The transcript from this week’s MIB: Sarah Cone, Social Impact Capital, is below.
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VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest, her name is Sarah Cone. She is the Founder and Managing Partner of Social Impact Capital, a venture capital investing with a really interesting slants, a tremendous track record which we’re not allowed to discuss publicly and a list of A-list limited partners which I’m also sworn to secrecy on.
But you can trust me when I say, wow, these are some really boldfaced names, certainly ones that anybody who tracks investing, politics, venture capital, technology would surely recognize. Sarah has really a fascinating work history and a fascinating approach to disrupting the world of venture capital.
Her approach is really to look for companies that not only are making a difference in the world but can produce a strong internal rate of return. Her philosophy is if you really want to impact the world, well, build a billion-dollar company and see how that changes, how everybody lives, operates and behaves in the real world. It’s really quite fascinating.
She is really charming and delightful and really, really intelligent with just the world’s craziest Rolodex and some really interesting stories. So, I think you’ll find this really intriguing. I had a great time speaking with her.
With no further ado, my conversation with Social Impact Capital’s Sarah Cone.
VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: My special guest today is Sarah Cone. She is the Founder of Social Impact Capital. She began her career at the VC group Omidyar Network. Pierre Omidyar was the Founder of eBay.
She was an associate at Illuminate Ventures where she worked on B2B software as a service in Silicon Valley venture capital. In addition, she worked at a nonprofit public knowledge group, tech policy, public policy group.
Sarah Cone, welcome to Bloomberg.
SARAH CONE, FOUNDER AND MANAGING PARTNER, SOCIAL IMPACT CAPITAL: Thank you for having me.
RITHOLTZ: I mangled your background but really to state it more conversationally, you’ve worked at a number of the big giant tech firms, right, in the early days of your career, Google and others. You’ve been moving in venture capital circles for a long time and your VC, Social Impact, focuses on more than just technology. Tell us a little bit about what Social Impact Capital does.
CONE: So, we are a venture capital firm but we go in as early as possible into what we call the best ideas and impact which we are — we think are the companies most likely to have, both make venture capital profits but also have an incredible world changing positive effect on the world.
RITHOLTZ: So, it’s both. It’s not just socially responsible or impact investing for its own sake, you have limited partners and they’re expecting a serious return on investment.
CONE: Exactly. I think what’s pretty hilarious about my firm is that, in fact, my LPs are sort of this who’s who of capitalism and they — I don’t really have a single impact investor in the firm at the moment and they — I actually even have two LPs that are on the record stating how stupid they think impact investing is.
RITHOLTZ: So, why did they give you money if they think what you do is stupid or are they looking past the impact side towards the investment side?
CONE: Yes. Well, I asked one of them one time, I was like, why are you in this firm anyway, and he replied to me, the performance.
RITHOLTZ: That’s the interest. And I know you are bound by nondisclosure rules. You can’t say who these people are. But I know who some of them are and they are front-page name-brand investors. Is that a fair statement?
CONE: They are.
RITHOLTZ: Does that impact how you look at the world or is it it would be the same if was just a big faceless institution?
CONE: Well, I have — it’s sort of an internal joke at our firm because I refer to them as widows and orphans. It’s sort of a joke because, of course, they’re all sort of billionaires that are able to take on early risk and a young venture-capital firm.
But it’s aspirational because we aim to become a top-tier farm that produces such great returns that I am allowed to manage the money of widows and (inaudible).
RITHOLTZ: So, let’s talk a little bit about that because I think that’s kind of interesting. There are friends and family rounds when somebody first gets an idea and then there’s the angel round and eventually you move to big farms, A rounds, B rounds or C rounds. Where is Social Impact in that spectrum of early-to-late venture investments?
CONE: We are the early as possible. We like to go in — we’ll do anything in the seed stage. So, we’ll do you — previously, the seed stage has become even more segmented.
So, we’ll do — but we’ll do anything in the seed stage. We’ll do -pre-seed. We’ll do seed. We’ll do seed extensions, sort of anything in the early days. And then what we do is — what we specialize is is in creating these social impact companies, getting them into the place where their real business is and then getting them led by top-tier venture capital firms in the Series A. And so far, at the firm, we have an 83 percent rate of doing that.
RITHOLTZ: Meaning, that you do a seed of investment but eventually …
RITHOLTZ: You bring in additional V seeds.
CONE: Exactly. The downstream money is 83 percent from top-tier firms. I love it because I get my — and the founders got their philanthropic business plots then funded by commercial capital because they are good businesses and so they’re able to do that.
RITHOLTZ: And now, how can you tell if you’re so early stage they really — it’s a business plan, it’s a couple of founders. But typically there isn’t a product. There’s barely website. Is it more idea than actual business?
CONE: It definitely is as we’re going and extremely early. And so, I’m making these pretty risky bets on what we spend a lot of time and diligence. We spend a lot of time with the founders and we just do our best. But as in any venture capital portfolio, you expect a number of those to fail and then a number of them to succeed wildly and compensate for those failures.
RITHOLTZ: So, let’s talk about that distribution. Typically, with a venture firm that are making let’s call it A round, so, they’re a little more developed. There’s — it’s not a finished product but at least there’s a product, some software, website something you can look at.
With those sort of A rounds, typically, 10 20 percent are total bust. Another 30, 40 percent maybe the breakeven, 10, 20 percent makes some money and it’s a really small slice that really hits the ball out of the park. What’s it like when you’re doing earlier seed stage? I would imagine the failure rate is much higher.
CONE: Well, at our firm, I mean, the funny thing about the venture capital industry is that you tend to — there’s not data published on it that is very reliable. So, you tend to only know what’s going on in your firm and then sort of what you read in the media.
CONE: So, I’ve read from — on “CB Insights” that the failure rate for seed stage investing is that only 20 percent of the follow-on rounds get funding at all from seed stage deals.
In our firm, we actually have 100 percent hit rate right now. But it’s venture capital so you don’t really know anything until seven years, 10 years down the line.
RITHOLTZ: It’s all little secret and it comes out.
CONE: Long feedback cycle.
RITHOLTZ: Right. It’s a huge leg before you really find out.
CONE: And there’s the huge lag. It’s pretty excellent though because what it creates is this sort of — I always describe venture capital as the only uncompetitive field in finance.
RITHOLTZ: Why is that?
CONE: It’s because there are basically no good venture capitalists in the world. So, when you — so, by the time you learn and you actually really got the knowledge, which can — it’s seven to 10 years down the line, it’s this incredibly long lag time.
So, by the time you learn the lessons from that, all the technology has changed, all of the business models have changed and the entire world has changed. So, if you actually take those lessons and adopt them, which many venture capitalists do, then you’re investing wrong in your next fund and you see that play out over and over again. So, I think that the only really good venture capitalists are these sort of intense real-time learner venture capitalists.
RITHOLTZ: So, it’s sort of like looking at the light from a star. By the time the light gets to us that, hey, that star could be gone for millions of years.
CONE: Exactly. That’s a perfect way to describe it.
RITHOLTZ: Quite fascinating. Let’s talk a little bit about launching your own firm. You’re here in New York but you used to be out in Silicon Valley. What made you say, A, I want to kick off my own shop and, B, let’s leave all those people behind on the West Coast and come to New York City?
CONE: Well, I started my own fund because I see this incredible arbitrage opportunity and it’s early-stage impact investing that I was not able to kind of concentrate on that thesis anywhere else in the world. So, I do that.
RITHOLTZ: Is it too niche, too small? Why couldn’t you concentrate on that elsewhere?
CONE: Well, what’s wonderful is I would describe it as that — it’s almost like an invisibility cloak because primarily, no one in the world believes that impact investing can actually produce top-tier returns.
RITHOLTZ: I keep hearing by the way, it’s political, it’s so …
CONE: Yes. I mean, I hear — almost every …
RITHOLTZ: It’s self-indulgent, luxury junk.
CONE: I just — I constantly hear this and I constantly am like VCs are like — kind of always saying to me like, Sarah, you’re a great investor, you can just drop the Social Impact branding now. I’m like, guys, this is what’s producing the return.
But I — it used to kind of annoy me but I realize that this is actually my competitive advantage because it means that there’s a ton of open eyes here because no one else is coming into this field. So, when I’m getting better valuations than anyone else in the VC industry, when I’m getting into better companies than anyone else in the VC industry, then they’re sort of baffled. They still don’t understand it. So, this is — it’s a fantastic competitive advantage.
RITHOLTZ: Bafflement is a great …
RITHOLTZ: … advantage. It really is. I’m kind of intrigued by the concept of cumulative advantage where firms that have done well attract a network of better VCs, better LPs, better companies. Do you see that in the Social Impact side or has it not yet developed that far where cumulative advantage is accruing?
CONE: I think cumulative advantage is one of the most important things to any VC firm period.
CONE: And one of our advisers for our firm, Ashby Monk, has actually written widely about this and we — how we have thought about it at our firm is that we have an unusual structure and that it’s a solo GP firm but I work with a wide variety of venture partners and advisers that all have pretty specific domain expertise and specific institutional connections.
RITHOLTZ: What other venture firms are you working with as part of your broader network?
CONE: I mean, all venture — it’s a part of the industry that venture capital firms work with other venture capital firms.
CONE: Every venture capital firm does that. I’m saying we work …
RITHOLTZ: Actually, for follow-up rounds, be in some rounds.
CONE: Yes. We work with a bunch of kind of — at our firm, we work with a bunch of academics and kind of people in industry and people out in the world.
RITHOLTZ: So, more than just other venture funds.
CONE: Right. Other venture funds. And this has been an incredible accumulating advantage to us over time.
RITHOLTZ: What do you hear from your limited partners? Do they stay in close contact? How to communicate with them? How often do you update them?
CONE: I have a small number of them that I’m in pretty close contact with and then most of them I send quarterly updates to their people.
RITHOLTZ: And how do you source and find potential investments?
CONE: I think that — we basically scour the earth. We’ll do anything to find an investment and we look at everything. But I think most of our deals come in two primary ways.
One is through the advisory board and venture partner network that I just talked about and then the other way is that we sort of have a reputation as being good foundation builders for seed stage companies. So, I got a ton of deal flow through Series A and later VCs that go, hey, Sarah, I love this company. It’s too …
RITHOLTZ: Too early for us.
CONE: … early for me, you should take it, and I’m like thanks, I’ll invest in this and get it into great shape for you and pass it along when it’s …
RITHOLTZ: Bounce back.
CONE: … interesting to you.
RITHOLTZ: What — when you say pass along, what sort of resources do you pour into besides just writing a check? What else do you do to help a startup company get off the ground and move forward?
CONE: So, we have this — the venture partner and advisory board are this immense resource for these people where we almost always will have the exact advice that you need for the exact problem that you have. I mean, sort of match it in ad hoc basis.
So, it’s like are you a biotech company that is wondering how to handle the FDA? Well, Linda Avey, who is the co-founder of 23andMe is on our advisory board who knows a ton about that. So, we just connect you for a call and it’s a lot better than having some venture partner or, I mean, venture partner at a venture capital firm sort pontificate on areas that they haven’t had really, really intimate familiar experience with.
RITHOLTZ: So, it’s the network. What about the specific day-to-day of learning and building a new firm?
CONE: We tend to sort of be hands-off and less were asked because we do a lot of upfront work into our company. So, we tend to not sort of have the — we need so much help in this company. We tend to only kind of invest in the companies that are pretty fully formed and then we’re there to assist entrepreneurs with the best of class resources when they have trouble. But other than that, we try to stay out of their way of building huge companies.
RITHOLTZ: And how are the deals typically structured? What do they look like? What does the entrepreneur give up and what do they get?
CONE: So, I mean, the entrepreneur gives up equity and then they sort of …
RITHOLTZ: Do they give up a controlling share, a 30 percent, something?
CONE: We usually try and target at about 20 percent each share. It depends a little bit on what the metrics of the business are and the stage of the business. But we think that’s a pretty fair — we like clean, fair …
CONE: … middle-of-the-road terms and we think that works well.
RITHOLTZ: And how do you value a company when it’s so early stage?
CONE: That’s the magic. I actually have a PhD in Applied Math that sort of helps me do all of the valuation. But it’s one of the most questions that venture capitalists disagree on most of all in the profession.
RITHOLTZ: So, with a more mature company, you have products, revenue, maybe even profits and there is a formula to generate some multiple on that. But when it’s so early stage, it feels so much squishier. How much of this is science and how much of this is art?
CONE: I would say it’s all art.
CONE: I mean, the way to think about it is it’s a discount on a future cash flow.
CONE: But that’s an imaginary thing.
CONE: So, it’s a discount on your imagination and some venture capitalists are able to imagine greater scenarios and some venture capitalists have no imagination at all.
RITHOLTZ: And we haven’t really talked about returns. We know you do subsequent rounds. What have the returns been like for the firm? By the way, hedge funds I know are very much precluded from sharing return information except with their accredited potential investors. Do you have similar limitations with venture?
CONE: I wish we could talk about our returns but no. It’s — the SEC frowns upon that …
RITHOLTZ: They do.
CONE: … for good reasons.
RITHOLTZ: Understood. Let’s talk a little bit about some of the work you’re doing in Social Impact investing and in particular, I want to ask you about Defy Ventures and BUILD.org. We’ll talk a little bit about each of those.
First, what was the motivation to start along a social impact axis as opposed to merely doing early seed stage venture investing?
CONE: Well, I love investing. I mean, it’s been my primary hobby in the world since I was eight. But as a career …
RITHOLTZ: What were you investing in that age?
CONE: Well, public equities, I mean, through my …
CONE: Yes. Through adults but — so, back then, the stocks were in the newspaper. So, I would come home from school every day and the first thing I do is get the newspaper and look at my stocks.
CONE: Yes. But never considered that I could go into finance as a career. I didn’t know any women in finance. They never even passed my mind. My — what I wanted to do was to do something positive for the world, to go into public service. So, it was quite a great day in my life when I realized that I could actually combine those two things.
RITHOLTZ: And we talked about this briefly that it’s neither impact first nor ROI first. It’s you make the investment in a space that you might have been attracted to because of its impact component but the investment itself is strictly on the same metrics as any of venture investment.
CONE: Exactly. I mean, my philosophy here is that you don’t change the world by playing small games. You change the world by making billion-dollar companies. And I want to encourage that sort of world changer, do-gooder types like me to think bigger and to think more about building these huge companies that can do good.
RITHOLTZ: So, I was going to ask you a question but I kind of think you answered already. Typically, venture investments are looking for an exit either by going IPO or an acquisition. No different with impact investing, is that right?
CONE: No different and venture capital exits are everything. They are the returns to our LPs. So, they really matter.
RITHOLTZ: So, let’s talk about those two firms I mentioned that you’re adventure adviser, too. What is BUILD.org?
CONE: Those are actually volunteer jobs that I do. BUILD.org teaches entrepreneurial skills to high school students and Defy Ventures teaches entrepreneurial skills to former inmates. So, both very talent — I mean, the world is full of talented entrepreneurs and I like to encourage all of them.
RITHOLTZ: I’ve read that venture investing is very much a relationship game. Do you think that is true in venture investing as well as philanthropy?
CONE: I definitely think that true. I mean, I think that being human is a relationship game. But in particular with venture capital and philanthropy, you’re dealing with these complex coordination problems which is why they become social problems because they’re so hard to solve.
So, you have to build these huge extensive networks where you can interact with the nonprofit sector, with government, with the for-profit sector. So, we always very much concentrate on building these broad alliances between different people.
RITHOLTZ: And let me reference some of the work you did in academics. At UC Berkeley, you won a number of awards, the Advocacy Award for persuasive writing, the Jurisprudence Award for academic excellence.
But I want to talk about your thesis, “Reforming Federal Tax Policy to Support Social Entrepreneurs” that received some honors as well. How does one reform federal tax policy and how does tax policy support social entrepreneurs?
CONE: This is a very actually complicated tax policy question and it has to do with kind of are you allowed to deploy nonprofit assets into impact investing.
RITHOLTZ: So, if you’re nonprofit organization …
RITHOLTZ: … you have a little spare cash …
CONE: You are — yes. OK.
RITHOLTZ: And you put then into a social impact investing type of fund.
CONE: Right. So, you are allowed to deploy nonprofit money into for-profit businesses. The idea of it being a nonprofit is just that you can’t ever take it out and buy a yacht or something.
CONE: It has to kind of stay in the do-gooder realm as defined by the IRS. Anyways, so, the IRS needs — issued — has issued rules around this. They’re very unclear and they kind of just make everyone nervous in this sector.
RITHOLTZ: So, your thesis helped clarify those rules for the broader …
CONE: It suggested how I thought they should be clarified and mainly that I think they do need to be clarified because no one is certain how to act in this realm and it’s depressing — it’s very important because actually, the nonprofit sector is incredibly large.
CONE: It is actually — the nonprofit sector is actually six times larger than the entire venture capital industry.
RITHOLTZ: Right. And it’s a form of permanent capital as well.
CONE: It is. I mean …
RITHOLTZ: It is well-managed anyway. It should persist for forever.
CONE: Exactly. We think of — we tend to think of anything nonprofit is like that is weak, poor …
~ … cash-strapped organizations but …
RITHOLTZ: There are those also.
~ They definitely have those but the sector as a whole is an incredibly wealthy sector and so those regulations really matter about how capital is deployed into the world.
RITHOLTZ: The Gates Foundation, go down the list, the Bezos Foundation, the Case — these are giant multibillion-dollar entities and they’re structured to be perpetual.
~ Yes. They have a large influence on how capital is getting deployed and the tax regime has a large influence — the tax regime basically is controlling how that capital is getting deployed.
RITHOLTZ: Let’s talk about some of the recent Social Impact type deals in the public sphere. When we look at something like Beyond Meat, that IPO has been wildly successful, far more than most of the other sorts of IPOs we’ve seen in generally, at least it’s done better than most of the unicorns out there like Uber and WeWork.
CONE: It certainly has. It was actually the best — I read that it was the best venture-backed IPO in two decades.
RITHOLTZ: So, would you consider that like a Social Impact investment?
CONE: I absolutely would if my fund had existed then no doubt we would be in that deal. So, that’s the type of thing we’re doing.
RITHOLTZ: What else is taking place in the fake food space for lack of a better really — I guess the better phrase is green foods or low-impacts — low-carbon impact foods. How do you look at that space? What else is coming along there?
CONE: We’re seeing a number of really exciting companies in that space. Food systems are a big problem in the world …
CONE: … and they’re quite for disruption as venture capitalist, love to say.
CONE: Some of the companies we have in that space are actually Wild Earth Pats which is dog food company. I know we’ve talked about this company and you dislike it because you feed your dog steak every night.
RITHOLTZ: No. No. No. Steak is a little rich. We basically use Purina Pro Plan, which is commercially developed and then we put the Stella & Chewy’s toppers and my dogs are so spoiled that despite all that delicious goodness, I’ll give them a little scrambled egg or a little something to just make it special.
CONE: Well, I’m going to send you a bag of our vegan dog food which is made from a mushroom that’s actually higher protein than steak. It was developed with the veterinarian. It has all of the amino acids dogs need.
And we had — I jokingly call it our dog-save-the-world feces because …
CONE: … it turns out that 25 percent of the agriculture in the U.S. growing meat just goes to feed dogs and cats.
CONE: So, we thought by replacing some of that with this vegan alternative that is healthy for dogs, then that is an easier way than to ask people to give up their hamburgers and has a bigger impact.
The other thing about it is that it looks like a vegan diet actually has longevity effects on dogs. So, we’re going to be exploring with some academics …
CONE: … in the future. One of the dogs that actually live the longest was on an all vegan. I think he was in the top four for the world’s record holder of dogs that live forever. It was an incredibly long time. I think it was like 185 years in people years who was on an all-vegan diet.
RITHOLTZ: What is it in actual solar years?
CONE: I don’t really track dog world very well …
CONE: … aside from my daughter who constantly begging me to get a dog.
RITHOLTZ: I will try vegan dog food but from an evolutionary perspective, the packs of wolves, they weren’t hunting wild mushrooms, they were out hunting meat and there seems to be a predilection towards that left to their own devices. Although dogs will eat grass and we feed our dogs, on occasion, this stew of yams and spinach and other things, carrots, that are really good for their digestive system, my dogs are incredibly spoilt just so you know.
We have a pool for the dogs. I — they occasionally let me go in. But effectively, the pool is theirs.
CONE: Well, I — you have to tell me what they think about this dog food …
RITHOLTZ: All right. I’ll try that.
CONE: … because I heard that the dogs love it.
CONE: Yes. We have — we did test where we put two dog foods next to each other to see which ones the dogs would heat and …
CONE: … and they would go to this. So, yes.
RITHOLTZ: Wow. All right. I’m — what else is in the food system space?
CONE: We have another company called Endless West which can molecularly manufacture foods.
RITHOLTZ: I’m fascinated by that because I saw something not too long ago in “BusinessWeek” where they were describing chicken McNuggets not from chicken but from cells grown in a lab from a chicken.
CONE: Exactly. It’s the same space. It’s a little bit different because that is — they’re not — Endless West isn’t doing proteins. That is what we call the cellular agriculture space.
When you’re growing a protein, that’s very difficult and we think that that technology is not really here yet in terms of cost. So, we haven’t gone into that space.
RITHOLTZ: Right. Eventually, you got to think though to do that.
CONE: Eventually, it definitely will happen. I think that’s still 20 years off before it’s going to be get down to the level of …
RITHOLTZ: It’s not a hundred years. So, you’re saying …
CONE: Yes. I know it’s close on the horizon. It’s 20 …
RITHOLTZ: So, 20 years from now …
CONE: I’d say it’s 20, 30 years off now.
RITHOLTZ: … people would be eating foods that did not come from an animal other than a cultured …
CONE: Abd. I have tried it and it is wonderful and you cannot tell the difference.
CONE: The only problem is that it’s too expensive.
CONE: It’s $2,000 a pound to make.
RITHOLTZ: Right. And it shrinks up to almost nothing if you try and that’s the problem.
RITHOLTZ: But the — so, in other words, this is really just an efficiency and production issue. Once that is resolved and this becomes competitive pricewise, am I understanding this correctly, that sounds like this is inevitable then?
CONE: It’s definitely inevitable. Yes. It’s one of those trends in the world that’s inevitable.
RITHOLTZ: OK. That’s quite amazing. Let’s move away from the discussion on food systems because it’s both fascinating and horrifying, Franken foods. Let’s talk a little bit about valuations.
Marc Andreessen suggested that valuations don’t matter. He said if he would pay double what he paid for Facebook wouldn’t made any difference. Do you agree or disagree?
CONE: Well, Marc Andreessen is completely right. I never disagree with Marc Andreessen.
CONE: But — so, he’s completely right in that you — there’s going to be 15 deals a year that — out of that thousands and thousands that you look at that are going to become these outsized companies.
As a venture capitalist, all you need to do is be in those 15 deals. So, you — it doesn’t matter what you pay for them. As a matter of practice about if you look at what has actually happened in the world, the valuations of some of the biggest businesses in the world were incredibly low.
So, Airbnb first started raising money at a $1.5 million valuation. Now, Uber valuation …
RITHOLTZ: So, if you were to pay double, who cares?
CONE: Uber’s valuation was at 5 million valuation. So, I almost look at it as — if you’re raising with too high of a valuation, that’s like a negative signal. The low — I’m not sure if it’s actually that the entrepreneurs are so good so they’re optimizing the valuation and the seed stage for shots on the goal …
CONE: … instead of owning up a lot of the company or if it’s just that those ideas are so contrarian that no one wants them in the seed stage and they don’t become obvious.
So, kind of what we say is that in the seed stage, the wisest route to take is to optimize for shots on the goal and dual valuation so you have more flexibility with your capital. And then every round …
RITHOLTZ: Meaning, subsequent round.
CONE: Yes. Every subsequent round after that optimize for valuation.
RITHOLTZ: Quite fascinating. So, Uber, Airbnb, WeWork.
CONE: Facebook, all had very low — I mean, I don’t track WeWork so I’m not sure about that. But they all had surprisingly low valuations in the seed stage and then they become these major company — Peloton, it’s — they — in the seed stage, they’re not obvious and furthermore, these deals — Robinhood is another one, they’re also widely shopped among …
CONE: … venture capitalists.
RITHOLTZ: Why is that?
CONE: I mean, Uber, I think, went — Uber was pitching to open realms of angel investors in the seed stage.
RITHOLTZ: Is that unusual or is it usual one-on-one? What’s the typical structure of those?
CONE: No. I mean, it depends. I mean, it sort of depends on the entrepreneur’s network and the sort of the company. But it’s — a lot of these — a lot of the deals that become the biggest, they’re just not apparent at all at the seed stage.
RITHOLTZ: They’re out there, the contrarian.
RITHOLTZ: Everybody who looks at it.
CONE: And it’s only with all of this kind of ex post facto looking back that we believe that.
RITHOLTZ: Right. Hindsight bias. Of course, so, obvious after the fact.
RITHOLTZ: Now, that’s really successful …
CONE: Uber was going to be huge.
RITHOLTZ: Right. That’s right.
RITHOLTZ: That’s really quite interesting. So, I go to these regular dinners that we host where there’s so much intellectual capital in New York. We try and just grab a group of random hedge fund economists, academic, media people and see if there’s an interesting conversation.
CONE: I’ve been to one of those.
RITHOLTZ: I know and it was one where I build — I think I was traveling, I missed it. I invited you to one and then didn’t show up.
CONE: I had the time of my life and I’m still …
RITHOLTZ: Did you?
CONE: … best friends with about four of the women that I met at that dinner.
RITHOLTZ: We make it kind of ginger blended where it’s not just like eight white dudes. We don’t love that. But you’ve tried to get some billionaires together for dinner on your own, how has that worked out?
CONE: So, it’s an important part of our Social Impact Capital is that we hold these Jeffersonian dinners where we bring people in the world together to have honest dialogues about issues. It’s part of our — solving these complex coordination problems.
RITHOLTZ: So, you actually have an issue to be — if you say Jeffersonian, I assume you mean a debate takes place …
CONE: It’s not …
RITHOLTZ: … Hamilton style?
CONE: It’s not such a debate. It’s an honest conversation about real topics in an incredibly confidential forum. So, it gets harder and harder now in the world to actually have these forums where you can say what you think.
CONE: So, we try and convene those between different stakeholders and this was a one that I always joke about because it was a lot of billionaires and I was trying to bring them together and it was basically impossible. They all had different business rivalries against each other and they’re like, I won’t get in a room with him, he sued my company for 20 years, and then they all had personal rivalries against each other like, I heard he once slept with my daughter, I’m never getting in the room with him.
And then they all — beyond that, they were all — they had political rivalries like, I totally disagree with what he thinks about tax policy so I’m not going to talk to him. And at the end of it, I was like, well — I finally brought it together but at the end of it I was like, the good thing about this dinner is that it really has impressed upon me that there is no way these people are getting in the room together to control the world. That is just impossible.
RITHOLTZ: Wait, there’s no trilateral commission or …
CONE: No. I mean …
RITHOLTZ: … the Illuminati?
CONE: As a non-billionaire, you definitely have this image that they all got in some smoky room, smoke cigars and just decide how the world is going to go and I was like …
CONE: … I know firsthand now that that is completely impossible. And that’s even before their impossible schedules, they’re like, great, that sounds wonderful, let’s do it. I have an open lunch in …
RITHOLTZ: Yes. That’s hilarious. It’s — so, no Illuminati running the world, just it’s …
CONE: I mean, you can never be sure because it could have been all in an elaborately coordinated plot …
RITHOLTZ: A ruse. It was a ruse. Just throw you off …
CONE: … just to change my mind about that. But I’m pretty sure.
RITHOLTZ: Hey, this girl Sarah is hot on our trail. We need some ruse to throw her off. I know, let’s make it impossible to do a dinner. She’ll buy that.
CONE: Yes. And then I pulled it off in the end and then everyone just argued and it was incredible and at the end there like, this is more fun than these things usually are.
RITHOLTZ: I was going to say, was it productive if you got everybody in the room? Did they have an intelligent conversation?
CONE: We definitely did have a very intelligent conversation. I wouldn’t call it necessarily so productive in that that nothing really emerged — in the best ideas like things emerge out of them. But it’s certainly I think gave people some understanding that they didn’t have coming in.
RITHOLTZ: Quite interesting. I get a bunch of questions I didn’t get to. Can you stick around a bit? We have a ton more things to talk about.
RITHOLTZ: We have been speaking with Sarah Cone, Founder of Social Impact Investing. If you enjoy this conversation, well, be sure and come back for the podcast extras where we keep the tape rolling and continue discussing all things, venture capital and impact related.
You can find that at iTunes, Google Podcast, Stitcher, Spotify, Overcast, wherever you’ll find our podcast are sold. We love your comments, feedback and suggestions. Write to us at MIBpodcast@Bloomberg.net. Give us a review on Apple iTunes.
Be sure to check out my weekly column on Bloomberg.com. You can sign up for my daily reads @Ritholtz.com. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.
Welcome to the podcast. Sarah, thank you so much for doing this. We have been trying to get this together for quite a while and you and I first met on Twitter where all great venture investments begin their lives and you and I were arguing about something but in a very polite respectful way.
We were disagreeing about something. I don’t remember what it was.
CONE: Me either. In fact, I frequently meet people in the world that say I was disagreeing with you on Twitter about something and I have no recollection.
RITHOLTZ: And I have like — I think some of this comes from years and years of blogging back in the day when blogs had comments and there would be this robust community associated with a blog.
RITHOLTZ: And the big picture during the financial crisis, I do a blog post and it get a hundred comments and like this crazy robust conversation. But eventually, tragedy did come and rears its head and it became overran with trolls and spammers and other sorts of stuff who, hey, there’s a crowd here that must have some value. Let me market my junk to that.
So, I have zero tolerance for nonsense in blog comments and that’s kind of carried over to Twitter. I’m way too quick to mute people and probably too quick to block people.
CONE: That is the only way to use Twitter actually. I think Twitter is a very usable platform if you spend hours and hours curating and …
CONE: … blocking people.
RITHOLTZ: Well, this …
CONE: But we’re actually incubating a company at Social Impact Capital that we hope …
CONE: … will solve that problem because we think it’s actually the root — I mean, we have this information problem I think online now where we live in an information age but the information that exists in the world is sort of getting worse and worse and harder and harder.
RITHOLTZ: We live in the misinformation age.
CONE: Yes. Exactly. So, we are building a new social network. We call it at — the ideas that it makes our user smarter and we are kind of partnering with what we called the offline intelligent networks like the people that went to your dinner. Other examples are Milken or WF.
So, we’re kind of bringing those together so in between your meetings offline, you can banter online in a forum and I think it’s going to be incredibly interesting.
RITHOLTZ: Does that have a name yet that’s public or is it still below the radar?
CONE: It’s still below the radar.
RITHOLTZ: Stealth mode.
CONE: But you will be the first to know.
RITHOLTZ: All right. I’m intrigued by that.
RITHOLTZ: So, I don’t remember what we were arguing about with Twitter. I do think we discussed the soft block on Twitter, right?
CONE: The mute.
RITHOLTZ: No. All right. So, the soft block, I’m going to reveal this and this has been around for forever, I didn’t invent this, but the soft block is simply if someone is following you and you blocked and then immediately unblock them, what you’ve effectively done is forced them to unfollow you.
So, then you — so, you blocked-unblock them, now, they’d unfollowed you. You mute them and it’s sort of like a stealth breakup.
CONE: I did not know that about this Twitter gold.
RITHOLTZ: I will tell you that people have said to me it’s life changing.
CONE: Life changing.
RITHOLTZ: Just like — the only thing that’s close to that, it used to be the ability to move the cursor on an iPhone by holding down the Tab key and you could now ghost (ph) the cursor wherever you want. But the latest technology which I tweeted was you now have this ability, I think it came out about a month ago and — or by the time this broadcast two months ago, that you can set your phone so that if a caller is not in your phone book, it automatically goes to voicemail, which means no more robo calls.
CONE: This is why came on the show because I knew I was going to get this kind of life tips.
RITHOLTZ: Right. This is — right.
RITHOLTZ: That’s really what the show should be about. Life-changing — it’s not even tech, it’s technology settings. Somebody else has made a tech product that’s so complicated that in order to drive value from it, you need these little …
CONE: You need to know.
RITHOLTZ: … tweaks that suddenly, Twitter is more worthwhile and this iPhone, which is completely useless to me as a phone because of the robo calls, now is actually a fully functioning phone a decade after Steve Jobs first released it.
That’s — now, come up with a name for that, right? I just tech tweaks for geeks or something silly like that. So, there’s a bunch — I love these digressions. There’s a bunch of questions I did not get to that I want to work my way through and I’m going to give you a couple of options on some questions and if you have a conflict or a compliance issue, we’ll just wave them off.
Early, early, early in your career, you did one-off with Howard Buffett. You want to just discuss that really briefly or do we not want to talk about that?
Next. That was way early in your career. So, such a corny question, how do you balance doing good with doing well? I’m going to skip that. It’s so …
CONE: I get asked that a lot.
RITHOLTZ: Isn’t that a terrible question?
CONE: It really is.
RITHOLTZ: But this is a good question. So, you invest in a broad variety of areas. It’s not like you have one teeny tiny niche. You’re pretty, pretty broad. What areas do you think are ripe for disruption? We’ve already talked about food processes. What else are you look — and social networks. What else is ripe for disruption?
CONE: Well, I think as a venture capitalist, your most fundamental belief is that everything is right for disruption. So, I think healthcare, food systems, education, transportation, housing, water, energy, even social media is all ripe for disruption.
And my day is basically an endless stream of ideas in my inbox about how to disrupt all of these fields. I joke that my inbox is pretty much the most inspiring place in the world.
RITHOLTZ: Really? That’s quite interesting.
CONE: Yes. It’s good to feel that way about your inbox.
RITHOLTZ: I have an idea for new company but it will disrupt venture investing.
RITHOLTZ: Can I get venture investing for that?
CONE: Venture capital is one of the most disruptable field.
RITHOLTZ: Is that true? I was kidding but is that really true?
CONE: It definitely is true. I think — I have a bunch — it’s not really my field but — because I think venture capital is fantastic. But certainly, venture capitalists talk all the time about ideas to disrupt venture capital.
RITHOLTZ: VC disrupting VC. Well, wasn’t Andreessen Horowitz a somewhat disruptive venture firm when the rolled out?
CONE: Yes. They absolutely were.
RITHOLTZ: What were they doing that was so different than the Kleiner Perkins of the world?
CONE: Well, they really popularized the portfolio. They really — sorry, I will take that again.
RITHOLTZ: Go ahead.
CONE: There’s not the chime.
RITHOLTZ: It’s 11 o’clock.
CONE: Yes. I’ll turn off this.
RITHOLTZ: So, we both turned off a phone and we …
CONE: And I forgot to turn off my other devices.
RITHOLTZ: So, I’ll tell you another setting that I love. I don’t know if it’s on this.
RITHOLTZ: What I want to do is …
CONE: My God.
RITHOLTZ: So, first, you pull it from the right …
CONE: Yes. I didn’t even know that exist.
RITHOLTZ: So, watch this.
CONE: My God.
RITHOLTZ: Until I leave this location. So, now, you will not going to hear any noises until you …
CONE: You just really know how to operate this stuff.
RITHOLTZ: You know what it is? I’m an idiot savant with this stuff.
CONE: You really should have a show just on this.
RITHOLTZ: No. Because basically, I’m done. I’ve given you my four biggest tricks. Now, what would I do for the next two hours?
CONE: Well, it’s good to get interspersed with the finance.
RITHOLTZ: So, I’ll tell you how I got — I discovered that trick. By the way, I really …
CONE: Your dog discovered it.
RITHOLTZ: If it doesn’t have anything to do with me, he’s not discovering. I really hate whiny journalists complaining about plane delays. And so, I’ve tried really hard not to fall into that group although it’s really, really challenging.
CONE: Well, I will say most of the arguments I get into one Twitter are when I’m on a plane delay.
RITHOLTZ: Well, because you got nothing to do and then you’re irritated and it’s like argh (ph). But I said on Twitter, God damnit, why does an Apple have a setting like I would shut my phone off to record something because everybody has a podcast. They all — everybody in the world has this problem. They shut their ringer off to record a podcast and then they leave and the ringer is off and they miss subsequent calls.
Now, there is an entire subgroup of people who say, you turn your ringer on? What sort of a monster are you? So, I was intrigued by that.
But the other group said when I asked this question on Twitter, yes, there’s a setting. You could either turn your ringer off for an hour or even better, turn your ringer off until you leave a given location. And I’m like, why didn’t I know about this? And the answer is these things are so complex and so many new features come out, it’s impossible to keep up with all of that.
CONE: Well, that’s actually a perfect illustration of the thinking behind our social media platform is that what — so, everyone thinks that Stewart Brand said information wants to be free. It’s been spread all around the Internet that he said that.
RITHOLTZ: Right. The “Whole Earth Catalog” and blah, blah, blah.
CONE: Yes. So, I feel somewhat sorry for him because he didn’t actually say that. If you sort of …
RITHOLTZ: What did he say?
CONE: The full quote was — he said something like information wants to be expensive because the right information at the right time just changes your life.
CONE: It’s the most valuable thing in the world. On the other hand, information wants to be free because it’s so easy to replicate and pass along now.
CONE: And he said these things are going to be competing. And so …
RITHOLTZ: Context matters.
CONE: Exactly. So, social media is fantastic for kind of getting you the right information at the right time. And so, we’re kind of creating the best platform in the world for that.
RITHOLTZ: Right. Except for that whole …
CONE: It’s part of my new ambition.
RITHOLTZ: … that whole undercutting democracy thing.
CONE: We’re going to try not do that.
RITHOLTZ: It can destroy our …
CONE: That’s our aim. Yes.
CONE: That’s on the mission statement.
RITHOLTZ: OK. So, maybe I have another technology tip but it’s just a website. quoteinvestigator.com …
RITHOLTZ: … which is awesome because you find out that all these quotes that you’ve been using your whole life are nonsense.
CONE: I know and especially Albert Einstein pretty much said nothing clever.
RITHOLTZ: Nothing about compounding. Nothing about hydrogen and stupidity. Nothing about — there are all these Einstein, Mark Twain, Marcus Aurelius. Go down the list of these people who you constantly see quoted. It turns out that most of these quotes came about decades after they passed away.
RITHOLTZ: And you can track, and Quote Investigator does, the genesis of these quotes based on when they first appeared in print, when they first appeared in the book, and if it’s — and whether or not it’s in the person’s body of writing body of work. And so, something shows up 50 years after Mark Twain dies probably not a Mark Twain quote, which is pretty amazing.
So, the public markets are fairly efficient. They do a pretty good job at figuring out what an appropriate valuation is relative to future discounted cash flow. How efficient are the private markets? How efficient are venture capital investing relative to what is or is it known? It seems more opaque than we see in the public markets.
CONE: Yes. It’s certainly more opaque. The information isn’t public. In fact, I don’t even know most of the performance of my very close friends in venture capital. So, I always describe it like running a venture capital firm, I’m running Olympic race but I don’t even know what the times are of any of the people that I’m running against.
CONE: So, there’s just not this information that you have in the public markets and in private markets. And then simultaneously, they just have two different incentive systems.
So, the private markets are basically these Max’s auctions and by the time you get to the public markets, you’re no longer a monopoly seller of your stock and you can’t walk away to avoid setting a low price and there are no transfer restrictions.
So, you’re merging these two different incentive systems into each other and I think it’s like merging a car onto a high-speed freeway. There’s only a few drivers in the world that can really do that very well. So, it’s why I am incredibly …
RITHOLTZ: You don’t drive a lot, do you?
CONE: I don’t know. I’m not a great driver. It’s why I am glad to be an early stage investing because by the time the company has got to that stage, for me, it’s like is this going to be 100X on my return or a thousand X and that’s my only worry there.
RITHOLTZ: How do you measure how impactful a given investment is? We’ve talked about how do you measure how successful something is and that basically is the return on investment. But how can you determine whether or not something is moving the needle?
CONE: So, this is always a big topic of debate in my firm and I — when I originally started at my firm, I was dead set against any kind of impact investing metrics.
Finally, my partner convinced me that these impact, us tracking an impact metric would be a good idea because LP is really, really one of these. He thought — from marketing the fund, he thought impact LP is what really, really care about impact metrics.
CONE: And I said, find one metric, it has to be something related to actually running the business. So, that is what we do. When we’re having a legal agreement with our entrepreneurs when we make an investment that there’s one metric they come up with it.
I sort of have to approve of it because I don’t want something that is not inherently related to running the business. When you’re in early stage startup — I always tell my entrepreneurs because they’re real do-gooders, always want to solve every problem at once and I say …
RITHOLTZ: Pick one.
CONE: … pick one, solve it, like you know that by giving us your capital, we’re working on all the world’s problems.
CONE: You can — rest assured that they are all — progress is being made in all of them. You need to just get your one done.
RITHOLTZ: Is this for your entrepreneurs or your LPs or both?
CONE: My LPs do not care about social impact at the moment. I’m hoping to attract some LPs into the firm that care about social impact.
RITHOLTZ: I would imagine given the — I’m looking for the right word and wokeness isn’t it. Given the rise of ESG investing and the push towards better governance and more diverse investing that we would see more institutional investors into something like Social Impact. But you relatively young firm, relatively small …
CONE: Yes. I mean, we’re talking to them and I think someday we’ll be incredibly popular with them. But in the beginning, they typically don’t like to come in to fund one.
RITHOLTZ: Right. They have to — you have to see a three-year or five-year track record, something like that.
CONE: They want to see that we can return cash to our backdoor investors.
RITHOLTZ: Right. Can what you do at the seed level scale? So, if you get a CalPERS and some of these other giant firms, maybe a little bit of Softbank because they have more money than they know how to intelligently invest. Can you scale up to tens of billions of dollars or by nature, does early seed have to be much smaller?
CONE: No. That is one of the issues that I paid a lot of attention to and how I structured the firm. So, we can scale up to large AUM.
CONE: And I actually have a plan for that. I feel like Elizabeth Warren. I have a plan for that.
RITHOLTZ: Right. She has a plan for everything.
CONE: Yes. Too many plans. But …
RITHOLTZ: Right. Medicare For All, are you going to invest in that or are we going to see disruption of healthcare from the private sector instead of the political sector?
CONE: I personally think that we are Americans so we will see disruption from healthcare come from the private sector, but who knows.
RITHOLTZ: What’s going on with the Buffett-Amazon-Chase healthcare program that started a couple years ago? Haven’t heard anything about that.
CONE: Yes. That’s right. I haven’t heard much about that either. I mean, they seem to be attracting good people and I look forward to what they’re going to do.
RITHOLTZ: Interesting. So, we’ve seen all sorts of studies that suggest that the bulk of venture capital is Silicon Valley, New York, Boston and then a vast wasteland around the rest of the country.
Steve Case is doing some rise of the rest. They’d literally take bus trips to different cities to do it. But most of the rest of the country isn’t seeing a lot of venture activity. What do you see across the country geographically for where entrepreneurs and venture capitalists can find each other?
CONE: Yes. Absolutely. I mean, we invest all across the U.S. and we know some of our best performing companies are outside of the U.S.
RITHOLTZ: Where else have you invested? So, not just U.S. like New York and San Francisco but global. What other countries are you investing in?
CONE: We’ve been — we have an investment in Africa and we have an investment in the U.K. London is becoming a great location for VC.
RITHOLTZ: Why is that? Brexit?
CONE: I have no idea relating — I think it’s still a cosmopolitan city …
CONE: … but the engineers, it’s still somewhat livable. Brexit has depressed the prices.
RITHOLTZ: So, it becomes more reasonable.
CONE: Yes. And the engineer …
RITHOLTZ: I wasn’t kidding when I said Brexit.
CONE: The engineers’ salaries are — they’re more reasonable than in …
RITHOLTZ: Half of here?
CONE: Yes. Half of San Francisco.
CONE: And New York is particularly bad because all the fine — Goldman pays enormous salaries to the engineers.
RITHOLTZ: Right. So, they’re stealing all of the best talent. Doesn’t that sort of vacillate depending on how well the stock market does? When the market is doing well, all these quants end up going on Wall Street. When it’s doing poorly, they go to tech companies.
CONE: Exactly. I mean, all of — these are markets so everything vacillate. So, we have built a company where we can do deals anywhere. We just want to do the best deals in the world.
RITHOLTZ: And before we get to our favorite question, I just have to ask you about a magically delicious box of Lucky Charms that you snuck into the White House. Can you explain that?
CONE: We did not sneak that into the White House. You’re allowed to bring snacks into the White House.
RITHOLTZ: So, you didn’t sneak it in.
RITHOLTZ: You brought it in.
RITHOLTZ: So, you do not deny, I’m going to imagine you’re at the impeachment hearings, you do not deny that you brought an authorized box of Lucky Charms into the Truman lanes on the White House? This is not …
CONE: They’re magically delicious. We had breakfast bowling session.
CONE: Well, this — it was just — it was — this is the Obama White House. It was just something that we — they invited us to do because I’m a big bowler. I really like bowling and we have some — we’re doing some work with them and it was a fun thing.
RITHOLTZ: What was …
CONE: So, we invited some of our advisory board members …
RITHOLTZ: OK. So …
CONE: … to have some bowling with us.
RITHOLTZ: So, you skipped over the meaty part, what was the work you were doing for the Obama White House? Not allowed to talk about that? It’s all NSA deep state secret?
CONE: We like to work with — I mean, we like to work with everyone. So, we’ll work with anyone who asked us. We’ll show up anywhere.
RITHOLTZ: That’s fair.
CONE: Do anything. We’re very nonpartisan group.
RITHOLTZ: There you go. That’s fair. So, let’s jump to our favorite questions, one of which I changed just for you. What are you streaming, downloading or watching on TV these days? Because I can’t ask you a car question.
CONE: Right. You learned that the last time.
CONE: Let’s see, I …
RITHOLTZ: And by the way, it turns out that that’s a much more interesting question because …
CONE: It is such a good question.
RITHOLTZ: Because everybody who’s over 50 has — probably has a car and lots of people under 50 not only — or under 40, not only don’t they have cars, half of them don’t even have licenses.
CONE: It’s a fantastic question. It gives you someone’s age. It gives you their …
CONE: … social class.
CONE: And it gives you how good their memory is.
RITHOLTZ: About the car? Everybody remembers their first car.
CONE: Their first car?
RITHOLTZ: Yes, of course.
CONE: I have zero idea. I mean, I know what brand that or sorry, you call those models. I know what model it was.
RITHOLTZ: What model was it?
CONE: It was a Buick.
CONE: Yes. And that is all what I remember. I could not tell you …
RITHOLTZ: But I would actually call that the make.
CONE: That’s the make?
RITHOLTZ: That’s the make. The model is the Buick Skylark or the Buick Grand Prix …
CONE: Barry, this is like me inviting you on a finance show and going what is the difference between a top and a blouse? You don’t know, right?
RITHOLTZ: So, a blouse — I would be able to fake that. I would say, well, a blouse is usually a standalone as opposed to a top which is part of an outfit with a top and a bottom.
CONE: Completely wrong. Not even …
RITHOLTZ: But it sounds good, right? I could BS with the best of them. What is the difference between a top and a blouse?
CONE: Usually, just a top is more informal and a blouse is more formal with buttons down.
RITHOLTZ: No. I don’t like that. I like top is part of a set, a top and a bottom. A blouse, freestanding. I’m going to go with my answer.
CONE: We’ll let you redefine the terms.
RITHOLTZ: Right. There was — if I was in Ohio, I could get away with that. But here in New York, I actually have to be reality base.
CONE: I can tell you about the car I want, though.
RITHOLTZ: What car do you want?
CONE: Have you seen the new electric Porsche? It’s so beautiful.
RITHOLTZ: The Taycan.
RITHOLTZ: Yes. Really handsome.
CONE: Yes. Beautiful car.
RITHOLTZ: Have you seen the new Ford Mustang E SUV that came out yesterday?
CONE: It came out yesterday? No. No …
RITHOLTZ: Yes. So, they basically took a Ford Mustang which is a six or eight-cylinder gasoline car. It’s only been around for 58 years. So, who cares?
And they turned it into sort of an SUV …
CONE: And it’s electric?
RITHOLTZ: And it’s all …
CONE: All electric?
RITHOLTZ: All electric, competing with the Model X in the Model 3 of Tesla. The interior looks like it’s pure Tesla.
RITHOLTZ: Just ripped it right off of Elon Musk.
CONE: Poor Elon.
RITHOLTZ: He’s doing OK. Hopefully, he comes out of this.
I like — arguably, Elon has already won because everybody …
CONE: Elon has definitely won.
RITHOLTZ: Right? Everybody is now doing electric cars. So, whether Tesla survives or not, he’s already dented the universe.
CONE: Every time Elon gets criticized on Twitter which is quite a bit — I post a gif of him landing the rockets and I say …
CONE: … anyone that can do this deserves at least six months of criticism-free living.
RITHOLTZ: Right. But he had that five years ago and now that six months hasn’t last.
CONE: It really should -it should get you at least a decade. I mean, that’s pretty impressive stuff.
RITHOLTZ: Mushing SolarCity in with Tesla turns out to have been a mistake but you got to give them props for …
CONE: Mistakes were made but …
RITHOLTZ: Right. Move fast …
CONE: Yes. Everyone makes mistakes.
RITHOLTZ: He is a very consequential entrepreneur and I’m fascinated by what he does and I think people slag him way too much.
CONE: I agree and I think that — I think what’s great about him is that I hope he’s — a lot of our entrepreneurs are inspired by him and I think that he is inspiring a whole generation of young entrepreneurs to think bigger and to do bigger things in the world.
RITHOLTZ: The other day — I rarely flick around television anymore. I used to just sort of randomly rotate and see what’s on, but I did this the other day. Actually, to be honest, I turned on the TV and what was on was a — well, since the show ended, it has to be an older one, but arm a Big Bang episode, the one where it’s Thanksgiving and they go to a soup kitchen to serve food and Elon Musk is on the episode cleaning dishes.
And I have to tell you, it’s such a charming episode. You got to give a guy like that …
All right. So, let’s get to our favorite questions that we ask all of our guests. Tell us what you’re either streaming, downloading, or watching. Be it video or audio.
CONE: Well, I am streaming “Silicon Valley,” the HBO cable show …
RITHOLTZ: So good.
CONE: But I cannot — I always fall asleep. I can never make it through.
RITHOLTZ: You don’t have to watch it when it broadcast. You can …
CONE: No, no. I watch it — yes, usually, I keep trying to make it through the episodes and then I fall asleep.
RITHOLTZ: What time are you starting is …
CONE: No, right before bed. This is like my bedtime thing. I watch a television.
RITHOLTZ: That’s what I’m suggesting. It is — watch that — the next — watch then on a Monday at eight instead of a Sunday at 10.
CONE: That would be a good idea. But …
RITHOLTZ: All right. So, “Silicon Valley.” Love it. What else?
CONE: Yes. It’s a fantastic show. In fact, it’s almost too realistic.
RITHOLTZ: Right. And this is the last final season.
CONE: I know. I’m very sad about it.
RITHOLTZ: Yes. Well, the only good news is when it’s over I’m …
CONE: I just hope the VCs got an exit, that’s a happy ending for me.
RITHOLTZ: The whole Hooli purchase thing is …
CONE: That was …
RITHOLTZ: … just hilarious.
CONE: And it was fantastic but it is very accurate about how quickly fortunes in Silicon Valley can rise and fall.
RITHOLTZ: Come and go very quickly. What — give us another show. What else are you watching?
CONE: Well, I’m a big “West Wing” fan as well.
CONE: So, I’ve watched …
RITHOLTZ: Do you like anything Sorkin has done?
CONE: I do. In fact, I just saw his play to “Kill a Mockingbird” by …
RITHOLTZ: So, amazing, right?
CONE: … Broadway which was incredible.
RITHOLTZ: With Jeff Daniels?
CONE: Yes. He was fantastic in it.
RITHOLTZ: The whole cast. Everybody was really …
CONE: Really, really good stuff. He’s my number one person that I would want on Twitter that isn’t on Twitter.
RITHOLTZ: They are not …
CONE: I’m hoping that he’ll come to our social media.
RITHOLTZ: That could be interesting.
CONE: But, yes. Fantastic stuff.
RITHOLTZ: So, if you like “West Wing,” the show he — Sorkin did before “West Wing” was a delightful little show called “Sport Night” and it only lasted like two and a half season but it was really, really good.
CONE: I’ll have to look that up.
RITHOLTZ: You can stream that. If you like that sort of fast-paced rapid dialogue but a different context, not in the White House, it’s all — they’re putting on an ESPN-type show and all the characters are great and I haven’t seen it in years but I remember really loving that show and was hugely disappointed when it was canceled.
All right. So, we got “Silicon Valley,” we got “West Wing,” give me one more. Anything you’re downloading or streaming.
CONE: So, Eric Weinstein …
CONE: Weinstein. He has a new podcast called “The Portal” which I listen to a lot.
CONE: He had Peter Thiel on the first episode and then Werner Herzog in the second episode. So, that’s fantastic.
RITHOLTZ: “The Portal.” Really? I love getting new …
CONE: He’s my favorite new media star and that he has this somewhat like you, he has these very deep, real conversations with his guests.
RITHOLTZ: Eric Weisntein?
RITHOLTZ: OK. Wow. This is relatively new.
RITHOLTZ: Thoughtful and insightful conversation. All right. I’m definitely checking this out. He looks vaguely familiar. This podcast does something different.
All right. I’m definitely there. I’m definitely going to check that out.
What’s the most important thing people don’t know about Sarah Cone?
CONE: I think it’s that my IRR is above my BMI and that is the main metric that I run my life by.
RITHOLTZ: So, your IRR is above your BMI and is this a metric that we see elsewhere?
CONE: It’s the — it’s the most important metric for the woman investor.
RITHOLTZ: So, you’re encouraging, though, either very high IRR or very low BMI. You don’t want to give people the wrong …
CONE: Not too low, not to low.
RITHOLTZ: So, that’s kind of interesting.
CONE: Yes, mostly just high IRRs.
RITHOLTZ: There you go. How about your mentors? Who has guided your career in the world of venture investment?
CONE: Well, so, the person that really taught me venture capital and this was a long time ago before anyone cared about more women being in venture capital was Rob Hayes. And it’s quite a funny story because he is a very famous venture capitalist now. He led the seed round into Uber. He’s been a longtime partner at First Round Capital.
He stays somewhat under the radar, but in Silicon Valley he’s extremely well known as what — as a great investor. But back then, when he was my mentor, he really wasn’t. He didn’t quite have that profile but I thought he was the smartest person investing in VCs.
So, I basically just showed up at his doorstep at Omidyar Network and said, hi I’m Sarah and I’m going to learn venture capital from you. Don’t worry, you don’t have to pay me or anything. And he said, like, OK. Well, you seem, pretty smart and hardworking, I guess I’ll teach you venture capital but I’m going to pay you.
CONE: Yes. So, I learned from him and it was great because back then he actually had the time to really teach me everything that he thought about venture capital. And now, I get to go, yes, I was mentored by this extremely famous and well-known venture capitalist. So, that’s my advice to young people is that when you’re seeking out your mentors, like, seek the people that you know are going to be famous in 10 years and learn from them, not the greats of today.
RITHOLTZ: There it is.
RITHOLTZ: I literally wrote — I literally tweeted the other day. This is a technical indicator that I think is just junk, the Hindenburg Omen, and that name was — was the hint that it’s junk.
But I advise people the best way to use this is only follow the signals that precede big market crashes, ignore the rest of them. So, you basically have the same philosophy. Go find a mentor who is going to be incredibly successful and famous and find them 10 years before they become successful and just attach yourself to them.
CONE: Exactly. And if you’re going to be a good venture capitalist at all, then you’ll probably be pretty good at doing that, too.
RITHOLTZ: Any VCs influence the way you look at the world of venture investing, startups?
CONE: I’m not really not so much influenced by other VCs. I’m influenced by other areas of finance particularly …
RITHOLTZ: Such as?
CONE: I mean, hedge funds particularly like the very math heavy and research heavy hedge fund managers. I love — I have a Ph.D. in an math that I’ve done a lot of our portfolio construction work with and a lot of evaluation work with and we’re kind of doing some advanced work there and then in due diligence as well, I love due intelligence. I describe it is a combination of library research and financial modeling spyware can cost up and it’s basically the most fun that you could ever have trying to understand the world.
And every deal we do, I feel like is this incredible sort of romp through some obscure realm of the world that I then gain a lot of knowledge about which is what I love. So, I’m much more influenced by those investors rather than venture capitalists who I like to mostly make fun of by saying that it’s an industry where all the decisions are made by men’s guts and the guts of their wives.
And I only added that last part because I was saying that once to a very famous and prestigious venture capitalist — I said, to this very famous and prestigious venture capital, like, sometimes I feel like I’m working in an industry that’s really just run by men’s guts and he was like, Sarah, that is completely untrue. That is very offensive. My firm is also run by the gut feelings of my wife. She is an incredibly important part of my firm.
And I was like, OK, well …
RITHOLTZ: So, he kind of missed …
CONE: This explains a lot.
RITHOLTZ: He kind of missed the point that it was …
CONE: Yes, I wasn’t making a comment about gender. I was …
RITHOLTZ: It was about guts.
CONE: Yes. I was making comment about gut.
RITHOLTZ: Right. Right. Talk about …
RITHOLTZ: Talk about missing forest for the trees right there.
Let’s talk about books. What are some of the things you’ve really like to read what do you like to recommend, tell us what you’re reading these days?
CONE: Well, I have a 20-month-year-old daughter, so I mainly spend my time reading to her and there’s this fantastic series of books that was written by …
RITHOLTZ: Everybody Poops. I’m familiar with it. Sure.
CONE: It was the series of books was written by a quantum physicist and it just boils scientific principles down to baby language. So …
RITHOLTZ: Is that true?
CONE: It is — it’s the — it’s like “Quantum Computing for Babies,” “Neural Networking for Babies” …
RITHOLTZ: Come on.
CONE: … “Organic Chemistry for Babies.” These are wonderful books.
RITHOLTZ: My God, that sounds hilarious.
CONE: So, I read these to her every day and I have for now two years.
RITHOLTZ: You just solved a holiday present issue for me for somebody who I know who’s really smart and just had a baby and that’s a perfect set …
CONE: I’m a big fan of these books because they’re the only books that are both interesting to me and her.
CONE: So, we love them and it was …
RITHOLTZ: It works on both levels.
CONE: It really does. And her fourth word was atom.
CONE: So, it — so, it was — it’s been fantastic. We really love these books. So, these are my favorite books.
RITHOLTZ: Quantum Mechanics for Babies.
CONE: For babies. Yes. That’s …
RITHOLTZ: That’s hilarious.
CONE: And my dream in life is that someone will write these about finance. So, we need like monetary policy for babies, option trading for babies.
RITHOLTZ: So, funny.
CONE: This really needs to happen.
RITHOLTZ: What a genius idea.
Any other non-infant books you might want to mention? Even if you haven’t read them recently.
CONE: There’s a book called “Mating” which is a book of fiction that I love.
RITHOLTZ: “Mating” by who?
CONE: Yes. By Norman Rush.
CONE: And it’s about sort of the main themes of my life which are creating a better world and all the intricacies and humanness that goes on and not …
RITHOLTZ: I like it.
Tell us about a time you failed and what you learned from the experience?
CONE: Well, this was one of the times. So, I know we have this mutual friend who’s a venture capitalist named Josh Wolfe at Lux Capital …
CONE: … who was at this dinner. And so, he — so, my — the one portfolio — the one company in my anti-portfolio which is the things, the companies where you make a mistake on it …
RITHOLTZ: And you didn’t invest in?
CONE: I didn’t invest. He tried to get me in to the seed round of this company called Citizen and I said it’s kind of a safe — it’s an app that’s safety 911 alert for people.
I said, Josh, that is — it would be very important to the world that it’s completely ridiculous. No one will use that. In not even going to meet with the entrepreneur and waste their time.
CONE: I turned out to be completely wrong. Ten percent of New York City is now on this apparently.
CONE: Yes. And …
RITHOLTZ: And what does it do?
CONE: It just tells you it’s like safety alerts about what is going on and then now you can also kind of take eyewitness accounts and report things to it. So …
RITHOLTZ: So, you’re going to laugh about this. I now Josh pretty well and he never mentioned this company to me. But Erika Mauro is my Chief Operating Officer at RWM and she’s the one who showed that app to me and it’s also a site and it shows you arrest here, person with a gun there, just all sorts of crazy things that have been filed through 911. They must just be scraping the information off a public source.
CONE: Yes. They difficult started with that and they’ve kind of expanded from there and to more things that you can do to keep the world safe as a citizen.
But so my takeaway from that — well, first of all, aside from always listening to Josh Wolfe is that you should — you should never …
RITHOLTZ: Good advice. Good advice.
CONE: You should never make venture investments with your gut because your gut is going to be wrong.
RITHOLTZ: Did it …
CONE: So, we stay away from that now.
RITHOLTZ: But didn’t you learn that from the other VC’s wife’s gut?
CONE: I did. I mean, it’s just amazing how — like everything just makes you — like, all the precious in the industry are causing you to feel like y our gut is the best gut out of all the guts and you have to constantly kind of be saying there’s — don’t make gut decisions, don’t make gut decisions.
RITHOLTZ: So, true story, one of the things — I’m going to tell my worst story which makes the guys in my office cringe. So, I began on he trading desk and eventually you learn how to listen to your own body’s reactions.
And I had a very identical experience to you where I would — someone would bring me trading idea and I go that company, it’s the worst. And after you missed a couple of good trades that way, you eventually figure out if my reaction is this is the worst, then most other people’s reaction is this is the worst.
And based on the work of Gene Fama, it’s probably reflected in the stock price and now it’s a good opportunity to buy it. So, eventually, I learned how to become more sensitive to my own reaction to something but it took missing a lot of great opportunities to become aware of everybody must feel this way and therefore it’s a contrarian indicator, not a don’t listen to your gut is kind of the takeaway from that.
CONE: That’s an excellent way to frame it. Yes.
RITHOLTZ: It’s kind of — I’m fascinated by the fact that you were repulsed by a VC who did the exact same thing and yet human nature, you couldn’t help yourself.
CONE: The world is full of hypocrites and I don’t exempt myself. But at least, I’m trying.
RITHOLTZ: That’s not so much hypocritical as just the human condition. We can help but be a slave to our emotions to some degree. It …
CONE: That’s also the only one. I mean, I think more — most VCs have more than one in their pocket.
RITHOLTZ: Right. This literally …
CONE: So, I do it pretty well.
RITHOLTZ: There’s literally a cognitive bias called the bias bias, that we all have a tendency to observe these biases in other people …
CONE: Right. And not see them in ourselves.
RITHOLTZ: … and be completely blind in ourselves. Like, I’m always pointing out to people, it’s confirmation bias. And of course, I’m as guilty of it as anybody else. But were blind to it. It’s quite amazing.
What you do for fun? What you do when you’re not reading “Quantum Physics for Babies” to your daughter?
CONE: Well, I started this social impact venture capital firm that you might have heard of. So, I work a huge amount and don’t have too much time for fun. I hear it’s not legislatively mandated to have hobbies, so …
CONE: I just don’t have any.
RITHOLTZ: So, you’re not skiing …
CONE: I’m a big advocate for just not having hobbies …
RITHOLTZ: … climbing Kilimanjaro or anything like that.
CONE: Yes. I pretty much just work and then take care of my baby.
RITHOLTZ: That’s it.
CONE: But I do — my — I take my baby to art galleries a lot.
CONE: Because we live incredibly close to the art galleries in Chelsea.
CONE: So, it’s a very convenient thing for us to do.
RITHOLTZ: Is she entertained by this?
CONE: She loves it. And so, I’ve started this Twitter account to record her reactions to the art called Ada, Baby Art Critic.
RITHOLTZ: And what …
CONE: So, that’s my hobby, I guess.
RITHOLTZ: What are her reactions to art?
CONE: Well, she’s had this incredibly complex language of criticisms. So, when she was a really little baby and she couldn’t move her neck, I would sort of hold her in front of the works and then she would — she would make a little sound like, eh (ph), when she wanted to go the next one. And sometimes she would look for hours and I’d be like, OK.
CONE: Yes. So, then …
RITHOLTZ: So, representational, contemporary, impressionist, what does she like?
CONE: We just basically go to whatever is close by.
RITHOLTZ: So, geographic?
CONE: Yes, geographic. Like anything in the …
RITHOLTZ: Does she have a preference? Does she like …
CONE: She definitely has favorite artists and they don’t — the disappointing thing to me is that they don’t match mine, so …
RITHOLTZ: Well, that’s a good thing.
CONE: Yes. No, I say it’s good. It’s good that you have your own characteristics. But I thought …
RITHOLTZ: So, what does she like?
CONE: She like — well, she was — I always call her — she was born in the year of — the month of Cy Twombly. So, they have a huge Cy Twombly retrospective at …
CONE: … Gagosian. So, we went to that every single day.
RITHOLTZ: And …
CONE: And she loved it.
CONE: Yes. She would look at those for hours and hours. So, I always — but now, she can do even better — now that she’s two, she’s making her own works and she can even — I think she can even do better work than Cy Twombly.
RITHOLTZ: Have her taste evolved at all?
CONE: They definitely — no, she tends to like it. So, she really — she seems to really like Damien Hirst a lot.
RITHOLTZ: Like the shark and the …
CONE: Yes. The shark.
RITHOLTZ: … in the formaldehyde.
RITHOLTZ: That’s up in Point72.
CONE: But I really don’t like him. I think he’s in a kind of banal and commercial but she loves them.
RITHOLTZ: Banal is the right word.
RITHOLTZ: Fraud, whatever.
CONE: So, yes, so — so, we …
RITHOLTZ: Duchamp? You like the urinal in the corner?
CONE: She’s never seen any Duchamp. We — then there was — I love Sara Z. And we went to the Sara Z. show which I loved and she didn’t like it at all. I was like, I don’t know. But like maybe you just don’t really have good taste in art because you’re just a baby.
RITHOLTZ: Or maybe she has the purest taste in art. Have you taken her to the — MoMA just finished this wonderful renovation and there’s a ton of 20th century contemporary American artists. And if you like that sort of postimpressionist …
CONE: Yes. She loves those. I mean, we go to the Met sometimes, go to MoMA. She likes — she loves Picasso. She really likes — like she likes a lot of the old art, apparently (ph).
CONE: It’s going to be hilarious.
RITHOLTZ: I’m thinking like Jackson Pollock would be entertaining for a baby or maybe Rothko which I’ve evolved very much …
CONE: She like Roy Lichtenstein a lot …
RITHOLTZ: Well, a giant cartoons, why not? Giant comics. Everybody likes that as a whatever.
CONE: So, then when she was a little bit older, she then would turn her heard like dramatically away from a painting when she didn’t want to look at it anymore. And then when she was even older enough, then if she liked it, she would point. And now that she’s older, she can say no. So, she’ll like go in front of paintings and go, no, no, no.
RITHOLTZ: That’s funny because that’s what I’m like in a lot of museums. My wife who used to teach fashion illustration and design is dragging me around to every museum in the world and every now and then. But I don’t repeat it. Usually I just look at something and go, no. And on to the next.
What’s the name of the Twitter account for your daughter?
CONE: It’s called Ada, Baby Art Critic.
RITHOLTZ: A-D-A …
RITHOLTZ: Baby Art Critic. That’s hilarious.
CONE: It’s sort of my hobby. That’s a good hobby.
RITHOLTZ: That — Now, I know what you do for fun. That is a good hobby.
So, let’s talk about within the world of startups and venture investing, what are you most optimistic about and what do you least optimistic or most pessimistic about?
CONE: Well, I am still very optimistic about venture capital. I think it’s the most effective way to deploy capital that man has ever invented and I am incredibly excited that I am able to start deploying it to solving some of the world’s most tough problems which is this this — putting venture capital towards these problems has really never been tried at all at scale.
So, I think my fund is ability to do this is going to be incredibly exciting and I’m excited to see what we can do in the world because we’ve already done so much in the first three years of our existence.
What I am the most pessimistic about is immigration and I think that America’s entire competitive advantage used to be that all the smartest people in the world wanted to come to America and all the hardest working people in the world wanted to come to America.
RITHOLTZ: What is it, 50 percent of Silicon Valley …
CONE: Yes. Yes.
RITHOLTZ: … immigrants?
CONE: So, it’s like now 55 percent of all of America’s billion-dollar startups had an immigrant founder.
CONE: So, this is incredibly …
RITHOLTZ: That’s amazing.
CONE: This is incredibly important. Immigration is incredibly important to the engine of American economy and I see us as a culture, sort of, becoming less welcoming to these people.
RITHOLTZ: Not very smart long term, isn’t it?
CONE: Not very smart for competition reasons. In my opinion, if you walk a thousand miles with your child on your back and you apply — you fit under American asylum laws, come on in, you’re extremely welcome in my country.
CONE: So, you’re an American. If you do that, you’re an American to me.
RITHOLTZ: So, I’m on to the assumption that the past three years is a temporary aberration and a setback and that eventually it will revert to what the prior 200 years are like. Although I could be wrong.
CONE: I hope so because we are an immigrant society and one of the greatest things about America is our ability to incorporate all these ideas and differences into a tolerant society. I don’t think there’s any country in the world that has done that as successfully as we have and it’s been a huge advantage to the economy.
So, to the extent that we are turning in the opposite direction, our economy is going to get worse. And I — I very much worry about that.
RITHOLTZ: So, a recent graduate comes up to you and says their interested in career either as a venture capitalist or in a startup, what sort of advice would you give them?
CONE: Well, I tell them that — I try to find out what they care about most in the world and I say do not compromise between that and making money because you can do both. It’s the fundamental premise of my funds that you can accomplish what you most want to accomplish and make money. And if you don’t do that and you just decide that you want to make money, you eventually end up incredibly old and bitter very quickly.
CONE: I’m often told that I — people seem to think I’m a lot younger than I am which is always funny to me and I think the reason is because I still have ideals and that makes you just appear incredibly young to the world. So, I — it’s like some miracle face cream to just have ideals and continue to execute them because most people are giving those up.
RITHOLTZ: That’s depressing. I’m so — meaning it’s depressing to you that most people are giving up their ideals.
And our final question, what do you know about the world investing today — I’m going to say that again. Our final question, what do you know about the world of startups and venture capital investing today that you wish you knew — can I say 20 years ago? Fifteen years ago? Thirty — it’s not 30 years ago.
CONE: No. I mean, I — so, I’ve — I’m somewhat late into the industry, so I wish that I’d known that women could go into this field because I would have …
RITHOLTZ: Would you think they weren’t allowed?
CONE: I don’t — that thought didn’t cross my mind because I was a child. So, it’s more that — if you don’t see it, then it doesn’t cross your mind that that’s a career path for you.
RITHOLTZ: That’s interesting.
CONE: So, I think that now, there’s always incredibly amazing women that are inspirations to me in Mary Meeker who just raised …
CONE: … the first billion-dollar venture capital fund. Women …
RITHOLTZ: What’s her new shop called? She left Kleiner Perkins, right?
CONE: Yes. She started her own shop called Bond. They just raised a huge fund. And so, now it’s extremely easy for me now to go I want to be like her.
RITHOLTZ: Right. Let me mansplain role models to you, how important that is. That’s interesting. I don’t — I never really thought of that. But I guess …
CONE: Yes. It’s a weird thing to think about because I go, what — like, I must have been really stupid that it never crossed my mind. But it just — it literally didn’t — I mean, finance was my main hobby. It was my love and life and it never occurred to me that it could be a career.
RITHOLTZ: It just goes to show you that having role models make a big difference and that’s why these things seem to take generations to change.
CONE: It does. Yes.
RITHOLTZ: He mansplained to her.
CONE: You’re correct. A lot of the mansplaining is correct.
RITHOLTZ: All right.
CONE: Well, Sarah, thank you so much for doing this.
We have been speaking with Sarah Cone. She is the Managing Partner at Social Impact Capital.
If you enjoyed this conversation, well, be sure and look up an inch or down an inch on Apple iTunes where you can see any of our previous 300 or so conversations that we’ve had over the past five plus years.
We love your comments, feedback, and suggestions. Write to us at MIBpodcast@Bloomberg.net. Check out my weekly column, you can find that at Bloomberg.com/opinion. Sign up for my daily list of reads. That’s at ritholtz.com. Follow me on twitter at @ritholtz.
I would be remiss if I did not thank the crack staff that helps me put together these conversations each week, Karoline O’Brien is our audio engineer, Michael Boyle is my producer, Michael Batnick is my head of research.
I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.