Great talk with Zach White about managing Sinai Venture's $600M Fund II.
We talk about investing in Pinterest, buying secondary shares, and independent thinking in the venture business.
I'm excited to be talking with Zach white today. Zach is a partner at Sinai ventures. Sinai recently announced a $600 million Fund II, so they're now one of LA's largest funds, and I believe they'll now be looking at more growth stage opportunities. Sinai has an amazing portfolio of investments, including Carta, Pinterest, Roman health, Hippo, Compass, and many more. Zach, thanks for coming on the show.
Thank you so much for having me. It's an honor.
I am super excited that you guys have raised so much capital. Um, I have a big fund to be investing and you're based here in LA. Um, maybe you could , start with a little of the history of Sinai and,
Sure. so we launched me and my business partner, Jordan launched Sinai ventures in 2017. And , um, it came as a function of Jordan at the time was , doing, investing for a large single family office out here in Los Angeles. And his primary focus was tech in, in the public markets. Um, and so. Through that lens.
We were able to build up quite a rapport with this family office and we're able to make them quite a lot of money , uh, by having a perspective early on about , um, some of the larger names and consumer technology that were beginning to really begin to find product market fit in the public markets.
And from there , uh, thought it prudent and , um, A good value opportunity for the fund and or us personally, to go a little bit more downstream and begin to look at opportunities , uh, closer to the Genesis of the idea, as opposed to , um, when a lot of the value had already been realized.
And so , uh, off the back of that, we were able to raise a fund in 2017 from our single family office. Uh, it ended up totalling a hundred million dollars. Um, , we've , uh, done 85 investments out of that fund. And from there?
Well, 85. So you did 85 investments out of one fund.
Wow. I mean , we're targeting 30 investments out of our fund.
Yes. For us. Um, it was sort of a two fold appearance. One was a learning process of finding the things that we liked, finding the verticals that we found to be most interesting and
and the other aspect of it was , um, I think that , one of our strengths as a fund is , um, Over-indexing for the things that we know and sort of under an indexing for the things that we don't know.
And so , um, you know, I think the $600 million fund, while it is substantially more capital , uh, we're going to be a lot more concentrated
Okay. Okay. Of course. I want to talk about fun too, but before we get into fun too, you can't raise a 600 million fund too. If you haven't done something right in fund one.
So tell me a little bit more, or about these 85 investments. Maybe you could choose a couple to talk about.
yeah, I think , um, you know, probably our biggest winner and the company that most people would know is Pinterest , we were lucky enough to participate in the series E secondary, I believe. Um, so it was quite late along the life cycle of Pinterest, at least in its private market iteration.
Interestingly enough, when the company IPO code , uh, we were actually briefly underwater , uh, for a minute on that stock. And so, you know, that is , uh, you know, something that nobody can really prepare you for, especially as most people in this market have been conditioned to expect, you know, a large pop on IPO day.
Um, but you know, we experienced the opposite and , uh, over the last year and a half, since Pinterest has gone public, we've been lucky in the sense that , um, the public market has begun to appreciate the Pinterest business .
That's so interesting. . Did you have the option to sell some of that? Um, and did you have sort of the guts of steel to know to hold onto that?
I don't think it was necessarily guts of steel , uh, more so than , um, you know, I think we had a macro perspective on where public equities were going and , um, what the , uh, sort of proclivity of retail and institutional investors were moving towards. I think that we really just believed in the company, believed in the founders and believed that the business was moving in the right direction. Um, as far as monetization and expansion overseas. And so , um, you know, from there, we were able to , uh, provide a.
Perspective on it , um, that allowed our LP to be a little bit more comfortable holding longer they're a very large LP with a lot of positions. And so , um, you know, we were able to convince them to hold on a little bit longer and , uh, it paid dividends for us.
Wow. Good for you. Good for you. So you said that Pinterest was a secondary sale. Right?
Tell me more about that. I, it surprises me sometimes that secondary sales aren't more liquid. How did you come to that position and how do you think about buying secondary now
, the secondary market right now is one that , uh, you know, it's, it, there's a lot of money to be made, but also a lot of money to be lost. Um, I think whenever you , um, operate in a. Marketplace that , uh, is not opaque in, in the way that , uh, it functions. You run the risk of , um, sort of letting a lack of information, dictate , uh, you know, where you end up.
And so one thing that I do really appreciate about the secondary market is that, you , some companies that have been private for 10 plus years now, I'm sure that you have a couple on your books. Um, you know, employees have created quite a lot of value in a lot of those instances and. The renumeration for that , uh, you know, could be a bit lacking.
And so , um, the way that we see secondary markets is that it's a great way to , uh, you know, provide additional liquidity for employees, founders, things like that. Um, while also being able to participate in companies , uh, in a way outside of rounds and a little bit more flexible of an opportunity for us.
So you would still do , um, secondary , uh, infant too. Like you'd still be open to those opportunities .
Absolutely. , um, you know, we've never been too specific on these other types of rounds that we like to do. These are the types of check sizes we like to do. I think , uh, being opportunists at heart , um, you know, wherever we see a good deal and wherever we see value to be created or captured, I think that we tend to pounce on it.
And , um, you know , uh, it's the secondary market is a market that has been a lot less penetrated by. Um, you know, what you would, might call the prototypical VC? Uh, . And so , uh, you know, I think that there's still a ton of opportunity there.
Hmm. And how do you get connected best with those opportunities?
Yeah, I think , uh, I think, you know, um , it's, it's a sort of trite cliche at this point, but your network in this industry is everything. And so , uh, we really try to be as friendly as possible with everybody from the C-suite to. You know, an average engineer , and you know, we go into those conversations, always from the angle of education and understanding and looking to learn more.
And. You are able to provide a little bit of context on who you are and what you do. I think you'd be extremely surprised with the results. And , um, I think liquidity , uh, in this day and age , uh, is something that a lot of people are looking for.
And so , uh, you know,, I, I think that, you know, there's a lot of opportunity out there in that aspect.
Um, how about one or two other stories? How about Roman health or Carta or some of your other big ones in fund one?
Yeah, I think Carta is , uh, an incredible company. We , uh, originally found Carta , um, as a function of actually using the platform. So Carter runs our fund administration , um, and off the back of that , uh, we realized that the product was just so. Needed , uh, in the venture community. And , um, there was this insane bifurcation that was happening between, you know, funds and , uh, the people that were acting as custodians of all of their records.
And , uh, they're launching a platform called Carta X, which will hopefully be the , um, standalone platform for some of the secondary transactions that we were talking about earlier.
. And now it's sort of amazing to see how they've transformed into , um, an exchange of sorts that will , uh, really redefine the way that.
Private market companies are capitalized.
It's a big deal. Um, and how did you. how did you invest? You were using them. You saw the potential of the product where they raising around .
Yeah, so we actually became very close with one of the , uh, C-suite members of , uh, Carta , uh, who was really early on in the company. And. , uh, he had been given quite a lot of allocation. He was over allocated and what we was, what he was able to , um, write a check into.
And so , uh, we were able to fill the rest of that for him. And just again, that comes as a result of, you know, what we feel is being overly opportunistic. Uh, you know, a lot of funds would. Have not been able to participate in that way .
Interesting. And so was that also a secondary purchase? That, is that what you said?
It wasn't a secondary purchase, but it was , um,
we weren't, we, yeah, it was common, but we weren't the primary purchaser of it , um,
um, I should probably just talk a little bit about what you're doing then in fun two, , and, where you're, where you're targeting, you know, what size checks and what , um, are the things that really resonate for you?
Yeah. So, I mean, I think that one of the general perspectives that we had, that we have had. For quite a while now. And it's only been exacerbated by the Corona virus sort of pandemic is that there are cities in the country that , um, are woefully under equipped from a capital perspective, even though that there's a fantastic amount of talent.
Um, and for us , uh, B both me and my partner, Jordan are from Los Angeles. You know, there are billion dollar businesses being built in our backyards. And I think that there is a. Sealing for a lot of entrepreneurs out here in the sense that once they reach a certain level of velocity , um, the funds out here are generally under equipped to continue to provide them , um, financing.
And so for us being LA natives and people who really care about this environment and sort of seeing the writing on the wall for two or three years now , um, we believed that. Positioning ourselves in Los Angeles. Whereas, you know, we used to be in Palo Alto in New York, et cetera, before really centralizing the firm in Los Angeles, gave us a great opportunity to , um, provide larger checks that we believe are much needed in this environment.
I think I saw this ad that there's like 10 to 15% of the funding of LA company comes from LA investors.
Exactly. Yeah. And that's something that is, you know, for us, you know, that 85% Delta is just money being left on the table. What we would like to do is that we would like to be LA based and really give preferential treatment and looks to companies that are being built in our backyards.
And then from there , um, you know, we're going to continue investing globally. We have companies in all across the world and we'll continue to look at, you know, good businesses wherever they might be. Um, but it's also to have a more concentrated point of view and , um, really provide big bets
that's great. Uh, when I was raising money, I, you say, take the fund size, divide by 50, and that's approximately the size check they want to write. Um, so for you guys, that's a 10, 15 million, is that right?
, uh, , we're, we're going to be comfortable is really the 10 to $25 million range. Um, some flexibility, you know, out of fund one, we wrote a $20 million check into Pinterest and you know, so we have, we, yeah. We have the sort of conviction to. Write large checks, even when our sort of AUM was substantially less.
and both fund one and fund two are single LP funds, right?
I read a.la article on Sinai that said your LP is a reclusive German billionaire connected to Sinai through a personal trainer.
It was a little salacious. Um, but my question is, does your LP influence your investing or have certain goals for your investing?
Yeah, I think we are lucky in the sense that , uh, we have a very hands-off LP. Um, he's someone that's put in an enormous amount of faith in us, in our ability to continue to find good businesses and , um, you know, leverage our networks in a we're given pretty much free reign so long as , um, the ideas make sense and that we're trying to vote with our dollars in a positive way and not a negative way.. And so , um, yeah, , you know , he's, he's an older gentleman who.
Again, reclusive is a good way to put it. , we obviously like every other fund in the world has an investment committee that he's very hands-on in and pays a lot of attention to.
that's great. And does that lead to more consumer investing or more B2B type investing or are there certain areas.
Yeah. You know, touching back on what I was saying earlier , um, you know, we went through a process of investing in 85 companies to really figure out what we were good at and what we weren't good at. Um, you know, some of the. Industries that we seem to have done quite well in are things like consumer technology.
Um, we did quite well in some of our healthcare bets , um, and we've done , um, you know, quite well in a lot of our B2B enterprise stuff. And so I think those three pillars , um, will continue to be our bread and butter moving forward.
that's great. Um, but a good sort of transition into who you are, because I think that probably influences what you're, what, you know, what you're excited by and what you're looking at. Um, so maybe take us back , like, tell me about you Zach way, growing up in LA and you know, what were you like in high school?
That sort of thing.
totally. Yeah. So , um, I'm actually originally from New Zealand. Um, I got, I moved to Los Angeles at a, at a young age . Um, , for university, I ended up going to the East coast , um, NYU , um, and was really sort of enthralled by.
Um, the atmosphere of New York, specifically finance, and , um, you know, if in going to New York, NYU , uh, specifically the business school, you don't really have a lot of options, creative sort of , uh, options to , to, to pursue. And then, so I initially tried , um, the world of finance. Um, it wasn't necessarily for me.
And , um, there was a lot of issues that I had with it. Outside of kind of the red tape and sort of maybe some of the more moral , uh, issues that I was facing. Um , uh, but from there I kind of left and came back to home to Los Angeles , um, where, you know, I was , uh, maybe a little bit dejected and , um, sort of had.
Um, my perspective on the world turned upside down a bit. And so I was kind of just floating around in LA and , uh, I was actually had a conversation with a good friend of mine. Um, Trapper skeet. Um, he's a guy who Trevor McFedries is his real name, but he goes by skeet. He , uh, is the CEO of a company called , um, brewed out here in Los Angeles, which does , uh, artificial intelligence for digital influencers.
And so, you know, I was talking to him and I was kind of feeling dejected and a little bit lost. And he said , uh, you know , there's, there's a really interesting company. That's actually quite hiring quite aggressively in Los Angeles called the Spotify. Um, and so, you know, um, I went and had a , um, interview process with Spotify. . I was woefully underqualified. Um, and so it didn't end up getting the job, but they said, Hey , like, , you're obviously not right for this.
, but, you know, as you're just floating around and kind of , uh, if you'd like to just, you know, crash on a desk here and kind of just soaking in the environment, like feel free. And so, you know, for the next year I was able to watch them bill like Daniel and sort of the rest of that team builds.
What is now a $60 billion business , um, and sort of all of the challenges that they faced , uh, and off the back of that. Uh, I was really lucky to be connected with a. Um, family office out of Southeast Asia and begin directly investing off their balance sheet. Uh, into companies that were tangentially related to Spotify at first.
Um, but as time went on, the scope got broader and broader , um, and ended up working for another fund out here in Los Angeles And then in 2017 , um, ended up , uh, coming to Sinai ventures and , and, and sort of building this platform here.
And so you and Jordan fudge are the two partners, right? So tell me a little bit more about Jordan and what roles did the two of you play. And what's the dynamic.
I mean, one thing that , um, I think maybe it was interesting context is , uh, venture funds are only one aspect of the management that we do for our family office. And so we have other funds as well , um, specifically one in the entertainment space , um, where we're doing sort of content financing , uh,
and so Jordan's role is really to sit above all of the different funds that we run. And B , um, sort of the point of contact , uh, between our family office and the different funds that we're running. And for me specifically, I , um, look after the venture portfolio , um, and manage , uh, the.
Sort of day-to-day intricacies of that. And we also have another partner who works on our film financing side. And so , uh, you know, Jordan, I think , um, is able to take a super, super high level view at all of our different investments and , uh, provide, you know, context from our LP and just manage the, that interactive process.
Um, and you know, which is great because it allows me to kind of just, uh , Uh, you know, lock myself in my office and, and build perspectives on different companies and verticals, which is great.
Wow. It's just, it's big fund and you, you guys just don't have a huge team under you, as I understand it.
It's just us two. Yeah.
Wow, you are going to have a busy year. That's great. So there's a hundred million that is for new slate ventures, the film production arm. So does that mean you've got 500 million then in, in your purview?
yeah, so it's actually 600 for the venture side specifically, and then , uh, an additional 100 for the film side. So 700.
So you've got the 600 million in the venture investment side of things. Um, and then let's just touch briefly on the other a hundred million. I know that's not directly under your purview, but that's for producing films and TV and that sort of investment.
Yeah, I think the elevator pitch for that fund is that , um, the acquirers for content and this , um, sort of time or the same people who are buying technology businesses, they're the apples Amazons Netflixes of the world. They're fundamentally tech companies that are diversifying their income streams and look at the acquisition process of content much in the same way that they would.
Um, you know, a traditional tech business. And so, you know, in being from Los Angeles and having such an abundant amount of relationships in Hollywood, , we were able to realize that there's this, the gap in the market, a for , uh, you know, people who have authentically diverse voices , um, and who have a good read on culture and B , um, that there was a much more.
Reliable , um, sort of distribution of outcomes for a film in general, you, by and large , uh, you know, you don't have the long tails , uh, of the film industry that you would have in the past and more, and the distribution is much more centralized.
And so , uh, with that perspective, you know, we were able to , uh, create a platform around that to, to really capture. Um, what's been changing in that industry.
Great. Well, a future episode, I want to talk about new slate ventures, but, uh, you also mentioned diverse voices, which I wanted to ask you about you and Jordan are both young black men in LA.
How do you think about making sure that the LA tech community
becomes a representative community, a inclusive community?
Yeah. Um, , I think that, you know, , well, not always the case. My perspective on free market capitalism. Is that the best idea? Well, more, more often than not , uh, rise to the top.
And it's about , um, us not having these internal biases to be able to recognize what are the best ideas and what is not. And so for us, you know, I don't think that we're taking the perspective of 50% black founders and 25% female founders , you know, like a lot of other funds do. I think what we're trying to do is we're trying to reduce our biases around the idea that the best founders have to be , uh, you know, young computer science majors for Stanford . And so for us diversity, isn't, over-indexing a certain group or types of groups of people, but it is really sort of reducing our cognitive biases on what we deem to be an investible company.
And really start to hopefully look at things in a more level playing field , uh, when we begin to, evaluate companies and , and, and that sort of thing.
, I do think there's also though the aspect of sort of mentorship , um, and helping out the community, reaching into the community. What advice do you have, do you ever, you know, go talk to high schoolers who are at Santa Monica high school today, or do you have advice for aspiring entrepreneurs?
actually. Um, so we, we invested , uh, two years ago , uh, alongside, upfront , um, in a company based out of Los Angeles, California called valence. And what valence is, is they are trying to be. The social network for diverse entrepreneurs or diverse entrepreneurship. And so they've actually built a fantastic platform that operates part LinkedIn , um, part masterclass of sorts , um, where, you know, young , um, diverse founders and potential capital allocators are able to come onto this platform and, you know, have one-on-one discussions with , uh, you know, the people in the industries that they aspire to be in.
You know, exactly what you said. Mentorship is extremely important and , uh, giving the next generation of entrepreneurs, the ability to.
Take a peek behind the curtain, is definitely a very important aspect of what we do.
Yeah. I agree on mentorship and just exposure. do you have any other thoughts on the sort of company that is the right sort of company to be approaching Sinai?
Yeah. And I don't know how to necessarily frame this without sounding extremely cliche. Um, but it is, it's like, One pervasive sort of thought process that I've had throughout the, the time of raising this fund. And now starting to allocate it is that if you look at the public market, there's approximately half the companies that there were , uh, you know, decades ago and of those companies, about 25% of them have R and D budgets.
And so if you, you know, take a step back and contextualize that, what that means is that innovation is woefully. Um, you know, Is woefully under indexed in , um, the public markets. And so where a lot of that innovation has to come in is private markets. And, you know, we can sort of go into the first and second order of second, third order effects of what coronavirus says has happened.
But one thing that , um, I think the pandemic has really been great in illustrating it in is that there are aspects of this society. Um, that are still extremely inefficient. Um, and , uh, you know, don't equally, don't sort of level the playing field equally for everybody. And so as we begin to think about sort of our theses for moving forward and allocating these larger checks, I think it, we really are beginning to start to think about what are fundamental problems that exist in society.
Um, that we can vote with our dollars on , um, and that's not to say the next photo sharing app or the next, you know, Twitter knockoff , um, is going to be also a creator of value. But I think our general perspective is that, when you're writing checks of this size , um, it's equally as important to fundamentally look for the compounding of social change as much as there is , uh, the compounding of your dollars.
And so, whereas we didn't necessarily put too much emphasis on that in fund one, I think in fund two , um, that's something that we're going to continue to think about. Um,
Agreed. And you only live once and you only have so many shots on goal to do something worth doing. Um, I read that Sinai has the vision to be the city's leading series a and series B fund.
When you think about being a leading fund, do you think of that with a dual lens of returns and impact
yeah, I think one sort of begets the other. I think that if you're really, they trying to compound dollars at the most accelerated rates, your best bet is to invest in the companies , uh, with sort of the biggest ideas. And, you know, Tesla's a great example of that, right? A lot of people can be easily fooled that the ambitions of Tex Tesla are to be the next great American car company.
But if you really peak under the hood, no pun intended. What they're actually building is a distributed energy infrastructure. And so I think we're trying to look for both because we fundamentally believe that the people that are making the biggest social change. We'll be rewarded by markets
anything else tactical? Like, are you looking at companies that usually have a few million in revenue when they come talk to you?
I think again , um, in sort of really just doubling, tripling down on the sort of opportunistic side. , the KPI that is most important to us is the direct channels that this capital is going to be used for.
And so if a company, you know, has $3 million in revenue , uh, but you know, they have a very clear path onto how an influx of capital will take that to 30, $50 million. I'm not so worried about the $3 million that exists currently. I'm more so worried about is this the right team? Is this the right product?
And is the market receptive enough for them to get to the $50 million? And so with that in mind, I think, and you know, public markets have also been doing this as well. Um, I think that we're starting to price a lot more for the viability of future growth, as opposed to , uh, what's happening in the here and now.
Interesting. Yeah, you do see that in the public markets. Uh, if I have time to sneak in one question about a portfolio company, it would be luminary.
I'd love to ask your opinion of what's going to happen with podcasts. Do you think that all of the long tail podcasts are going to continue to exist?
Okay. Yeah, I think they are. And I think that , um, we're going to start getting a lot more of them , I think. A good comp is , uh, maybe a YouTube where people had the misconception that it was , uh, really just the barrier to entry, to being as successful.
YouTube channel was so high and you needed to have film equipment and understand the intricacies of editing. And, you know, you had to build an audience, et cetera. I think that we're starting to see the democratization of podcasting in the form of. Uh, you know, Mike's are whatever 30 bucks now, and to edit a podcast and put it on through anchor or whatever else is, is it, the bear is extremely low.
And it doesn't become, there's so much , like, I dunno, what's the other analogy, like a blogger repeat where the top blogs became the top blogs and everyone else was like, no, one's reading this and they stopped doing it.
I think that the difference there is that , um, you know, blogs did an amazing thing and which is they democratize the access to people's thought processes, which, you know, was a very difficult thing to achieve before the advent of blogs. But I think what podcast is really , um, what podcasts is really doing is.
Uh, democratizing the access to a wide variety of ideas. So, whereas a lot of blogs really just focused on the author and their perspective and point of view, what you see in podcasts is especially the most successful ones. Um, they have , uh, this innate ability to bring in thought leaders and different perspectives to create , um, interesting conversations.
And so I think that. What podcasts benefit from that blogs may not necessarily have benefited from is the sort of rotating door of different thoughts and perspectives that are anchored in a personality where, so where as blogs you have the personality anchor, but it was, it just stayed in that general lane until.
You know, you got tired of hearing that person think. And so , um, I think that , uh, what's great about podcasts is they feel constantly fresh because you're the best ones, at least , um, are giving you a slew of different ideas constantly.
Great. Well, of course, I appreciate that answer.
Is there anything else in the venture industry where you're questioning the assumptions about , the way things are done or trying to do things differently?
Yeah, , I think that there's a fundamentally. Pervasive issue in the, in the industry of venture capital, which is that, everybody is sort of competing for the same things.
And what I mean by same things is not necessarily , uh, the same ideas or the same entrepreneurs, but it's actually competing for , um, almost an acceptance and industry level of acceptance.
And so, you know, if you're a new and upcoming fund, if you're investing in. These large ideas that are a little bit more esoteric and, you know, don't have the sequoias and the Andreessens back into them. It's actually kind of easy to convince yourself that you're not doing a good job. Um I can't say that I haven't fallen privy to it before, but you know, new me new year, new 20, 21, I'm trying to be more conscious of my cognitive biases towards the safety net that is provided when you invest alongside a Sequoia or in Excel or whatever else.
. I think that in having such a large fund and such a large amount of capital to put, to work, it gives us the ability to , uh, you know, be the people that everyone else aspires to be alongside. Um, and so I think I'm much more focused on that than, you know, traditional VCs, making sure that the cap tables they participate in , uh, have enough Goodwill in them that it makes it an easy pitch for their investment committees.
I'm more worried about big ideas than who I'm making money with.
Yeah. It's also a self-confidence thing, which is if I go in to all of those big players and show them a deal that they all pass on, you know, I questioned whether, whether they're all seeing something that I'm not seeing.
Yeah. And it's nothing to take away from those guys. They are where they are because they have been fantastic allocators of capital for. You know, decades and decades and decades, it's nothing to take away. I think what the issue is is the people that try to be like them aspirationally without doing the things that Sequoia did Sequoia when Sequoia was investing, they weren't investing in companies that another venture fund was doing.
And that's what made them feel comfortable. They were really tackling some of the biggest challenges, ideas, and technological issues that the world has seen. And they were very handsomely rewarded for that.
True. True. Anything else we should talk about, about Sinai?
no, I mean, I think that just the one thing that , uh, you know, I'd like to touch on that we've sort of alluded to is, is that , um, you know, we really want to position ourselves as different. Um, I think that , um, Our age, our demographic, our interests is , um, orthogonal to a lot of the venture capitalists in the space.
Um, . You know, people who are looking for young thoughtful progressive investors , uh, you know , we, we'd always like to have a chat.
Well , um, LA certainly needs more series a series B investors. Um, so I'm really excited to see what comes next for you. And thanks for coming on the show.
Thank you so much, many. I really appreciate it.
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