Why Data Is the Next $1 Trillion Market

**Alex Wilhelm** (0:00)
Hey everybody, welcome back to Twist. This is Alex, and it's Wednesday, July 8th, and that means it's time for yet another Venture Capital Roundtable. Today, we are gonna dig into how exposed American startups are to a possible ban on open model exports from China, secondary markets and their needed fixes, startup M&A, and why the AI conversation has re-centered around the value of data and more. To help you understand all of this, I brought a couple of friends. This Week in Startups is brought to you by DigitalOcean. Want to see what building on a true AI-native platform looks like? Head to do.co/twist to start building on DigitalOcean's AI-native cloud today and cut your AI workload costs by up to 50%.
agree.com. Stop chasing invoices and automate your entire contract to cash stack. Go to agree.com and tell them Jason sent you to get 50% off for life. And every.io for all your incorporation, banking, payroll, benefits, accounting, taxes, and other back office administration needs. Visit every.io. In one corner we have Mr. Nikhil Basu Trivedi of Footwork. Last fund was $225 million. He's a backer of companies like GPTZero and Windborne. Nikhil, hey, glad you're here.

**Nikhil Basu Trivedi** (1:14)
Great to be here, Alex, and great to be with you, Michael, as well.

**Alex Wilhelm** (1:16)
Speaking of which, we also have Michael Kim of Cendana Capital, a fund of funds investing LP capital into early stage venture funds. It also runs a secondary fund and a co-investment fund for Series B startups. And later, Michael, welcome to the show.

**Michael Kim** (1:31)
Great to see you guys. Thanks for having me on.

**Alex Wilhelm** (1:32)
So I'm glad we have both of you because we have the traditional VC perspective, and then we also have kind of the LP side of things. And the biggest point of conversation or contention really, I think in venture circles for the last week may have been the blow up between USVC, the Angelist-aligned open-ish venture fund, and also Anduril, the well-known late-stage American dynamism defense company, essentially catching people up who don't know. USVC claimed they purchased exposure essentially to Anduril at its series H price. And then Mr. Grimm, a co-founder of Anduril, said, No, you didn't. And there was a big blow up on Twitter trying to figure out how this all went down. The gist, gentlemen, as far as I can tell, is that people are figuring out that public markets had reasons for some of their rules about transparency, disclosures and so forth, and secondary markets are still a bit like the Wild West. At the same time, aren't they supposed to resolve the liquidity issues we've seen in venture recently? So first of all, Michael, what was your take on the back and forth mess? And also, was anyone in the wrong, per se, or is this just kind of a case of everyone's trying to do their best and ended up at cross purposes?

**Michael Kim** (2:38)
Yeah, I think it's more of that. And what we see often is the playbook where fund managers have access to an interesting asset, they'll create an SPV, and they actually use that to entice LPs to actually make a commitment to their fund. So that's been going on for a while.
The issue with SPVs, of course, is the provenance of whether they actually have the shares. And then when you start stacking multiple layers, most investors don't do the diligence to ensure that each layer is legitimate, and that's where the trouble can start.

**Alex Wilhelm** (3:14)
So when you say that some firm managers are using SPVs as a way to get LPs to invest in their funds, are you essentially saying they're putting together one-off deals to get, I don't know, relationships with LPs and then using those to later raise a traditional fund?

**Michael Kim** (3:28)
Yeah, exactly. They might be raising a fund right now, and in their prior fund, they might have a very interesting asset, a consensus deal that everybody wants to get into. They might have some prorata in it. They might create an SPV and say, Hey, LP, if you come into this SPV, you can come into our fund. So that's a dynamic that I think a lot of emerging managers use.

**Alex Wilhelm** (3:52)
Nikhil, I've never heard of that particular method before. Is that common? Am I behind on this?

**Nikhil Basu Trivedi** (3:58)
I think what's happened is a few factors that lead up to the situation between Anduril and USVC. So let me try to unpack a few of these. The first is that our industry is more power law-pilled, more power law-obsessed than ever before. And so there's just a small handful of companies that GPs and LPs want to be a part of. I've heard from some LPs, it's a hit list of 10 companies. I've heard from others, it's 20 I've heard from some, it's actually just six.