Why Capital Always Finds a Way to Go Global with Jeff Stewart, GPO Fund

Jeff Stewart (0:00)

I think to a hammer, everything looks like a nail. Karl Marx was wrong on a lot of things, but one thing he said was that capital finds a way to go global. He said capital is inherently global, and that hasn't changed. Great companies and great investors want to connect with each other.

But I think the tensions in the world mean that people are looking to diversify.

Carlos Espinal (0:22)

Welcome, everyone.

I'm really excited to interview a friend and author, professor, and founder, Jeff Stewart, who is the founder of GPO Fund. Welcome, Jeff.

Jeff Stewart (0:36)

Thank you for having me.

Carlos Espinal (0:37)

One of the things that really struck me when we met a while ago was how much experience you've accumulated in your life, ranging from building companies to obviously now investing, but also teaching, writing, and sharing your thoughts about bigger picture things rather than the simple, usual sectoral stuff that a lot of us focus on when we're doing investments. Just walk us through that story. How did you end up who you are today? What was the school of hard knocks for you like?

Jeff Stewart (1:07)

It started before I went to college. I knew I wanted to start companies. I like to build things. And I went to, was looking at universities and talked to one of the deans and told him I wanted to start companies. And I thought you became an engineer, invented something and then started a company. He explained you could actually study starting companies. So I studied management and entrepreneurship and heavy on the engineering. But at the end of the day, I knew I wanted to start and run companies. Then figured that if you work in industry and sell to industry, you're more likely to be successful. So I started as a management consultant, got exposed to a lot of companies, especially in financial services. And then a couple of years in, I was doing a project for the NASDAQ.

And my role was to look at technologies that might impact them. And played around with this thing called the World Wide Web. And looked at it, there were about, there were almost 800 companies there listed on the World Wide Web at yahoo.edu. And I was like, wow, this is an interesting source of data.

Came back a day later and there were 1,600. And it didn't take much to figure that anything that's doubling in every 24 hours is going to be big. And I figured that the internet was going to be big enough that it would make up for the fact that in my 20s, I had no idea what I was doing. So started my first company and we helped large corporations with their internet strategy and with systems implementation. Quite frankly, our big competitive advantage was we owned suits. And a lot of the people who understood the internet didn't speak business. We grew that, merged that with another company called Proxycom, a third company called Ibis and went public. And back in those days, that was what you did. VCs would say, ABC rounds are great, D is for dead. You need to go public after the C round. So that's kind of how we started our career as entrepreneurs and thought about startups. Second company I started was 1998, it's called Mimeo.

And their plan was we basically took electronic documents and physically produce them. So we set up a factory in Memphis, Tennessee, integrated it with the FedEx Hub. And the plan was to take that public.

Then everything shifted in 2000 and we went, the US became a mega cap market. And that company today is profitable, it's sizable, but still private.

So growing that to hundreds of employees and having a physical element to a venture-backed startup, I think had a big impact on how I look at the world as an investor and an entrepreneur.

Throughout that, I was always frustrated by how half your salespeople are your bottom half. And if you can just get more of your underperformers, instead of higher top performers, it has a huge impact on your burn rate and your growth rate. So I started a behavioral assessment company.

And then from that, we had a team abroad that was, in both cases, we had a team abroad that was organizing data for our algorithms. And one day, my partner in Asia pointed out that one of our employees needed a loan because their paycheck wasn't till the end of the week. And I was like, oh, great, how's that work? And it turned to this, they said that the rate was 5%. And I was like, oh yeah, that seems reasonable. I think that's what a mortgage is in the US at the time. And I was like, no, that's per month. And we realized that the international financial services, and particularly credit in a lot of the world wasn't functioning. And we had a hypothesis that we could use our data analytics, big data analysis, behavioral assessment background to figure out who was creditworthy. And so we launched a company called Lendo out of Singapore, that eventually grew to operate in 21 countries, using the data exhaust from social media and from your cell phone. And it turns out who you associate with and how you behave is highly predictive for small business loans and consumer loans, educational loans. And that wasn't the first time, it was certainly the most intense time doing business internationally, operating in 21 countries. And realized that a lot of the venture world tended to look at the country of the headquarters and the country where the VC is as the world. The old Sequoia is saying is if you can't drive there, if it's more than 20 minutes from the office, they don't invest. We had developed a hypothesis that there was an awful lot of customers around the world. There's an awful lot of investible capital around the world. And that the most ambitious founders would want to build global businesses and that we felt we had some experience. So we thought about starting a venture fund specifically to help companies accelerate their international expansion. But the second thing we noticed was that companies had been staying private forever and we saw first-hand the corrosive impact from angel investments and from boards we were on, that staying private can cause misalignment on the capital table, the incredible value destruction as you can't do acquisitions. You just have less flexibility and more brittle capital structure. And realize that when you build a global company, you also have an opportunity to build a global investor base, which also means you can move into the public market earlier because there is this global desire to invest in publicly traded companies. On a global basis, there's just less public equity available. So when you bring a high-quality company into the public market and you make sure that you've built relationships with institutional investors around the world, you have that optionality to go public earlier. We launched in 10 of the GPO Fund, targeting high-potential founders who have product market fit, have a desire to eventually move into the public market, and have incredible technology and particularly have a business model that works globally and a desire to be a global company. So since 2018, we've been investing in companies in the growth stage. But when I say growth stage, I think pre-unicorn. I think what we've seen is that once something becomes a unicorn, there's kind of a pile-on effect that doesn't necessarily match what's happening in the company. And we're not big fans of co-investing with people who are making investments without actually looking at the financials of the company. So we really like that space of call it $200 million to $750 million of evaluation ranges. Enterprise valuation range is our sweet spot for the fund.