone can be Moses looking for the leadership and societal lessons called The Adventures of Moses or the Society as described in the Ten Commandments there and the building at the Tabernacle. Just one example is they went to Michael Dell, who’s the CEO of Dell Computing, and asked him what was the most important trait for a leader in the 21st century? And he said, curiosity. Well, good for him. He learned it from Moses. How do I know? Because we can ask a simple question Why did God choose Moses? And you think about Moses by the ways we don’t appreciate this, but the guy walks into the most powerful ruler in the world and says, Let my people go. So we talk about God sending a message to a lot of people who think that God maybe spoke to them, but they don’t have the […..] to stand up to the most powerful ruler in the world and say something to them. And I think Moses, when he kind of is drifting in the wilderness and he sees the burning bush that will not be consumed, he goes to explore it. And the verse literally says, and God saw that he strayed from his path to observe and behold, the burning bush would not be consume. And God calls out to him, Moses, Moses. And he says, I am here, God. Right. So what God saw was that Moses strayed from his path. Curiously, out of curiosity, to see why this book should not be consumed, even though it was burning. And so Moses teaching as the curiosity is the key trait for a leader who wants to make change. And I think, by the way, that’s been true throughout history. And I spent a fair amount of time, you know, for example, on what is the modern application of do not covet the 10th of the commandments of the Ten Commandments and do not covet like a zero sum thing, right? Do not covet your fellow’s wife. Do not covet is donkey or his farm animal. And the reason is, by the way, those are both the means of production. The farm animals. That’s a factory, right? And his wife is what turns him into someone who protects his home and he can’t be there for be an economic character. But in the digital age, these are not zero sum games. And so empowering people to be successful in the digital age by sharing knowledge is actually economically increasing. It increases GDP, it increases economic output because this kind of interaction between different kinds of knowledge helps us out. I’ll move quickly to Leviticus, which is called the Roaring Tribe. I what I described there, you know, we’re all suffering right now across the world from tribalism. This is great new book by Tim Urban. I don’t know if you’ve read it. I think it’s called What’s Our Story. You know, he describes the increasing tribalism right in blue in America. It’s true everywhere. He has his own prescription. Mine in the book says that Leviticus is about a tribe called the tribe of Levi, which has the priests in it. And an increasing outward spiral where it’s attempting to do is to create a covenant, an economic covenant among the people, to empower others to be successful, to take responsibility for your fellow, for your brother there. But it also creates some bridges to other tribes. You asked before about Christians and Jews. And so if the Jewish people is a covenant, there are other people who have covenant. And our job is and this is why it’s called the roaring tribe, what we’re after in society is what I call respectful tribalism. Sebastian Junger has a great book called Tribe. We all want to be part of a tribe. It could be a religious tribe, it can be a political tribe, etc. That’s great because it gives us safety, security, you know, a capitalist network, etc.. But if we’re not respectful of other tribes, we’re going to end up in where we are right now, which is a disaster. The last book is called Milk and Honey Uncertainty in the Book of Numbers, where I chart through that this 40 year sojourn through the wilderness is basically to teach the Jewish people to deal with uncertainty. How you deal with leadership challenges in uncertainty, how you deal with changing economic circumstances, uncertainty how you deal with shortages, water shortages and food shortages that they encounter and that create uncertainty. And what are the lessons from that, both for investors, for businesspeople and for society at large? And just to finish out the thought, one of the things that I think we get wrong a lot is the difference between risk management and uncertainty. Somebody who manages a hedge fund is a risk manager, is looking for the number of standard deviations from the norm. Guys in the venture capital business like myself are investing into uncertainty and trying to benefit and leverage uncertainty. And that’s a whole different set of skills and. I think tells us a lot about where we are at society today.

John Coleman: Now, that’s awesome. Michael and I honestly can’t wait for the translations. I think I knocked out the Tree of Life and Prosperity in about 48 hours, and I think one of the things that I really appreciated for my own faith is just how diligently people like yourself and so many in Judaism reflect on the scriptures, dig deeply into them. I remember coming across your analysis of Noah, which you talked about with all of this great rich scriptural interpretation of the Noah story about him as an innovator and an inventor. I had no idea about the plow, about the vineyards, and it was just shocking how much more depth there was to the scriptures than I had taken from them. And I think a thinker like you who’s not afraid to be counterintuitive, he’s not afraid to to kind of dig deeply into areas that others haven’t interpreted and only enlivens that in the spirit of getting to this idea of faith driven investing. I wanted to dive right in to getting your insights on what faith driven investing looks like in Judaism. You know it sovereign’s capital and faith driven investor. We often talk about this idea that all investing is impact investing, that basically since the dawn of humanity, people have tried to align their financial lives with their most deeply held values. And certainly I think the scriptures, the Jewish scriptures, were one of the first places in which that manifests. As you reflect on what faith driven investing means in the Jewish context. Michael, what are some of the key tenets of that, both historically and that you see manifesting today?

MIchael Eisenberg: So I have been talking about a term more recently which has come out of a lot of the speeches I gave around the book. And after kind of reflecting on this, I think what the Bible advocates is what I call now covenantal capitalism. And it has two points to it. Capitalism says I have private property. Capitalism says that the profit motive is good, much like Adam Smith did in the brewer and the baker. Doing their job should increase all of our welfare and output. What I think people miss, and I think by the way, your podcast, your movement has done a great job of driving home to people is capitalism works. When there is an underlying covenant. There is a great writer. His name is Barbara Allen. She wrote on de Tocqueville, who points out that the Protestant covenant underlies the foundation of capitalism in America. And so what happens when the covenant is frayed is capitalism comes unmoored. But if the community or the covenant, as I prefer to call it, takes care of its members, empowers its members, asks about what are my responsibilities to the other members and not just what are my rights as an individual? Then capitalism thrives. And so the problem you ever saw about the problem of capitalism, there’s nothing wrong with capitalism. The problem is with we, you know, an individualistic society frays the kind of underlying fabric that is needed for capitalism. And that’s what we need to fix. And so I think the notion of scripture, which talks about brother and fellow didn’t think about sisters back then as much, but brother and fellow and the transparency that covenant and community deliver so that they don’t screw or take advantage of my neighbor or my fellow is foundational to the future of capitalism. And so one of the very important elements of the Jewish faith and by the way, this was a challenge between Jews and Christians in the Middle Ages that thankfully we’ve gotten past is lending with interest is a big challenge in Judaism, by the way, in Islam as well, in Shariah law as well. And so why is that? We need to ask, why is that? And the answer is that in the Book of Proverbs, it tells us that the borrower is enslaved to the lender. By the way, if that sounds like a lot of people underwater on their houses right now, it’s not an accident. And when we are in debt, we develop a scarcity mentality. There’s a professor at Princeton. His name is Arnon Shafir, who spends a lot of time talking about what happens when people are in scarcity mentality. They turn on their survival instincts and make terrible decisions about their own finances. And so the Bible is trying to create an air of abundance in the economy, number one, and number two, to make sure that we are not enslaved to the people we borrow money from and hence interest rates, which tend to compound and be variable, as the case may be today, are a very challenging mechanism for that. But we need to separate that, by the way, from business credit, because business credit’s like an investment. There’s no personal liability if you’ve got a corporate veil. And so you don’t become enslaved to it. But we need to be very, very careful about consumer credit. And so, you know, I backed a company here called Rise Up, which is taking on the consumer credit narrative. I mean, you watch television today, which I try not to do, and all they’re doing is pushing consumer credit at you. It’s a disaster. We are enslaving people to their credit cards and we need to be careful with that.

John Coleman: Yeah Michael. I’d love a couple of the comments you’re making there. You know, one of my mentors in college was actually a Catholic scholar named Peter Lawlor, who was one of the great Tocqueville scholars and wrote a book called Self-interest Rightly Understood, which effectively argued that Tocqueville, in self-interest, the way that the United States was founded, was actually very different than the kind of isolationist, individualistic self-interest that many people consider it today, that it actually was underpinned by a communal instinct, by commitment to community institutions and by faith. And when I was in business school, I had this reiterated I don’t know if you’re familiar with that business scholar named Clay Christiansen. He passed away just a few years ago, a faithful Mormon believer. And he actually has a great video up on the connection between religion and capitalism. And he had had a dialog with a Chinese scholar who had pushed the idea to Clay that capitalism couldn’t work in a society like modern China had been eroded of its religious foundations or of any religious foundations, because capitalism only worked in a society of mutual trust, of values that allowed people to work together constructively, that you effectively couldn’t build the compliance into capitalism to control its worst instincts, that that had to be underpinned by a moral foundation. And what you’re describing, I think, is the way that most religious traditions historically, at least have thought about capitalism and free enterprise is is it’s got enormous power. Societies have been structured around this for some time. However, that power has to be countered by a shared set of values. I love the concept of tribalism that you had a constructive tribalism and that those values have to be moral. They have to be deeply held so that they can guide those instincts of capitalism, which is what I think you’re describing. And I do think that is the underpinning of all types of faith driven investing now.

MIchael Eisenberg: Yeah. So, you know, I think there’s a lot of truth to this notion that in atheists societies it is more difficult. Doesn’t mean it’s impossible, but it’s more difficult to create the level of trust that capitalism requires because it’s impossible to regulate for every scenario, just impossible. And so we need to assume a basic level of trust. There are proxies for it other than faith. But, you know, you use Plato’s rings of guidance. There are certain things that religion causes us to be fearful of, including do not covet things. You just wouldn’t do that other people, in the absence of faith, would think differently about That doesn’t mean all of them. There are plenty of moral and ethical people who are invested in community who aren’t like that. But I think if you have a large society of people where there’s a complete absence of faith, you could end up in a difficult spot for capitalism over time.

John Coleman: Yeah, I think that’s exactly right. Yeah, that’s not to discount that as certain people without religious faith can’t be moral, can’t be great people. Like you said, in a large society, the absence of their shared values I think is quite challenging. You describe this kind of covenantal capitalism, which I love. I love that term honestly, And how that impacts the way that people do business as you look at modern Judaism and the way that faith manifests in investing principles. Do you see a faith driven investing ecosystem now around Judaism and do you see firms that are trying to operate specifically by Jewish faith, either through negative screening or positive screening or different business practices, or what does that ecosystem look like right now in Judaism?

MIchael Eisenberg: I think the first thing is, is that there are a lot of communities and the Jewish community writ large. We’re helping other people get started in business. And patronizing those businesses helps people get their businesses started. And so I think that’s kind of the first level of it. I think there are a number of people who practice what I talked about before, which is providing interest free loans. There is this amazing for profit almost organization in Israel called Ogen, which provides interest free loans to people. How is for profit? I spent in a different time when I have time for that that enables people to get their small businesses started. And so that’s a real implementation of this, what I call a biblical setup that says be someone’s partner and not their creditor. And I think, by the way, the whole biblical system I cover this in the book Roaring Tribe is set up so that we should become partners and not creditors. And that’s why the system has prohibitions on taking interest, and that’s why the system has mechanisms for dealing with price gouging of your fellow or your brother. There are less what I would call kind of investment funds that specifically talk about this. But I think there are a lot of what I would call a Jewish values based investing principles that manifest himself and many Israeli companies I’ve talked about this in the context of, you know, a company called Empathy that we’re invested in, which is helping next of kin after a loved one passes away. And they’re kind of a very empathetic and empowering way that helping them interact with their life insurance companies rise up, which is a company I mentioned earlier, which is getting people out of debt and making them investors and has kind of issued this kind of conspicuous consumption or credit card consumption approach to life so people don’t fall into debt. And we’ve made a bunch of investments around these themes. And it’s not only religious in nature. I think there’s something about community and DNA. DNA. I don’t mean genes, by the way. I mean a cultural DNA that causes one to do this. And by the way, if you go to a synagogue or a church that becomes your social network and going back to de Tocqueville, I think that’s what he saw in many Christian communities around the United States, is the church was your support community, your business community. People could lean on. And that was incredibly valuable financially and economically for these communities and for capitalism.

John Coleman: Yeah. And that concept of self-interest, rightly understood is the individual centered in community rather than the individual as as a pure entity or as it is a solely individualistic entity.

MIchael Eisenberg: Yeah. By the way, you know, we only get to impact investing because we have individualism. If the system works based on community, you can make as much money as you want because ultimately you were supporting your community. I don’t mean charitable, by the way, but enabling other people to become wealthy as well as successful. And so I’d argue impact investing is a response to, you know, individualism, which is kind of capitalism unmoored rather than a return to the roots of let’s create the community first and then capitalism will be just fine if we kind of reinvest in covenant and empowering our businesses, our local businesses, our communities, the people we connect with and be empathetic towards them and empowering, we don’t need to get to impact investing. We should all make as much money as we can.

John Coleman: Yeah, and what’s been shown very clearly, I think, over the last 30 or 40 years is that capitalism is the greatest enemy of poverty. And stagnation in history, right? I mean, it’s been a tool that’s lifted billions and billions of people out of poverty, out of destitution, out of hunger. It’s unleashed this remarkable human potential. Right. And it is I think there are distinctively, at least in our faith tradition, Christian elements to that. Right. I wouldn’t argue that capitalism and Christianity are exactly the same thing. And I think there are some errors to correct for in unbridled capitalism, but it’s actually the foundation of capitalism and free enterprise that allows individuals to flourish with all the creativity that they possess. So I couldn’t agree more about its power to really empower a community and to do good for people. And it’s done more arguably for people than charitable enterprises have over the last 40 or 50 years in a lot of respects. Digging into the way that you run Aleph. Michael, you’ve talked about this a little bit. It seems like you’re investing in companies that also have a deep missional impact, or at least that’s my reflection on some of those that you’re describing. How does your faith influence the way that you run Aleph as a venture capital firm?

MIchael Eisenberg: You know, it’s important for me to point out that my partners are not necessarily people of faith. I love them dearly. They’re my brothers and we have a wonderful partnership, marriage. And so, you know, we run Aleph as an equal partnership and we each have equal say. I have a view that businesses that do good by their customers rather than abuse them, end up being just better businesses. And so like I often use Lemonade, which is an insurance company as an example, where, you know, if you think about a traditional insurance company, State Farm, Allstate, whoever it is, their business model is they make money by making you miserable. What does that mean? They make more profit when they deny your claim, You know, lemonade or I’m an investor, a public company now, you know, set up its business so it’s not conflicted with its customers. They take a flat fee to run the pool. That in my view, and by the way, they give the leftover premiums to charity of the consumer’s choice. I think that’s a much more aligned business model that wants to make a lot of money to do that. And that’s a reflection of what you call values. I think just good investing right now. I think this is exactly what people want. We are all longing for a time where we are aligned, where we have a covenant and a community. I told the story in the article I wrote for Fortune on Covenantal Capitalism about speaking to a group of Harvard students. There was a young woman there was from New Zealand, and I asked her if she had a local bakery and she said yes. She said, What happened during COVID? She said it went out of business. I said, Why is it what people didn’t patronize in the supply chain and this, that and the other? I said, You miss? And she said, Yes. I said, Well, in our community in Jerusalem, we had a similar problem. The difference is that the people in the community got together, advanced their money, meaning they bought things on account for, you know, a year forward so that they would have enough cash flow to get through COVID. And now we’re so happy because the people in our community, we had a so unbelievable bakery. They’re a staple in the community. And now, by the way, they turn up at our family events and they’re part of the community. And I think that’s kind of a hallmark of covenantal capitalism. They’re making good money now. They’re doing good, but, you know, get people through tough times so that they can be economically empowered. And I think that kind of alignment and covenant matters a lot.

John Coleman: You know, we talk a lot about love of neighbor and the Christian tradition and that love of neighbor that you’re talking about, just how effortless that is and the ability to lean into others and support one another. And you’re right, still using the profit motive. Hopefully everybody ends up doing well for themselves, but it just shows a real empathy and care for others.

MIchael Eisenberg: I’ll say, show me controversial. Can I say some controversial?

John Coleman: Yes.

MIchael Eisenberg: I think we can sometimes fool ourselves and say love, our neighbor is actually love. But the question is, what are you willing to sacrifice for it? And I think, you know, when you part with money, not just in a charitable way, but, you know, you may even hurt for the short term, that shows on some level an even deeper love or covenant that drives that love. And I think that’s important to force people out of their comfort zone to feel a little bit of sacrifice, you know, to show that love.

John Coleman: Yeah. You’re a father of eight. I’m a father of four. I think we both know that love always involves sacrifice. What a great point. But, you know, that does involve giving something real of yourself. And I think what you’re describing is exactly that. You live in this world of venture capital. Now you’ve got a view of investing broadly. Compare and contrast, if you would, kind of the dominant ESG approach to investing or social responsibility that you see out there right now with what you’re describing, because obviously I don’t know how it is in Israel at the moment in the United States, ESG has exploded, but recently it’s also become a bit controversial in terms of some of the ideas that it’s forwarding. And so we often get the question, you know, what’s the difference between faith driven investing and ESG? And in this case, you know, this covenantal capitalism that you’re describing, What are the differences and similarities with ESG as you see it?

MIchael Eisenberg: Oh, man, I think ESG is a grift. And it was a way for asset managers to aggregate asset and deliver subpar returns and not be criticized for it.

John Coleman: Tell us. How you really feel, Michael.

MIchael Eisenberg: Yeah, I think I argue this in the book. I can’t remember in which one of them. I think the first one, the one you have to life and prosperity. So, you know, these are all sorts of big words, ESG, everyone measures them differently. It’s not clear how they either impact the bottom line or actually impact society or create a better society. I laughed. You know, lemonade, which I think is not a pretty aligned business model, was rated lower than I think like Exxon. I’m a fan. Exxon do not missunderstand me and it’s like it’s a very poorly defined, even more poorly measured investment principle with no teeth other than making people feel good and no real underlying values other than kind of the new new thing of whatever somebody’s dreamed up is called environmental or social or governance. And I think we’d all agree that we all have different views of many of these social values. And so, you know, I’m personally a big fan of transparency rather than any of these other things. tell me, what you really think? Yeah, I’ll say something complex. You know, Ben Jerry’s I think it’s a very good ESG rating. I think they’ve been terribly anti-Semitic. I was happy to find that out so I don’t have to buy their products. And, you know, Unilever got hurt by it and they obviously somehow the s got okay there, even there. I thought they were terribly anti-Semitic know. I know it’s run by two Jewish guys. And so I don’t know what to make of ESG. I really think it’s just an unbelievable way for asset managers to collect assets and deliver subpar returns. Great marketing, by the way. Amazing. Brilliant marketing. There’s no covenants in it, though. In a covenant, they would have made sure that their investors made a lot more money, not less.

John Coleman: And I think, look, I saw a ton of elements of what you’re describing in my time in asset management where, you know, I think there are people who went into it on a mission. Some of those people I would disagree with the mission that they were on, but went into it with a mission and they’re still the true believers. But so much of this has turned into a commercial activity [….], as you described it, in the sense that once it became better to have the rating than not, once it became kind of a part of doing business to get the rating, people began to manipulate the ratings. The whole system kind of grew up to manipulate it. There was a great tweet by the ever controversial Elon Musk, like a year ago, a year or two ago, where he pointed out the same thing you did with eliminate, where Tesla was rated lower than some of the big oil and gas companies on the E part of ESG. And he said, you know, what kind of rating system could possibly come up with this if it were legitimately about what’s transforming the environment? And that was true, right? I love the oil and gas companies. I think oil and gas has a bright future. I think it’s been incredibly important for unleashing human potential. But hard to argue, you know, that Exxon would be better environmentally than Lemonade or Tesla, for example. I want to switch to what we call lightning Round in a moment, just to get to a few quick questions with you, Michael. But one thing I wanted to end on was also just to ask you a broad question. As you study the Hebrew Bible and you’ve got many close associates who are Christians, what are parts of the Hebrew Bible that you think Christians don’t dig deeply into and not for what’s a part of the Hebrew Bible that you would encourage all Christians to study more carefully.

MIchael Eisenberg: I want to make a meta comment first, if I can, which is and as I told you, I maybe I’ll give you a surprise. I have this idea that I think we need to do like a covenantal conference in Jerusalem about the future of capitalism. And yes, it should involve Jews and Christians and Muslims to think about, you know, what are the covenant of the future that will undergird our economic growth as peoples for the future. And I think the kind of meta comment is there is a lot of work to be done right now across different faith backgrounds, people of different faith backgrounds, to kind of reinvest in this covenant so that capitalism can kind of keep growing and as you said before, be the greatest engine of prosperity and of human advance that we know. And I think there’s a benefit to diversity of different religious experiences in creating that, you know, foundation for the future. And so the first thing I would actually say to what you call a Christian audience is that both the old and the New Testament, by the way, which I’ve read, I don’t study nearly as much as I do the Hebrew Bible, but I have read it. And you need to invest in Scripture to the extent we really believe that these are foundational principles, they should be read and reread and internalized over time. That’s kind of point 1 in the Hebrew Bible. I think one of the core elements that we need to kind of dig into is this notion of empowering our brothers and sisters through the economy. And I think that’s more present in the Hebrew Bible. Than it is in the New Testament, particularly in the Book of Leviticus and the Book of Deuteronomy, and then in some levels in the book of Jeremiah and Isaiah. And so I think that’s super important and I would dig into that. The last piece is we need to ask ourselves is people of faith in a modern world. Where are the areas that we think there are changes and where are the areas that we need to be steadfast? And I think one of the interesting things about the Hebrew biblical experience, which I believe is different from the Christian biblical experience, is the way the rabbis interpreted and reinterpreted. We have this notion of oral law, of essentially an evolving set of laws and applications for how we apply scripture through the generations as they become more modern and they change. And I think that’s actually something, although it’s not in the Hebrew Bible, it’s more in the Talmudic realm that is valuable for a Christian audience as well.

John Coleman: Well, Michael, this has been an extraordinarily helpful discussion. I love this idea of a covenantal conference, and so I hope you’ll count us in as partners on that if if you’re serious about it and if we want it.

MIchael Eisenberg: I’m very serious about it. I’m talking to someone. We both know about it. We’ll see if we get there.

John Coleman: Yeah. I would love to dig into this more with you offline before we close out today and maybe a more personal question, we ask everyone at the end of the Faith driven Ambassador podcast what God is teaching them right now through Scripture. So just kind of in your personal studies of Scripture, is there something that God’s teaching you right now in any realm that you’d want to share with others?

MIchael Eisenberg: So I have. Don’t take this the wrong way. I’m never sure what God is telling me or teaching me. What I can say is that the Bible and the thousands of years it’s been around teaches us to have a long term view. And I think in the social media era, most people have a, you know, 24 hour or ten second view. And I think the perspective given by biblical scripture tells us processes take time and we need to take a longer view of what’s going on in the world right now than what’s maybe under our nose are disappearing in a tweet from 10 minutes ago.

John Coleman: I love that. Michael Eisenberg, we’re very excited to see your new books coming out. We’re very excited about the investing that you’re doing through Aleph, which I’ve been mispronouncing for most of the podcast. I apologize.

MIchael Eisenberg: That’s okay.

John Coleman: We’re very excited to see the follow up on this covenantal conference and the development of this idea of covenant capitalism, and just so grateful to you for your willingness to share with us and for the positive difference you’re making in the world through your work in writing. So thank you so much for being on the Faith Driven Investor podcast today.

MIchael Eisenberg: Thank you, John. I want to commend you. I think it’s not obvious that you’ve reached out to people of other faiths, and I value our friendship and our meeting. And I hope, like I said, I’ll see you, your wife and your kids again in Israel soon or in the U.S. And I think, you know, the work you’re doing is special and important, and I commend you for it. It’s not trivial. So thank you. Thank you for the hard work you’re doing.

John Coleman: Thank you, Michael. And see you soon.

John Coleman: Welcome back to the Faith Driven Investor podcast. This is our monthly Mark’s on the Market podcast. I’m John Coleman, one of the managing partners at Sovereigns Capital and a host of the Faith Driven Investor podcast. And today we have a very interesting marks on the market focus on real estate, which has become a boogeyman in the markets right now, whether that be soaring mortgage rates, falling home sales, vacancies in office. There are so many things to talk about right now and also a lot of innovations happening in the way that faith driven investing happens in real estate. Led by two of the gentlemen we have on the podcast today. Our first guest everyone is familiar with, Ben Erskine was the founder of Callus Capital. After a lengthy career in real estate. He launched a fund one a few years ago and is now leading the real estate function with sovereign’s capital. And then alongside Ben, we have Tom Hahn. Tom Hahn founded a real estate firm called Prudent Growth in 2015. He’s now the president of that organization, which invests across the real estate markets, but with some interest, particularly in places like retail. And these two gentlemen have deep expertise in the real estate market. So we’re very happy to welcome you on. Tom and Ben, thanks so much for coming.

Ben Erskine: Glad to be here.

Tom Hahn: Thank you for having us

John Coleman: So I want to start at a very high level. You know, marks on the market is about just taking the temperature of an asset class or of markets. Right now. We’re filming this right at the beginning of July. This will air on July 10th. What in your mind is top of mind in real estate markets right now? Obviously, there are a lot of dynamics, but what are the headlines that you’re paying attention to right now? And Tom, we may just start with you, if you don’t mind.

Tom Hahn: Sure. Absolutely. So thanks for having me. You know, and we’ve primarily focus on neighborhood retail and smaller bay Industrial Flex and multifamily in the Southeast and the southern Midwest. So in our area, what we’re primarily talking about and what we’re seeing in the markets are obviously higher borrowing costs, which are having some, you know, pretty significant impact on the ability of buyers to get into a deal at the same kind of valuations they were achieving, say, 12 months ago. I think that we’re certainly seeing a lot of talk in the retail and industrial space around more of a bullish side around just very low vacancy rates. We’ve had very strong leasing activity and new construction certainly in retail, new construction is at like two decade lows. So you sort of have low vacancy, very little new construction. I think you’re going to have even less new construction with these higher borrowing costs, which are really hampering the ability of developers to get projects started. So we’re sort of cautiously optimistic. I think it’s a good time to buy. We like to say that if we can make a deal work at today’s borrowing costs, you know, we’re like six, six and a quarter percent on a lot of our debt. We’re really going to like the deal in two or three years when rates are moderating again. You know, we look at the yield curve every day. We look at the interest rates every day. And you can certainly see the pricing of the two years and the one year notes versus the five years. You know, you’re going to probably have a 200 basis point cut in rates in the next 24 months or so. You know, certainly that’s what’s priced into the market. So we think it’s a great time to buy and kind of get out in front of that and, you know, take advantage of some slightly higher cap rates.

John Coleman: Super interesting, Tom. And I know we’re going to circle back and focus on retail in a moment, because I do think the dynamics are fascinating there, especially given I remember four or five years ago retail was actually the big question mark in real estate from my experience. But before we dive in, Ben, what’s top of mind for you? What are you focused on at the moment?

Ben Erskine: Yeah, I mean, I’d echo a lot of what Tom said. Certainly the interest rate environment has done a lot to slow down transaction volume. We see volumes down, you know, 40, 50, 60% depending on the asset class, depending on the part of the country. So higher borrowing costs and just a little bit of dislocation or a bid ask spread is slowing down volumes and it is very much a kind of sector by sector analysis. You know, the kind of big, ugly gorilla in the room is office. That’s where fundamentally there’s been such a loss or uncertainty around where is demand really going in that asset class, what is the need? But in other areas, there’s plenty of brightness and hope around demand. I mean, we still think that fundamentally there’s a lot of support for the housing sector. You’ve got to be really thoughtful about how you buy. But we think that the housing sector still has fundamental support. And, you know, I think Tom will talk more about retail in particular. So, you know, it’s a tale of several cities now.

John Coleman: Well, I want to start where you ended then, because real estate is such a fascinating segment of the market and that it’s one of the few that touches everyone very personally. And I know neither of you is a residential housing investor necessarily. You’re not rolling up residential, single family homes, etc.. But I do think it’s relevant to the audience now to start there because it’s such a big segment of the economy. I read an article just this morning that referred to the real estate market for single family homes in the US as stagflation. Right now, you know, mortgage rates have risen. Folks are not selling their homes. There’s really a dearth of availability of existing homes in the market. We’ve seen new housing starts tick up. I think it was like 12% in the last month, just as developers are starting to build new housing. But we haven’t seen pricing coming down and we’re not seeing a lot of sales because mortgages are so high. Can you give us some insight into what you’re seeing in the residential housing market and what you think the next 12 or 24 months might look like? And then maybe since you brought it up, we’ll just start with you.

Ben Erskine: Yeah, I mean, gosh, single family home ownership affordability is so dramatically different today than it was, you know, a year ago when mortgage rates go from 3% to six and a half percent. That just changes things dramatically in home price appreciation. As you alluded to, home prices haven’t really adjusted and it’s largely driven by a lack of inventory. So it’s this funny thing going on in the market right now. You know, construction costs are still pretty high. Certainly financing costs are high, yet a lot of developers are pretty active because there’s such a shortfall of supply of inventory to buy that there’s room for new construction. It’s a funny dynamic, but all of that to say, you know, we’re more active in the multifamily space. We typically think that demand rises and falls for housing, driven by things like household formation, whether rental or ownership. But those two things really move in concert for the most part. But right now, you know, given just how difficult it is for new home ownership, we actually think it’s a support for rental housing, at least in the near term. So it’s a part of our thesis around multifamily housing investing right now.

John Coleman: Tom, are you seeing anything different there?

Tom Hahn: No, I would chime in and say 100% agree with Ben on that. I mean, a lot still depends on where you are in the country. But if you’re in, you know, the southeast, maybe the southern Midwest, some of the states that, you know, are business friendly, there’s strong household formation and strong migration patterns into those states or still a shortage of housing. And I think one of the challenges for the Fed is, you know, the occupancy costs, rent or mortgage are about 40% of the CPI. So it’s like every time they raise interest rates, they actually are then, you know, making it more expensive for people to buy homes, which means people tend to stay in rentals longer, which means there’s even fewer available rental apartments or homes to look at. And then that drives occupancy costs even higher. So it’s a bit of a vicious cycle that they’re in, and I think it takes a lot of time for that to work through the system. But we’re certainly seeing the same thing. I mean, we do have 11 or 1200 units of multifamily. We’ve been in and out of thousands in the past. But, you know, we’re certainly seeing rental increases that we can pass along that are, you know, quite a bit higher than where they used to be, especially when you’re in the Class B and C space where all of the new availability, all the new construction is obviously Class A, And so when you’re in small town America and you’ve got a suburban garden style apartment, there’s just a severe lack of that product, period, and nobody’s really making that anymore. So it’s an issue. It’s a tough one for people that have to live in more like workforce housing, kind of, you know, that lower income bracket. And they’re unfortunately really getting hit hard right now with rising rates and prices.

Ben Erskine: Just an interesting statistic, too, John. I think that I read it yesterday that more than two thirds of current homeowners have mortgage rates of less than 4%. Right. So you think about how far they have to come in before it makes sense to sell and relocate. That’s what’s tying up the inventory right now.

John Coleman: Well, what’s scary about that is it’s so far below the structural average. Over time, you know, 4% would be well below the average for mortgage rates if you look over a 40 or 50 year period. And so the question is really, do we actually get back to that level or does this just have to shake out where people normalize and a new set of rates?

Tom Hahn: And I’ll say to a lot of parts of the country, particularly in the southeast, in towns like Nashville or Raleigh or and Austin or Atlanta, you know, ten years ago you had a lot of just natural movement around jobs and like, hey, I need to spend more time now in Texas or California. I’m going to move, relocate. And with the hybrid work environment, the ability for people to work from home more easily, I think you’re definitely seeing I haven’t seen a lot of statistics on this, but just anecdotally, you don’t really have to move as frequently now, even if your job or maybe your manager you’re reporting to is bouncing around the different cities in the country. So I think it’s just a really interesting dynamic. And I mean, I don’t see any short term change to that.

John Coleman: Well, and I think we could see regional differences shake out. The other stat I saw yesterday that I thought was absolutely fascinating was for the first time in history, the. GDP of the Southeast. So kind of Texas over to North Carolina, down to Florida outpaced the GDP of the Acela corridor. So kind of D.C. up to New York, Boston, you know, forever. That’s been kind of the leading GDP area of the country. And now the southeast is actually greater in terms of GDP. There was $100 billion switch during COVID with people migrating. And so, especially in the Southeast, it’s just been this boom. And so I could definitely see a situation in which the segments of the U.S. just diverge in terms of the dynamics that we’ve been talking about. One thing I’ll touch on briefly, just because I know, again, it might be relevant to some of the folks listening, even though it’s not quite a focus for you all. I find it fascinating. You know, during COVID and shortly thereafter, there was a boom in the sale of second homes. People who lived in New York or who lived in Atlanta went and bought homes in rural areas or in New Hampshire. You know, all these places. And there was a boom in Airbnb, right? Because over the last five or six years, VRBO, Airbnb became so easy that there was this huge cottage industry in that. And Ben, you and I both saw yesterday Airbnb released results for I think their revenue is down 50% or something of that nature. You know, as we think about housing supply and what might happening with dynamics, obviously with those collapsing, you could potentially see a scenario where these Airbnb VRBO owners begin to sell or try and get out of properties because they can’t make the mortgage payments anymore or people just abandon the second home idea. You know, they thought, I’m going to go live in Vermont instead of staying in New York or staying in D.C.. And maybe that reality is not quite what they thought it was. And so I didn’t know if you guys had any perspective on whether you think that might be taking place. And if so, does that have a meaningful impact on the market or do you think that’s pretty marginal?

Ben Erskine: Yeah, I’m happy to jump in for a second, Tom. I know that’s not where either of us spend most of our time, but I did read a lot about that same stuff and have been over the past month or two. I think the article yesterday suggested that some of the worst hit markets have seen 50% declines in revenue. Not necessarily sweeping. Yeah, but still significant. Yeah, and plenty of markets that were, you know, 25, 30, 40% down. And I think that it could be interesting. I think it’d be easy to conclude that, hey, there’s going to be this glut of inventory that comes back on the market because the model doesn’t work anymore to hold it as a rental. The last number I saw was that I think there’s about a million and a half units of those kinds of rentals around the country. So even if ten, 20, 30% of those come back online, I don’t think it’s a major flood of inventory in the market, but it will be interesting to see. And then, you know, the reading that we’ve done and the research that we’ve done into the short term rental space, fundamentally in the right markets, it is a really attractive option in particular for families or groups that are traveling economically. They can usually just a short term rental or an Airbnb or their competitors can offer a home or three rooms or five rooms for a much lesser cost than you could get in a traditional hotel. And so I do think that there is a segment of that demand that’s not going anywhere. But it was certainly on fire through COVID for obvious reasons. And maybe the second and third home rentals will temper.

Tom Hahn: Yeah, I was just there real quick. I’d jump in and agree with that. I do think to me, that’s the canary in the coal mine that I kind of like to watch is at what point do people start to say, I’m so financially stressed that I love having the beach house and mountain house, but let’s just see if we can dump it. And we do talk to we have a decent network of some of these brokers. And, you know, I look at people that list houses up in coastal Maine and down in Florida and in the coastal areas of Carolina. And it is still interesting and the demand is still really good. I mean, houses are hitting the market and they’re getting viewings and they’re selling. But yeah, you do wonder how long will that persist if rates stay this high? It is a very expensive luxury. Good, you know, for sure.

John Coleman: Yeah. I will say just this for you then. This is not a promotion of any stock or anything, but I’ve got a family of. I’ve got four kids, basically. So we’re a traveling army whenever we go anywhere, and they’re often in-laws staying with us. And I don’t think we’ve stayed as a family in a hotel in probably five or six years for exactly what you said, because we don’t want the kids down the hall. They’re young, you know, we want them kind of in a contained space. So that innovation in the market has been really positive for us. But I can also see how it’s kind of probably gone a bit overboard over the course of the last couple of years. I want us to now dig into a couple of topics that I think are much more central to the models of prudent growth and of your strategy. Then want to start with multifamily housing. You guys have both touched on this right now. I know it’s something you both pay close attention to. You know, there are competing dynamics here with rising rates, with rising rents, but also with this structural housing shortage. What do you think is the. Near-term outlook for multifamily housing and what are the risks and opportunities that you’re paying attention to right now?

Tom Hahn: Well, I’ll jump in first, and I know Ben’s going to have some additional perspective on this. I mean, big picture, kind of the two city kind of theme or the best of times. Worst of times. There’s a huge difference in my mind between urban and rural, no matter what the product type is. We’re talking about kind of urban. Suburban, I guess, is a better way to say. I think that there’s a big difference in apartments between class-A new construction, which tends to be the highest price point. Right. And more existing Class B B minor stuff. And what we talked about like a Class B picture, like the suburban apartment building that was probably built in the nineties, maybe the early 2000 is the way, say, apartments used to look before now. And everybody can picture this, you know, their four stories, flat roof kind of modern looking that might have retail on the ground floor and apartments up top and and a parking garage you know kind of built into the structure. So you’re seeing these pop up all over the southeast, whether it’s Austin, Atlanta, Raleigh, Charlotte. You know, I think the risk is a lot of these developers and a lot of these guys that were buying maybe early 2000 vintage deals and pumping tons of money into them to improve them, or in the case of developer to complete the construction, they utilize bridge financing. Right. So you would typically get a three year loan with a couple of one year extensions and bridge was ridiculously inexpensive. The 12 to 18 months ago, you know, you could borrow at three and a half or 4%, maybe a couple hundred points over LIBOR and lock that in for three years by an interest rate cap. And you know, on a $30 million project, your cap would be a few hundred thousand dollars. And as that debt is now starting to come due, if you have not executed very quickly on, let’s say it’s a value add deal, if you haven’t gotten in there and really significantly invested in the asset boosted rents turned over units, your interest rate costs are skyrocketing. Those same caps that you could buy for two or $300,000 are now, you know, 2 to $3 million. And your monthly debt service is really going to be strong. So, you know, I don’t think we’ve seen the full impact of that yet. But I do think you’re going to start to see guys having to get out. There was the big story in Texas, right, The 3200 units that kind of got given back. I think that operator had some significant issues beyond just, you know, the interest rate environment. But, you know, he bought a ton of property for absurdly low rates and did not do any real value add. And as the rates were getting ready to reset, I mean, you know, it just didn’t work. So you’re going to see good operators separated from bad operators, guys that were able to get in there and improve and drive rents higher and OI higher. You know, I think they’re going to be okay. But yeah, I don’t think we’ve seen the full impact yet of these higher rates. But I mean, I think that what’s happening now is the cap rates on the new stuff, particularly in some of the cities where there’s a little bit of oversupply, they’re starting to widen out. Right. So, guys, if you got to get out of a property, you’re going to sell to a five or five and a half cap. The stuff that was trading at a 4% cap rate, which for your listeners is simply the net operating income divided by the purchase price. And now that’s going to ripple into the suburban market. So you’re going to say, well, if I can buy downtown Charlotte at a five cap, do I want to buy a suburb of Charlotte like, you know, 30 minutes outside of town at a five cap? I think I want to get a six cap for that or a six and a half cap for that. You know, so we’ve certainly started to see pricing improve. But an old friend of mine told me one time, if you’re going to catch a falling knife, you really need to grab it by the handle. And I don’t know if we’re quite there yet on a lot of the suburban stuff, so we’re sort of taking more of a wait and see approach. On acquiring more multifamily. I think next year is going to be a really good year to be a buyer.

Ben Erskine: Yeah, I mean, I won’t add a whole lot to that. I think that Tom speaks to it well. We’ve been really, really patient, really slow to deploy over the past, you know, really 15, 18 months now, you know, kind of reading the writing on the wall early last year and then certainly have felt like there would be an opportunity on the back end of everything that’s happening. And it’s maybe been a little slower than we thought it would be to kind of be realized. I do think that there’s patience. There has been some patience on the part of lenders, Right. A lot of lenders have said, hey, fundamentally, we do see the support here. We do see the [….] growth. We understand that debt service is going to eat into a lot of that. But if we can kind of get through the woods, we’d rather not take possession of the asset. Right. There’s been some patience. How long that will last, I don’t know. But I think, you know, putting it simply, there will be a separation of good operators from some operators that have just hopped into a market that was benefiting from constantly compressing cap rates for a decade where, you know, you could kind of limp through a business plan and make it work. That’s not really the case anymore. So we do think that there will be really good opportunity probably in 24 a lot of it in 24 maybe. And in the 25 as well.

John Coleman: Hey, Ben, before we leave that topic, I know that this is the faith driven investor podcast. And I know that one of the things you’ve been so great about doing and perhaps you as well, Tom, is pioneering this spiritual integration within multifamily area. Could you talk to us, apart from the financial dynamics of multifamily right now, what are some of the opportunities for faith driven investors for spiritual integration in multifamily that you’re seeing emerge?

Ben Erskine: Yeah, I mean, there are groups that have been doing great work for a long time. I think we’ve discussed groups like Apartment Life in the past, which is a not for profit that partners with the owners of apartment buildings and is really tasked with developing community right point into the fabric of community, ultimately using that to develop relationships and just have an onsite presence that’s pretty distinct relative to a lot of property owners. And ultimately that accrues to the business plan because you know better community translates to better retention, often better attraction of tenants. They’ve got some incredible statistics. You know, a tenant with deep relationships in their apartment building is between 30 and 60% more likely to renew their lease. And reducing turnover is such a driver of margins in apartment investing. So that kind of stuff has been happening. I mean, things that get us really excited are starting to see creative applications in other corners of the housing market. You know, senior living is an example. How is that market of tenants and community members different and what would loving on those folks look like? How could you be kind of curate a plan around an assisted living in a memory care community that looks different than an apartment community? And on the other end of the spectrum, what about student housing? Right. There are some really cool opportunities in student housing. On campus, Off campus. Pouring into the lives of those students with the same heart right. And it can all accrue to the benefit of a really excellent business plan. Those two things can can work together.

Tom Hahn: Yeah, and I’ll chime in and 100% agree. I think what we’ve tried to do is so we recently expanded our staff and brought on several people that are really tasked with community engagement events across all of our holdings. And you know, on the multifamily, we tend to own more of these kind of B, B minus properties. So we call that like workforce housing. It’s not really affordable like, you know, voucher or section eight, the older models like that. But you know, you have a lot of families, have a lot of people that tend to stay in place for a while. It’s difficult to attract like an apartment life model works a little bit better in newer products. That tends to be where their teams would prefer to live, you know, But we’ll go down and do food trucks, we’ll do backpack. We partnered with the local school district down in Tupelo, Mississippi, on a project we have there and gave out a lot of backpacks. And it was really cool, you know, And this little girl comes up to Jason Autrey, who runs like an engagement and said, why is this backpack so heavy? And said, oh, you need to open it up and look inside and there’s notebooks and stuff. And she was just blown away. And, you know, we’ve had residents come up and pray with us and just talk about how the other owners have never done this before. A lot of it is just how you do your business, you know, just taking care of things the right way. It’s very easy to slap a band aid on a problem or take a shortcut. And a lot of these operators just want to get in, improve and get out, and then they leave behind a lot of, you know, half fixed things. And residents that have just been residents have come to expect that their stuff’s not going to get fixed. And when we can come in and do it the right way the first time, which I think is our call to do as part of loving the poor and working for justice, you know, it leaves a big impact. We’ve had residents reach out to us even while we’re raising rents and say, I’m proud to live here now, and they don’t want to move because they’re worried they’re going to go down the street and, you know, try to save 30 bucks a month on their rent. But going to be back in a situation where stuff’s not fixed. So, you know, it’s a real holistic approach.

John Coleman: That’s awesome. And producer Joey has reminded me that we should engage in some shameless self-promotion here and that the faith driven investor website has a redemptive real estate series live on video in the library right now with the stories of places like Launch Capital, Walden Fields in the Marsh Collective. And so if you’re interested in this topic, apart from the expertise of these two fine gentlemen here, there is an entire video series where you can delve into this more deeply, Ben, I think you want to do jump in with the closing work.

Ben Erskine: Yeah, you know, I was just going to chime in and brag on Tom and PDP Prudent growth for a second because he won’t, you know, the work that they have done. He and he mentioned Jason Autry is really innovative and exciting in terms of how they’re viewing retail real estate in a way that has really been pioneered already in multifamily. Right. So what does community investment look like in a retail center? It looks different than it does in an apartment building, But when you’ve got, you know, the nail salon and the coffee shop and. A local restaurant and the Taekwondo studio, and you’ve got people coming in. Can you hold an event there? Can you invite residents and community members in? Can you love on them in a distinctly Christian way? It’s really exciting to just think about the way that they are pouring into the lives of these people, investing socially and spiritually in retail, real estate. They’re leaders in the space.

John Coleman: Let’s stay on this topic for a minute on retail, because I remember pre-COVID in my old firm when we were talking about real estate. The most frightening area of real estate was retail, right? The big trend or one of the big trends everyone was talking about was the collapse of retail. People don’t go to malls anymore. They don’t go, you know, they don’t go shopping in physical stores. There was the rise of Amazon, etc., and all the skepticism about retail. Let’s stay on that topic, because, Tom, I know you’re deeply now, what does that look like now? Is that still the case or have those dynamics shifted? And then I would love to hear more of your insights on what Ben just mentioned, how retail can actually serve a redemptive purpose in development.

Tom Hahn: Yeah, no, thank you. You know, retail has been I’ve invested in retail for 20 plus years, both personally and with prudent growth since 15. And you always feel like you’re the underdog trying to convince people that, hey, we can actually do this and do this profitably. So, you know, you don’t get the respect right that the multifamily and the industrial guys get. But it’s been very interesting. I mean, I think that going back over 20 years leading up to the great financial crisis of 08 to 10, we were building in this country a little over 200 million square feet of retail every single year. I mean, it was I think we had a huge amount of oversupply. Everybody was building strip shopping centers, grocery anchored centers, and in 08 that really fell off the cliff. Right. And I think we dropped like 40 million square feet and 50 million square feet a year. We kind of recovered, got close to a hundred, but we’re back down now. Last year, according to Costar, we delivered the least amount of new constructed retail space in over 20 years. And I think what’s happened is household formation. You know, people continue to move to the suburbs and we’re that supply demand imbalance has really started to correct. So we now have the lowest vacancy rate that we’ve had in 20 years. COVID, we like to think about the fact that we’re buying a shopping center in small town America in a secondary tertiary market. You’re really buying the community where people go. So if there’s a Walmart and you’re buying the Wallmart […….] center, which is, you know, typically in the parking lot of a Walmart, there’s a shopping center, right, with like a great club and a pizza place and so on and so forth. You think about small town America, particularly in the Southeast. I mean, that’s where you go to get your kid’s first haircut. That’s where you’re going to grab and get lunch. You’re going to stop by the bank. You’re going to you know, you see your neighbors. You know, it’s a that is an activity that people will continue to do with or without Amazon. And during COVID, obviously, COVID was scary at first with this is it, you know, it’s over. And I’ll say real quick, the crazy thing about COVID was leading up to COVID. We all wanted to buy stuff that was Amazon proof, right? There was Internet resistance. So that meant what? Gyms, restaurants, service based stuff as opposed to people selling things like a clothing store and then boom, all that stuff got shot down during COVID. There was a little tough sledding there for, you know, 4 to 6 months. But coming out of that, what all of a sudden happened was everybody stayed home. So suddenly, suburban retail has real and there’s lots of articles on this. The Wall Street Journal had some great reporting on just the return of the open air shopping center, the neighborhood strip centers. So lots of different names for them in the suburbs. Right. And there’s a real disconnect now between urban core downtown where, you know, you still have 25, 30% vacancy and the offices. And it’s a big difference. You don’t want to own a sandwich shop in the lobby of a 40 storey building in San Francisco. But you’re quite happy to own a sandwich shop in a suburb of Charlotte, let’s say. So we’ve seen really strong foot traffic. I’d say our leasing activity has never been stronger. We have about 45 retail shopping centers in ten or 11 states right now. When you say 600 or so tenants and our vacancy rate is less than 5% and some of it’s planned vacancy because maybe you had to carve out a space to put a tenant in and you have this straggling 500 square feet that’s never really worth finishing out. So our true vacancy is very, very low. So we like the dynamic. And getting back to the spiritual integration model, like Ben said, we love knowing that if we’re going to own a shopping center in a community, we want to try to bless that community right on back to like Jeremiah, working for the good of the city. It’s like, Hey, I own this thing. How do you do that? And we found it’s a combination of reaching out to tenants. A lot of our centers, we might have a church, we might have a, I don’t know, a consignment shop that’s linked with a Christian ministry or just a general secular ministry. You know, if there’s an entry point like that, we’ll try to springboard off of that. Say, Hey, do you guys want to help, too? We want to help to underwrite and host a community day. Bring people out or a sidewalk sale or We have like a youth theater. It’s run by a Christian family moving into a center that we own outside of Hilton Head. And we’re going to be grand opening down there for them. Like roll out the red carpet, welcome them. The other tenants are excited about it, you know, so they’ll participate. And there’s lots of interesting conversations that come up when you start to do that. So the tenants love it, the community loves it. We make great relationships with important people in the community, right? Whether it’s a planning board or we’ve even had lenders come to us. This was kind of blew me away when you thought about this. But we do borrow from banks and some of the local banks. They like that publicity, right? So they’ve come and offered to underwrite the cost of the event. We got financing on a property outside of Virginia Beach terms that were probably 50 basis points lower than market because it was a credit union and they saw what we were doing to some of the brothers centers and they said, We want to lend to you guys. So anyway, it’s a virtuous cycle, which is what you would expect if you’re doing the right thing. You know, it kind of comes back around. So, yeah, that’s our feeling.

John Coleman: That’s an awesome overview, Tom, and a very rosy picture in the spirit of going now apocalyptic. Let’s bring up the elephant in the room, guys, which I think everybody’s concerned about, which is office. You know, gosh, between the interest rate environment and the fundamental dynamics of rising remote work, hybrid work, you know, people borrowing at very low rates, which are now resetting even as vacancies rise. I have seen some absolutely terrifying predictions about the office market. Then maybe to start with you, what is your outlook for office? And are things quite as bad as people are characterizing them or is there some hope on the horizon?

Ben Erskine: Well, first, I just want to say thank you for letting Tom talk about wonderful things in retail and spiritual integration. And I get to talk about the apocalypse in office. This is fun. Yeah. You know, we’re not active office investors at this point anyway. I’ve spent a lot of time in the office sector in my previous career, and I think it is it’s going to get a lot worse before it gets better. I think Tom mentioned on the front end that, you know, vacancy rates right now across the country are north of 20%. And that’s what I’ve been reading as well. The way that most office leases work, at least the big chunky ones for corporates, is there long dated write these are five, ten, sometimes 15 or longer year leases. And so, you know, when a big corporate user has a lease expiration in 2027 and realizes that they only need about half their space, they might just punt that problem to the lease expiration. And so there are big chunks of underutilized office space that will hit the market in the coming years based on those long dated leases. There’s a lot of pain yet to be felt. Fundamentally, I don’t know how this corrects. It’s very difficult to redevelop most office space to other uses. You know, a lot of people think, well, just convert it to housing, right. And kind of hand it from the left hand of the right hand. But the reality of those floor plates, the reality of that construction and the support systems for the building, it’s just very, very difficult in nine out of ten instances to convert. So I don’t know exactly where that is going. There are bright spots, right? Not totally dissimilar from what Tom talked about in retail. You know, you get into some secondary markets and smaller office buildings and there’s tightness, right? Small users that are now obviously in close to home. There are some bright spots. But by and large, you know, I think that the 20% number across the country is going to continue to go up for a little while. I think that urban cores like, you know, downtown San Francisco, downtown Chicago are going to be in a tough spot for a while. I mean, it’s hard to understand exactly how that corrects. Valuations are down dramatically.

John Coleman: When it does feel like they’re going to be massive winners and losers. To your point, and I’ll invite Tom into this. But, you know, you think about tech oriented cities like San Francisco that also have major city problems right now where people are moving out where there’s crime. It’s tough to understand who’s going to occupy all that office space in downtown San Francisco right now. And even in Atlanta. My observation would be, you know, Atlanta is a pretty booming market. There actually is a little bit more return to work than in some major metropolitan areas because Atlanta was shut down for less time than a lot of major cities. And there weren’t commute problems as there were in some of the big metro markets like New York. But there are winners and losers. When we were looking for office space, I go to some complexes that were 96% occupied and it was very vibrant and everybody wanted to get in. And then I’d go into some buildings where they would tell me their occupancy was 50%, you know, because that’s what the leases covered. But there was no one in the building. It was a ghost town. I would have guessed maybe 5% of people were actually. In the building. It was almost haunting to walk through to see how empty they were.

Ben Erskine: And there was a pre-COVID trend right there, kind of the arms race, the amenities race. Hey, tenants want to be in the new class a building with the sweetheart amenities and the gym and the, you know, the conference center and kind of a concierge service. I mean, there was an arms race of the best amenities. And I think that continues post-COVID. If you look at where net absorption is, again, broad strokes around the country, there’s actually been positive net absorption in class, A space like the tranche of buildings that were built after 2015 has had something like 100 million square feet of net absorption. But everything that’s dated earlier than that has had hundreds of million square feet of negative net absorption. So it’s there is kind of a traunching of quality and a flight to quality.

Tom Hahn: Yeah. And I’ll chime in. It’s a bit like once again, the suburban versus the urban, what we’ve found because we just got some new office space in Charlotte. We have seven people staffed out of there now. And you know, it sounds a little bit, John, like your experience. I mean, we were looking for space. When you look at a smaller space, you want to be walkable and kind of a nice part of town and you want to have inexpensive parking. Those spaces are still pretty much leased up. You know, there’s not a lot of that type of product out there. When you think 20,000 square feet of space in a 40 storey building in downtown, there’s going to be more of that. And I think workers want to live. They want to work near where they live. They want an easy commute, they want easy parking. Anyone can walk outside. So these cities, these downtown districts have the crime problems. They’ve started to lose some of their businesses. And then that’s another headwind now that they’re facing, like who wants to work downtown if like half the restaurants aren’t really open and it’s not like a cool, fine hip place, whereas like the south end of Charlotte, like booming, you know, Buckhead and areas like that in Atlanta are booming. So it’ll be interesting to see how it works out. And I agree, Ben, you’re right. I mean, the repositioning, you know, prewar buildings, I think one of the big things is do the windows open or not? You can’t really make an apartment if you don’t have it’s code violations. So prewar stuff, Yeah, you might be able to renovate that into, like lifestyle housing or apartments or hotel use. But all the new stuff with the fixed glass sides, there’s really not much else you can do with that. So it’ll be interesting.

John Coleman: Well, I know we’re coming up on the end of our time here, so we’re going to do two more questions We always end with what are the two of you learning through scripture that you’d want to share with folks before we do that, maybe a concluding question. We haven’t touched on industrial, we haven’t touched on a couple of other areas. Anything else that you’d highlight right now is an interesting dynamic in real estate broadly or potentially an interesting opportunity for those listening. And Tom, maybe just start with you briefly.

Tom Hahn: Yeah, I’ll say real quick, because I tend to be a glass half full kind of guy, but if I had to be, you know, just fair to the other side, I still think that we don’t know if we’ve seen the end of the banking crisis and the impact on lending. We’ve been a little bit saved in our space by non-bank lenders like insurance companies. Life goes are very active lenders on the kind of thing that we’re purchasing. But it would be I think your downside scenario would be there’s continued stress in the non systemically important banking sector which could really ripple through a lot of small town America and secondary markets. And I think that if you see a continued I mean banks are starting to lend again, but their rates are not very attractive and they want to see you put substantial deposits into their bank in order to get a loan. So, you know, most people are bypassing that because there’s still other avenues for borrowing. But, you know, that’s a potential risk is something we think about. Industrial real quick. Just we love industrial. We do prefer smaller pay multitenant kind of stuff as opposed to like, you know, 120,000 square foot single tenant warehouse. But there’s still pretty good demand. But even that is starting to soften just a little bit. It’ll be interesting to see. A lot of people have been building that for a long time and we might need a year or two to absorb the stuff that’s been built. But I still do believe that, particularly with the smaller base stuff, contractor stone and tile guys, carpet guys, they need the showroom or their offices in the front and the warehouse in the back, and we don’t really see a significant letup in that type of product right now.

Ben Erskine: Yes, built on that. I’d just say two things. One, kind of thinking about industrial, I think there’s six or 700 million square feet of industrial space under construction right now. So the supply keeps coming. To Tom’s point, the bulk of that is big. BLOCK industrial, right? These are quarter million, half million square foot developments that were supporting some of the major logistical needs around the country. That’s a very different part of the market than is small bay kind of flex industrial space, which as we have seen, continue to stay pretty strong even in the face of some softening kind of broad based industrial demand. And then the other thing I would highlight, I alluded to it earlier is just senior living. We think that when you look at the demographics go forward, you know, the population group over the age of 85 is going to double yet again. By 2040, it doubled from 2000 to 2020, it’s going to double again. And so we think that senior living is going to be well positioned in the decades to come, in particular, assisted living and memory care. It got hit hard during COVID and is still digging out of that hole a little bit. But we think that there’s some opportunity there.

John Coleman: Well, guys, this has been a fascinating discussion of real estate dynamics. I think real estate is one of the most interesting assets in the world right now because of all the dynamics we’ve talked about with interest rates, with the COVID fallout, with a number of other things, structural housing shortages in the U.S.. To conclude, The faith driven Investor podcast, maybe just a circle to spiritual matters, which we always like to do. We like to ask you just if there’s anything you’re learning from Scripture right now, even apart from real estate, that you’d want to share with our listeners. And Tom, maybe we’ll start with you, but is there anything on your heart right now that you’re learning you want to share?

Tom Hahn: I think I’ve been doing a deep dive over the last year or so into kind of anxiety and stress, and how do you manage that? Curtis Chang has a great new book. For those of you familiar with his work over at Good Faith podcast on Anxiety from a spiritual perspective. And you know, when you’re an entrepreneur, when you run a real estate, there’s always something to be anxious about, right? I mean, are the rents getting collected? Is this problem getting fixed? Like, what am I doing? What I like to do is read through the Psalms and really try to zero in. I recently read and really meditated on Psalm 91, for example. And when you see these great Psalms of David and references like Psalm 91, verse four, he will cover you with his feathers and under his wings you will find refuge. His faithfulness will be your shield and rampart. You know, one thing I’ll try to do when I’m mentoring and talking to young entrepreneurs is say, like, you need to learn to personify those types of writings, right? And reflect on the market forces are the, you know, the things that are coming up against you and how are you going to respond to that? And just like in the Old Testament times returning to Jehovah, you know, the Lord, your God will be your refuge and your strength. And so I often think about that and pray about that when we’re dealing with difficult issues and difficult stressors that come up. And I find that it really helps to alleviate some of the anxiety and the stress and kind of re ground you and remind you why you’re doing what you’re doing and that, you know, this too shall pass and we just try to do the right thing and push through.

Ben Erskine: Yeah. There’s a book I read about a decade ago called Anxious for Nothing by Max Lucado. It’s pretty good in that direction. And I’ve been reading through First Kings, and it’s bigger than just real estate. But there’s a passage where Solomon is just praying for wisdom and discernment, and that’s a prayer that is not unfamiliar to me. But it hit home when I was reading that this week. If there’s one thing that’s helpful in real estate in life, it’s wisdom. And so just pursuing kind of faithful, godly wisdom consistently is something I’ve been thinking about a lot now.

Tom Hahn: And John, I just want to give a shout out to Ben. He gave a nice shout out to me. But I will say that Ben, the work of the faith driven investor movement in particular and sovereigns capital, and there’s a lot of overlap there to encourage us. You know, Henry and I have talked about this for years, about how do you think about a spiritual impact around a nonresidential investment. And, you know, when we brought on Jason and the work that we were doing, I mean, Ben’s team was encouraging and really was a great resource for us to start to think about how do we do this, how do we do this well, how do you kind of measure things? So, yeah, we’re very, very happy that you guys encouraged us to take some more significant steps in that direction. So thank you.

John Coleman: Ben Erskine’s a pretty good guy. I would agree with you to say, well, listen, Tom Hahn Prudent Growth, Ben Erskine Sovereign capital. We are so grateful to you guys for coming on and sharing today and hopefully we’ll get you back in a rosier time. On Mark’s in the market in six months or so, we’ll all be able to talk about how there are better times ahead. But thank you very much for coming on today and for speaking with our listeners.

Tom Hahn: Thank you.

Ben Erskine: Thank you so much.

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman and this is our monthly marks on the Market series where we talk to experts in investing. Coming from a Christian perspective who can comment on current events in markets today, we have a very, very special episode and a very special guest. Finny Kuruvilla is with us today. Finny is the co chief investment officer and founding member of Eventide Asset Management with a couple of partners with whom he founded the firm. Eventide is a long standing member of the faith driven investing community, although they do a variety of different investments in both private and public markets, Finny has more degrees than I could possibly capture here, including MDs, PhDs and master’s degrees from a variety of awesome institutions like Harvard Medical School, Harvard University, MIT and Caltech. And he’s a leader in health care investing as well as broader investing. Finny, thanks so much for being on today.

Finny Kuruvilla: Great to be with you, John.

John Coleman: Well, I want to leap right in. We’ll get a chance to dig into more of your background later. But everybody’s been kind of whipsawed by markets over the last year. It’s been a pretty volatile time in markets, and I don’t think that health care investing has been any different. What is the latest? What’s the current state of the markets in health care investing now?

Finny Kuruvilla: Yeah, you’re right, John. It has been very challenging for markets broadly and in general. One of the things we’ve seen is that more interest rate sensitive domains in the market have been especially hit hard. So that tends to be domains that have growth farther out. So more high innovation, high financing type industries have been punished. And so that definitely includes aspects of health care. So one set of health care companies that has been especially hit hard is biotechnology companies. So they tend to be long duration. So most of the value is and many years from now, they also have high capital needs in terms of financing. So they often have to go to the market to raise more money given that they’re usually not profitable. So those have been challenged. There have been some bright spots in the middle of all of the difficulties. So in general, one of the things that we’ve seen is that cash flow positive companies have done relatively well. And so, for example, a lot of small medtech companies have done exceptionally well. This has been a great year for M&A. We can talk more about that. So we’ve seen a lot of companies appreciate on the back of very robust M&A from the larger companies. And then we’ve also seen domains like cancer screening do really well, Alzheimer’s disease, which has been something that has become a passion project for us here, has been another area of significant growth. So there has been some bright spots in the midst of what’s been a challenging market. And overall, we think that the long term drivers are positioned really, really well for health care. And so we continue to be excited about the space.

John Coleman: When you mentioned the duration of biotech investments and especially innovative health care companies that require a lot of capital and how they’ve been sensitive to markets recently, particularly, I imagine, interest rates and just the M&A markets having previously dried up. I’m interested to get into that. If you were to take a look today, do you think the air has been let out of those markets so far from a macro perspective, or do you actually think the macro environment still has more room for these securities to decline?

Finny Kuruvilla: Yeah. So generally speaking, those companies have had the stuffing knocked out of them to the point where they’re priced at very low valuations. And the typical company and especially in the biotech side, has declined somewhere in the 50 to 80% range. So it’s taking a very significant hit and that began a little bit more than two years ago when we’ll talk about this probably later. But when some of the covid enthusiasm went away, there are a few areas where some companies still look a little expensive. But I would say, broadly speaking, the industry looks very cheap. And if you use long term measures of is the industry expensive or is it fairly valued? It certainly looks fairly valued. One of the things that’s challenging in our space is how do you value companies where you can’t use price to earnings or price to free cash flow or EBITDA, but are some of the more classic measures of valuation given that most of them are not profitable? And so you can use measures instead like enterprise value divided by cash on the books. So that’s a measure of roughly how much enthusiasm there is in the space. And of course, you have to look at burn rates as well to make sure that you’ve normalized there. But on those measures, for example, last summer was actually an all time low in the space in terms of valuation. It’s gotten a little bit better since last summer. But on the whole, I would say that the companies are valued quite inexpensively.

John Coleman: And you touched on this previously. Look, I think most of us have the perspective that health care has pretty good fundamentals. Right now, broadly speaking, in the sense that it’s a greater proportion of us spend, at least internationally. It is. If you think about biotech and if you think about some of the areas in health care in which you’re focused, obviously markets have disconnected, but have you seen any change in the fundamental forward outlook for the companies themselves or for the industry? Or is that still universally positive as health care continues to increase?

Finny Kuruvilla: Yeah, in general, it’s gotten quite a bit stronger for these companies. So I’ll give you a few examples of what are the leading indicators of health for these companies. So the first is the demographics of the population. So one of the things that I think most of us know is that as you get older, you tend to use a lot more health care and those last 1 to 2 decades of your life use a lot more health care than you’ve used in the earlier younger portions of your life. And I think as almost everyone is aware, the world is getting a lot older where a lot more of a gray haired society. Last year was the first year in history that China’s population actually declined. Even in Western Europe, Japan. We’re seeing tremendous shifts in demographic structure there. So that bodes very favorably for the industry and that is likely to continue for years, decades to come. That’s number one. Number two is there has been tremendous technology innovations that have occurred in the last few years. I was a practicing physician up until roughly 2006 or so. And I look back at how we were treating patients, particularly with some of the diseases that we used to see, and it almost looks primitive. Just 20 years ago, what we were doing compared to what’s happening today, I mean, if you had told me in 2023, these are some of the therapies and how they’re going to be used, I would have said, sounds a little sci fi to me, but it’s happened and the pace of technological improvement has been just astounding. So just to give you a little bit of a flavor for this, when the human genome was first sequenced in roughly the year 2001, it cost about $3 billion to sequence that first individual, and it took roughly 12 years. So $3 billion in 12 years. Today, you can do that for less than $1,000 and it takes less than a day. So the costs have shrunk from 3 billion to less than a thousand. And then what used to take 12 years. Now it takes less than a day. And that pace of innovation far surpasses even what, for example, we’ve seen with Moore’s Law and semiconductors and computers getting faster and being able to have more memory on board. And that kind of just incredible gain in technology and then knowledge in terms of what are the parts of our genome that are responsible for health or disease. We have grown literally exponentially in the last 20 years or so, and most of those discoveries have yet to make their way into medicine. So there’s a lag of at least ten years or so between when someone comes up with a good idea before when it’s actually used in human populations. And so this kind of technological improvement is just incredible. And we are we’re right on the cusp of what promises to be a very exciting century of innovation. I sometimes say that we humanity in the year 2100, so most of us sadly will be dead and gone. But our grandchildren in the year 2100 will look at us today in terms of our health care, similar to how we look at cavemen who are using leeches and spears to slash their bodies for health care. Right. That’s going to be the degree of of improvement that happens in this century because we still, you know, even very basic questions like, you know, how does memory get made and stored? What is really the sustenance and the genesis of cancer? How do we really understand autoimmune disease? You know, we still don’t really understand at a deep level what causes those disease. And so we’re in this place now of how can we take these little seeds of insight that we’re getting from these genome studies into being real actionable therapies that can be useful in human populations. And so it takes time to develop that. And that’s going to be what happens over the decades to come. And so that shift to these more high tech type therapies using some of these insights from the genome technologies is what’s to come. And that’s only going to be accelerated. By, for example, AI which if we have time, we can talk about some of that. But another tremendous tailwind that the space has is we have more and more economies coming online that have the ability to access modern health care. And so you look at India, for example, that is slowly but surely starting to become more of a modern economy with access to something like what we have in the US. I mean, we’re talking about, you know, 1.4 billion people coming online. This doesn’t even count. For example, countries like Africa, a lot of Latin America that still really doesn’t have access to the kind of health care that we do in North America. And so that’s another tailwind now where we’re talking about massive populations. They’re going to be coming online in future decades. And then you layer on the fact that the diseases of, let’s call them addiction. And so this includes obesity. So, so much of obesity is really an addiction related problem. Tobacco of mental health, which is often tied in to a lot of issues of technology, loneliness, social media. Yeah, very profound structural reasons for that. These are going to be the kinds of diseases that biotech can at least partially address, maybe not fully address, but at least partially address. So we have a lot of reasons to be optimistic about some of these tailwinds that we have going into the century.

John Coleman: Well, just a small caveat, and then I want to pick up maybe with some examples. Going back to the areas that you’re most excited about that are near commercialization, those that you’re actually keeping an eye on. But I’m not a physician, but one of my children has a rare genetic disorder that only about 1600 people in the world have her family of disorder that they’ve actually sorted out now, that they can study genes. And only two people that we’ve discovered have her exact gene disorder. And what’s amazing to me is both the progress we’ve made to be able to even diagnose a thing like that, which wasn’t possible a handful of years ago, but also the progress we need to make to understand how to treat it or how to deal with these different disorders that aren’t well studied or don’t have a clear path. And so it is that dichotomy of just remarkable progress. But 100 years from now, you have to think our current approaches are going to look pretty primitive to whomever is practicing at that time. So many great threads to pick up on. But you had mentioned Alzheimer’s and cancer, for example, in your initial comments. And one of your themes here was the advances that are coming that people don’t even know about or that have lagged behind the research and are just coming to market. What are three or four areas that you’re keeping an eye on that you think are actually near to coming to market that are most exciting?

Finny Kuruvilla: Yeah, I would certainly include Alzheimer’s in that. So that is one that is just now coming to market like this year. And so I’m right now in Boston, Massachusetts. So just across the river, there’s a company called Biogen that got FDA approval for just last month, in fact, for the very first disease modifying treatment of Alzheimer’s disease. And so while in general, one of the sad but true facts of medicine is that a lot of what medications are doing is they’re addressing symptoms or manifestations of disease rather than the root cause. The root cause is often very difficult to address and sometimes technologically impossible. But one of the things that we have now just in the last six or nine months made progress and as a society is the root cause of Alzheimer’s disease. And so the way to think about Alzheimer’s is that in your brain, in an Alzheimer’s patient, what happens is there are these what are called plaques that are forms that just like you get a plaque on your tooth, you get a plaque in your brain, it’s a three dimensional ball. And this ball ends up killing the neurons that it touches. And if you go in under a microscope and take out this little ball and ask what’s inside of it, there’s two main proteins, two main components inside of that ball, and one of them is called a beta. And we’ve known this for decades and decades. This has been widely known. But how in the world you cleanse the brain from this? Well, somebody had a very clever idea. Which is to use our immune system to clear out these plaques from our brain. So our immune system, of course, we use all the time to fight off infections or to fight off cancer. Not a lot of people appreciate that. That’s a different story. But here somebody figured out, well, hey, why don’t we take an antibody? So an antibody you can think of, it looks like a Y. And the top part of the Y binds to it sticks to something that is dangerous, say, a virus or a bacteria. And when the top of that Y sticks to its target, it sends off a signal to the immune system saying, Hey, there’s something bad here, come and kill it or can’t clear it. And so these cells come in and they eat what’s at the tip of that Y, and they end up degrading it and thus getting rid of the infection. Well, somebody said, well, why don’t we develop an antibody against this, a beta, this component of these plaques, the chief component of this plaque, and then we’ll administer it to patients, give it to them in their veins, let the antibodies swim through the veins, go into the blood, and let the immune system clear out. And then let’s measure what if we can clear it out so you can do what’s called PET scanning or PET imaging just to see if the plaque is still there. And then let’s also measure cognitive function. So looking at memory, for example, executive function, some of the things that we all value that you lose, unfortunately, with Alzheimer’s disease. And so these data were presented last year, and it was very exciting that they showed in these PET scans, if you administer this antibody, it’s called the cannon MAB that is just given IV. Like I said, that indeed you get very profound, in fact, almost complete clearance of these plaques within a few months. And then more importantly, if you measure the clinical function of the brain, the executive function, memory, etc., you see a 27% improvement cloud there, which is a big deal. And I have a father in law who recently passed away from Alzheimer’s disease. And it’s a absolutely awful way to die because you lose so many of the functions that really make us human. And so when this came out, I mean, I was jumping up and down with joy here because Alzheimer’s is a disease that we don’t need to suffer from if we can get at this root cause. So there’s now a second company, Eli Lilly, that is going to hopefully get FDA approval soon. And now that the industry has a foothold, one of the things that biotech is really good at is once it gets a foothold, then it can iterate and improve, right? But you need something solid to be able to grab a hold of. And so that’s definitely the first area that I’m watching very carefully. And if you look at Alzheimer’s, morbidity and mortality, in other words, deaths and suffering both from patients as well as family and caregivers, this could be a real game changer.

John Coleman: Well, an example, if any, just of what you described about the pace of technology. I’m reading a book called Outlive by a guy named Peter Attia. Right now. I don’t know if I’m pronouncing his last name properly. And I just finished a chapter on Alzheimer’s, which was honestly that the most hopeless of the diseases or disorders that he was discussing. Right. Because there was really no progress in preventing or treating it other than behavioral modifications, exercise, things like that. And what you’re describing seems to have manifested almost entirely since even that recent book came out. I mean, that’s a remarkable amount of progress against a disease that really had no, from what I understand, effective treatment until now other than preventative things like exercise and diet.

Finny Kuruvilla: That’s right. Yeah. And Peter Attia is someone who is a very smart physician and that book is not that old. It had just came out for this reason. Yeah. Yeah. And the fact that it’s already outdated, there is testament to how quickly the industry is changing. The other area that I am very excited about is cancer screening. So I think most people realize that if you can catch cancer early, then the probability that you can get it removed and live a long and normal life is much more viable. When people find cancer late at stage three or stage four, then that’s tend to be when you get the really bad outcomes. So this, for example, explains why pancreatic cancer or ovarian cancer, these are organs that are deep within your abdomen. They’re typically not caught until later on stage three or stage four. And so the mortality from those diseases is much higher than it is, for example, with diseases that it’s much more obvious, like, say, a basal cell carcinoma, something on a scan where you can just cut it out because you see it. And so early detection is half of the battle with cancer. And it will one day be the case that we’ll go in for our annual exam with our PCP and they’ll simply draw blood. And as it turns out, your cancer is shedding small amounts of DNA. Into your blood. It’s very, very trace amounts. But these small amounts of DNA have signatures of mutation on them that if you have the right technology, you can identify them and say, oh, you know what? This person who came into my office, they’ve got early stage prostate cancer or breast cancer or ovarian cancer and then go in and do scans and surgery to get rid of it much more early and getting ahead of the curve. So that’s really exciting. We’ve already made some headway in that. So one of the classic examples of a company that we’ve invested in now for a very long time is using stool to detect colon cancer. So the traditional way of looking for colon cancer is a colonoscopy, very unpleasant. I think most people know how you do that. You have to drink some very unpleasant solution that clears out your bowels and along to but the camera gets put up your rear end and you have to go under a form of anesthesia conscious sedation for that. Who wants that? I mean, that’s not very pleasant. But now that’s becoming much more standard of care is somebody mails a box to your home and you use the bathroom. You just take a piece of stool, fish it out of the toilet, put it in the box, mail the box back to the company. And what they will look for is in the stool a trace amount of this mutated cancer DNA and use that as an early warning system, so to speak. And we know that the sensitivity on detecting cancers there is greater than 90%. So it’s very good. And now it’s becoming standard of care that starting in age 45, you can do that instead of having to do a colonoscopy. Wow. So that’s pretty awesome for especially those of us who are in our forties or beyond that don’t necessarily want to do the whole colonoscopy ordeal. And so there are that company and then a couple of others that we’ve been investors in are looking at how can we make this purely blood based? Because even that’s got to deal with your own stool. That’s not the most pleasant. And why not have it be the case that when you go into your annual visit, just do the blood draw while you’re getting your cholesterol checked and your blood glucose and all that, that they’ll just additionally check for a panel of cancers. And so that’s very, very exciting. The blood based cancer screening is still yet at the experimental stage and it’s not yet prime time, but I think in the next 5 to 10 years it will be something that becomes much more routine. So I’m very, very excited about that as a way to address the second largest killer of people in America, which is cancer. Speaking of which, there’s so many other areas that I’m excited about, but I will say that cancer, for me is near and dear to my heart, primarily because when I was a physician, a lot of the patients that I saw had leukemia or lymphoma or one of these blood related malignancies. And I just think it is just awesome the kind of technology that we have enjoyed that is completely changing the way that the cancer is done. So let me illustrate here with an example of something that I think is very profound. So in general, with cancer, the most common cancer of childhood is leukemia. So a lot of us probably know individuals who had leukemia as a child or parents who have children who have had leukemia. It’s very common. And the way that leukemia therapy has progressed is astonishing. So in 1970, if you had a child with leukemia, he or she only had a 10% chance of making it to adulthood. So fairly bleak. Today, it’s somewhere around 85 to 90% chance of making adulthood so much, much better. Odds of survival there. And that’s on the back of a lot of great therapies that have been developed in the industry. And in particular, though, one of the things that we’ve known for a long time is that so much of what cancer therapy really is, is it’s giving basically poison to a person. And what you’re trying to do is you’re trying to poison the cancer faster than you’re poisoning the rest of their body. And there is a window that you can try to thread in order to make that happen. But it’s a narrow window. And it’s also why, for example, the side effects from chemotherapy are what they are. They will kill more rapidly dividing cells. So when you’re giving these poisons, the cells that are dividing the most quickly are going to be the ones that take the hit. So your hair will fall out. As it turns out, the hair cells are rapidly dividing your gut. Cells are turning over very rapidly. And so you’ll get nausea, vomiting, diarrhea, fatigue. A lot of these things are the consequence of these very crude. Let’s give them poisons. And in fact, a lot of chemotherapies are, in fact. Iterations of chemicals that were used in war in order to kill major populations. It’s kind of scary. So this is how a lot of chemotherapy is built on, is just let me give a fancy form of poison and try to thread that needle very carefully. Well, when I was a physician, as I said, that was the mainstay of what therapy would be is giving these glorified toxins or poisons. I’ll tell you a true story here of a little girl named Emily. She was diagnosed at five years old with this leukemia, the most common form of childhood cancer. 85% chance of cure. 85 to 90 parents were told, hey, if you’ve got to pick a cancer, this is the one to get. They’re all like, okay, let’s go through the therapy. She goes through the therapy and lo and behold, she relapses, and so does she’s in this 10 to 15% that aren’t likely to make it. And after this relapse, it comes back very aggressively. And as cancers often do, when they come back, you just feel really bad for the patient because you very quickly run out of other options. Parents are told she’s got weeks to live. They were told, just put her in hospice, make her comfortable. But unbeknownst to them, this was at CHOP at Children’s Hospital of Philadelphia. There was a brand new therapy that was being developed, and she was literally the very first patient to get it. So, wow, this therapy is so cool. Let me explain it to you. So I mentioned to you before that one of the jobs that our immune system has is to kill cancer. So a lot of us realize our immune system kills bugs, bacteria and viruses, but we don’t appreciate enough how our immune system is actually fighting cancer all the time. So as it turns out, every single one of us has some low grade cancer that’s brewing somewhere inside of us. But most of the time your immune system is scanning your whole body and it’s looking for something different than normal. And it’ll kill that cell because it recognizes it as foreign. And so that is something that we should wake up and thank God for every day, because our immune system is our number one anti-cancer prevention agent that we have. And this is the reason why, for example, HIV patients who’ve got weaker immune systems often die of cancer. Well, one of the things that somebody figured out to do is why not take someone’s own immune system and the T-cell in particular, and we’ll take it out of the body and we’re going to infect that T-cell with the virus. And what we’re going to do with this virus is it’s going to be a good virus, not a bad virus, but a good virus. And that virus is going to have a homing beacon on it that’s going to train that T-cell to go straight to the cancer and kill it. And so they did this with Emily. They just took out her blood, just a simple blood draw, isolated those T cells, treated them with this virus, and then re infused her own, now modified T cells back into her body. And guess what happened was that in 23 days, her leukemia was gone. And wow. Yeah, it’s amazing. And you could actually watch. And they did this. These scientists and physician did this. They would take regular blood draws and they would watch these modified T cells grow in terms of numbers in her blood as they were amplified and as they saw this cancer and they would go and kill the cancer. And so this particular therapy, it’s called CAR-T, is FDA approved now. And we will often see somewhere between 60 to 80% what’s called complete responses, meaning that the cancer is completely gone. So Emily, as I mentioned, was diagnosed at five years old. She’s in her twenties now. She’s very healthy, walking around, doing great. This is like awesome, right? Like we’re engineering our immune cells to do things that they otherwise wouldn’t do and train them to kill cancer. And so this whole frontier of using the immune system. Using things like CAR-T immuno oncology therapies to train it to get better at killing cancer in a more directed manner, as opposed to giving the simple and kind of toxic style chemotherapies is going to be the future. So that’s another area that I’m really excited about. So this will be three of my favorite areas Alzheimer’s disease, cancer screening, and then training the immune system to kill your cancer.

John Coleman: Finny Those are amazing examples. What a cool story about Emily as well. One thing you’re describing I’d love to dig into for investors is the life cycle of these medical innovations is quite long. Right. Starting with university research or basic research, culminating in commercialization through a pharmaceutical company, etc.. And across that spectrum, there are both private markets and public markets investors. Talk to us a little bit about the role that both private and public markets play in this space and also just any difference in the way markets are reacting in the current environment between those two. Like are you seeing as big a collapse in private markets as in public markets, for example, and valuations, or is that disconnected somewhat?

Finny Kuruvilla: Yeah. So there’s certainly a vital partnership that exists between the private and public markets. And so there’s this whole field of venture capital that goes and finds these promising ideas that incubates them from early stage all the way to a hand-off of an IPO into the public markets. And if it weren’t for America’s very vibrant venture capital industry, the world would be very impoverished. So some of those therapies that I just mentioned to you, like those CAR-T, those those trained immune cells came from venture backed companies and approaches. So this is an essential partnership. In general, public markets aren’t ready to receive these very early ideas yet until they have some validation. And so that validation takes place in the womb, if you will, of these private vehicles that are typically venture backed. And so in terms of where we are there, there’s this phenomenon that’s existed for many years where the public markets tend to lead the private markets. And so when there’s a lot of great opportunities for IPOs, then that tends to be a way that the private markets get their exits. You know this industry very well also, but the private markets need liquidity. They need some way to exit in order to raise more funds. And so when the public markets are open and the private companies can go IPO and eventually the private investors can generate a return on their capital. And so for that reason, there is this lead that the public markets have on the private markets. There’s certainly an interdependence there. But in general, that’s the relationship that we’ve seen right now. We’re in this place because of the public markets, as we talked about earlier, declining in their valuations. And in general, it’s harder to IPO when people are a little more fearful. That’s meant that private funding has also declined and there’s not nearly as much money that is going into Series A’s and B’s, as was the case a couple of years ago. And so that’ll change and things will eventually normalize and go back. But right now we’re on the private side. We’re about where we were in 2013. So we’ve actually taken quite a step back in terms of amount of funding there. So that’s quite unfortunate. But we’ve seen this happen before and in general, once we get a little more animal spirits, once we get more excitement in the public markets, then IPOs will open up and that will enable some of these private companies to IPO, which will then enable the private companies, the venture companies, to go and raise more capital. So that’s high level where we’re at right now.

John Coleman: Which is interesting because we’re closing in on highs again in public markets, but it still is lacking. I love the term animal spirits. It still is lacking animal spirits a little bit, right, Because we’re you know, the public equity markets have recovered, but you’re still not seeing an IPO market quite as active in an M&A market. There’s still a lot of caution, I think, right now.

Finny Kuruvilla: That’s right. And the reason that the public markets are doing well, especially the Nasdaq, but even the S&P 500 is because their market cap weighted and so or I think most people understand this, but in case someone doesn’t. If you look at the S&P 500 and that index, it’s not equally weighting across 500 companies. It’s overweighting on the companies that have a higher market cap. So Apple, Google, Amazon, Meta, those kinds of companies have a significantly larger weight in the index. And because there were such fears about recession really for the last year or so, what’s happened is that people have gone into these mega-cap names, especially mega-cap technology companies, and that has pushed up these indices. But where we’re at right now is the dispersion, meaning the spread and valuation between the largest cap companies and the smallest cap companies is actually two standard deviations wide of normal, meaning that that spread is very vast right now. So you’ve got really expensive companies on the high market cap side and then very inexpensive, very cheap companies on the small market cap side. And so it’s unusual that we have this kind of spread happen. In fact, often it’s the case that a lot of the big companies are regarded as sleepier companies that maybe don’t have as much growth ahead of them and the small companies, that’s where the action is because they’re going to grow and there’s a lot of excitement there. But right now, partly deserved the large cap companies have shown because of AI and some other reasons that there’s cause for excitement there. And in general, the very predictable defensive quality is that people now appreciate that Google and some of these other companies have they actually have done really well through even hard times where people have realized they’re not quite as cyclical as people once thought. So that’s the reason why we’ve seen some of this disparity in valuation.

John Coleman: So I want to hit a couple of other quick topics before we get to some of our concluding questions. One, I promised myself I was not going to ask because it felt like asking about Bitcoin like four years ago. But you mentioned artificial intelligence. So I am going to ask, where do you see the intersection of AI and health care right now? What are you most interested in at that intersection at the moment?

Finny Kuruvilla: Yeah, I recently did a call on this and AI in general and where it’s at. And one of the things that we need to differentiate is that AI is an umbrella term and there’s a lot of differing component technologies underneath it. The one right now that has everybody excited are the LAM, large language models. So ChatGPT is the most famous bard, which is Google’s version, is the second most well known. And these are not as sophisticated as a lot of people might think. They’re very impressive, no doubt. But basically what they’ve done is they’ve ingested huge amounts of text and they’re very good at predicting what will be the result of, say, an autocomplete. In a lot of ways they’re just glorified autocomplete functions. Certainly impressive, no doubt. And there’s good reason why there’s enthusiasm there. But in terms of really achieving the kind of. Judgment and rationale that humans have. They’re a long way away. Now, how can this breakthrough and LAM help the world of health care? It certainly can. And there’s a few dimensions of assistance that we can have. I mean, in general, I think these LAM will be a lift to most industries. Just because it’s I recently heard an analogy that it’s like you’ve got an assistant sitting next to you who’s passed the AP English test. Maybe their judgment isn’t that great yet. So maybe they’re like a high school student who’s just gotten a four or five on their AP English exam. That’s kind of what you have now as an assistant sitting next to you. And I use chat GPT for when I want to quickly get a digest of a lot of material because it is good at doing that, where I think it’s going to be helpful eventually and we’re going to need a few years of investment here. But besides that general uplift from having an assistant next to you, who is this AP English High School student who’s done well there, it’s going to be helpful for predicting things like what drugs will be especially effective to target certain medications and then what populations will be more precisely targeted from a particular therapy and receive greater benefit there. So for things like pattern detection, it’s going to be amazing. One of the areas that I think is one to watch and I’ve been saying this for like ten years, is if you take head to head a skilled physician and some kind of AI algorithm and you give it a bunch of patients who have a bunch of symptoms and you say who can predict what the patient really has, the handwriting is on the wall that AI is going to be the physician over time. And that’s something that is going to be very transformative to health care because computers are just way better than humans at doing pattern recognition much more rapidly. So you think about radiology looking for the spot on the lung as a cancer or not, or, as I said, kind of classic internal medicine diagnosing symptoms. And so what this means is that there’s going to be a replacement eventually, probably not that long from now, of a lot of traditional doctors who are basically doing pattern recognition with some of these AI engines that are going to completely trounce humans at that. And just like today in chess, we know the even the best chess players, Magnus Carlsen and Caruana and all these people, they can’t be the best chess algorithms. The best doctors will not be able to be these highly skilled and well trained AI algorithms. So look out for that and advise your children and those thinking about going into medicine to be cautious about how they choose their career and make sure that they’re choosing one that’s going to have some longevity.

John Coleman: That’s fantastic. Before we close with what you’re learning through Scripture, it’s kind of obvious the redemptive nature of the work you’re doing just from the stories that you’ve told so far. But maybe comment briefly on how you think redemptive investors or faith driven investors should think about participating in health care, because there obviously are some things like ethical quandaries that you encounter, etc.. But how do you think about your faith in the context of investing in this space?

Finny Kuruvilla: Yeah, there’s a lot to be said on this, and I know you’re also a deep thinker in this, but I would say that in general the world has gotten somewhat skeptical about progress. You know, if you go back and look in the early 20th century or mid 20th century, there was a lot of optimism about technology. And then eventually it turned, especially in the back half of the 20th century, to a lot of fear, you know, Terminator and things like that. And we have forgotten that the creation mandate that God gave to all humans starting in Genesis one, is something that we have yet to realize, and it is something that health care is probably, in my opinion, almost certainly the single greatest area of where technology and progress can manifest itself in positive ways. And so as investors, as we’re thinking about where to allocate our capital, this is an area that I think just screams out unmet need here. This is an area where we can feel really good about advancing the global common good. There are other areas where sometimes I look at and I think, wow, what is the true common good that this is promoting? How is human flourishing really going to come from this company? You know, not mentioning any specific companies here, but often it feels like people are simply chasing profits as opposed to thinking about how does God want us to be allocating capital to really meet the needs of humanity? And I think health care is a very special field and that if you have some basic screens in terms of, you know, for example, not promoting abortion and things like that, then I think we. Can feel really, really great about how we can better advance the lives of millions and millions of people all over the world.

John Coleman: Well, Finny, we want to conclude today with what we ask all our guests, which is just what you’re learning through scripture that you want to share. I know you’re a deep thinker on these topics, and you do have a very thoughtful spiritual life. So is there anything right now that you’re studying that you want to share with others?

Finny Kuruvilla: Yeah. So I recently have been doing a fairly deep dive as a family and a couple of Paul’s letters, namely his letters to the Thessalonians and then his letters to Timothy. And one of the concepts that I’ve been very captivated by and doing a lot of further biblical study on is a term that I got this from a commentary, but the term is mimetic discipleship. And so if you think about how Jesus did his discipleship, it was very much this process of following him. And then in the process of following him, we become transformed. And so you can summarize discipleship and the line from Jesus in Matthew 4 where it says Follow me and I will make you fishers of people or fishers of men, the older translation say, And so you follow. After Jesus, you imitate him. You have this. Essentially what the disciples had was a 24 seven school of imitating Jesus and following in his paths. And then there’s a promise attached to that following, which is, I will make you fishers of the people. And I think we’ve moved more into an informational based way of trying to do discipleship as opposed to a mimetic or following way of doing discipleship. And it’s in a sense like not surprising given how a lot of our education models are operating. But you give someone information via a sermon or a book or something like that which have their place. And I’m certainly a fan of good sermons and good books, but I think more often than not, we’re lacking that component of mimetic discipleship. And mimetic is, of course, the adjectival way of describing the word imitate. And here I would point to the example of the field of medicine. So can you imagine what medicine would be like if you just gave people some textbooks and you said, Go read these books and go be a doctor? Right. It would be like, I don’t want to be treated by someone who’s gone through that kind of training. Instead, what happens is your first two years of med school are the textbook years. The second two years you’re watching somebody else do something and you’re helping them. And then when you start internship and residency, they’re watching you. But you got somebody over your shoulder. And eventually, after four years of that, then they release you to be able to train somebody else in that process. And so it’s tilted much more at this aspect of mimetic training, you know, mimetic learning where you are. Yeah, you’ve got to know some information, of course, but you really don’t become a doctor until you’ve completed all of that. And I just think, how much of Christianity have we built on more of an information transfer type system as opposed to a mimetic system? And this came up because and especially first Thessalonians, it’s a dominant theme, which I had personally missed, of how Paul is describing how he establishes his church and in this case, Thessalonica. And it’s a great study to do to go through and trace out that theme of where is Paul appealing to this concept that really Jesus initiated what mimetic discipleship is all about. So yeah, I’m very excited about this and wanting to go deeper into this.

John Coleman: Finny Kuruvilla I wish we had 3 hours for today’s podcast instead of just this hour. I think you have left us with a lot to think about and a lot of positive hope for the future with innovations in health care. So we’re grateful to you for coming on the Faith Driven Investor podcast today and for all you’re doing it, Eventide and elsewhere. Thanks so much for being with us.

Finny Kuruvilla: Thanks, John. I appreciate being with you.