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Mitchell Green worked variously in investment banking, as an analyst at Bessemer Venture Partners, and at a hedge fund backed by Tiger Management before striking out on his own in 2011. Going it alone seemed like the right move. Green now manages funds for more than 700 individuals who have pledged $5 billion to his company. Lead Edge Capital.
So how did he convince so many people to join him, including such notable figures as former Xerox CEO Anne Mulcahy, former Charles Schwab CEO David Potrock, and former PayPal CEO Dan Shulman? Grabbing stakes in Alibaba, Bumble and Duo Security certainly helped. But Mitchell points out that the appeal is also tied to an all-weather strategy — one that has seen him increasingly steer the group away from “over-the-top” venture capital deals and toward the buyout-like “control deals” that many venture capital firms might look like in In the past, such as a Sarasota, Florida, company that makes heart-monitoring software, and a tax planning software company in College Station, Texas.
Lead Edge, a long-time investor in major Chinese companies, continues to invest money in ByteDance, unsurprisingly anticipating a major exit, even as TikTok could go “zero” if it is eventually banned in the US.
To get his latest on the market, we spoke to Green — a former nationally ranked alpine ski racer who lives mostly in Santa Barbara — from his hotel room in Las Vegas during a recent Formula 1 event in the city. Excerpts from our conversation follow, edited for length. You can also listen to our interview via TechCrunch Download StrictlyVC Podcast.
When we last spoke, you were really leaning towards the ant group ( A subsidiary of Alibaba, it was expected to become the world’s largest initial public offering in the fall of 2020 before that offering was canceled entirely. Derailed by the Securities Regulatory Commission of China).
I think around that time frame (General Atlantic) became a major investor. Silver Lake invested. Gulf Investment Corporation invested. We put some money into that deal. Yes, it was three days away from being released to the public, and the Chinese government stopped it. Fast forward to today, and look, it’s still a giant company, but it hasn’t gone public. We’ve got the financials, and I can’t talk about that kind of stuff.
Can’t tell if you’re buying or selling?
We do not buy or sell Ant Financial. We’ve invested in it, we’re holding it and we’ll see what happens.
Do you have any plans to invest in any other Chinese companies at this stage?
The only other Chinese company we own is ByteDance.
We invest in a lot of (other) companies. For example, in nearly two-thirds of the companies we invest in, we are the primary institutional investor. Not long ago, we invested in a company called Calm down In the hotbed of technology: Sarasota, Florida. Only 9% of our companies are actually located in the Gulf region. We were the first investors in it. It’s a large-scale business, and it’s growing well, you know. We came in and bought 54% of the company.
How is it sourced?
We have a team of 18 analysts and associates who have all been 0-2 years out of college. This group of people speaks to about 10,000 companies a year. We have eight criteria that make an ideal lead company, and if you were to contact 10,000 companies, maybe 1,000 of them meet five or more of those criteria, and (you do) diligence in about 150 of them (counting those that) may not want to raise money, or may They don’t want to sell their business, or (it may be in) too small a market size, (or the founder may be crazy). (These analysts) have to be smart and diligent to get in touch with these companies on the phone and ask the right questions. . . I’m sure I wouldn’t get a job here now.
It looks like you are turning into a PE shop.
We’ve always done (control deals). About a third of our deals are control deals. But for us, we don’t really care if we own 21% of the company or 75% of the company. We are growth investors. (If) you have a $20 million revenue company, we’re happy to be a 20% shareholder or we’ll be a 60% shareholder. But let’s take that company’s revenue from $20 million to $100 million, it doesn’t matter. We literally don’t think about ownership percentage.
Coming back to ByteDance, what do you expect under the Trump administration?
Our thesis at ByteDance is very simple. You have a business that’s growing at 30 percent a year, (and) trading at five times earnings. We can get rid of the US business and still think we can make three to four times our money in the next few years. (I have) no idea when it will go public, nor does anyone else, absolutely, no one. Not (Quato founder) Philippe Laffont, not Bill Ford at General Atlantic, not the guys in Susquehanna who own a bunch (of its shares), not all the funds in China. The founder will go public when he wants to, at the appropriate time. But it’s a big business. I mean giant is an understatement. It is one of the largest companies in the world. Our basic assumption is that US businesses will be closed, although Donald Trump said during his election campaign that he would not ban this, so who knows. Your guess there is as good as mine.
What are your returns on cash so far?
I’m not allowed to talk about returns at all. We are registered with the Securities and Exchange Commission. I can’t speak for the returns.
We’ve talked in the past about platform companies. Have you had an opportunity to invest in any of the big language modeling companies like OpenAI or Mistral?
I’m very negative towards first generation AI companies. I think a lot of these AI companies are going to turn into donuts, and a lot of companies are going to lose a lot of money. . . Because costs will decrease. In 1997, if you built a website, it would cost you about $30 million in Sun Microsystem servers; Now you can build an even better website for $20 on GoDaddy.
The same thing will happen with artificial intelligence. Artificial intelligence will revolutionize the world, but it will take much longer than people think. I’m tired of looking at companies that are growing insanely fast that have 50%, 60% plus gross dollar retention rates. Why do they have those? Because every company on the planet is talking about trying AI, and then they’re all trying the software, and sometimes it’s great, a lot of times it’s good, and most of the time it doesn’t do what it says it’s going to do quite well. I also refuse to invest in companies with 100 times, 200 times or 500 times revenue. This game will end badly.
A lot of venture companies are using unconventional products to boost their revenues right now. You?
We are boring. We are investing in the company. We call it capital. We exit the company and return the money to our limited partners. We didn’t use navigation loans or debt or any of that stuff. . .
One of the biggest deals in our fifth fund is a buyout deal called Secure sending Who makes tax accounting software.
What do deals like this say about your outlook on the project market?
(There’s) a lot of money chasing a very few companies that are overvalued. That’s it. So why did we start looking for more introductory companies? We thought the reviews were absolutely ridiculous. The problem with the venture ecosystem is that VCs sit and listen to each other, and Twitter and social media make it worse.
I appreciate some venture funds (because) they go out and do very different things — like what Chris Sacca is doing at LowerCarbon or what Josh (Wolf) is doing at Lux Capital. And then I think there are a handful of funds – Benchmarks, Sequoia, Index – that have an unfair competitive advantage in the early stage of the project. And if you try to compete with these companies, good luck. But there is a lot of money in the space.
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