Name: David Shapiro, OpenVC
Uploaded: 2024-11-01T20:17:00.000Z
Duration: 20 min 29 s

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More from theCUBE + NYSE Wired present the East Coast AI Leaders Executive Series

David Shapiro

Co-Founder & CEO

OPEN

play_circle_outline Open VC democratizing venture capital access with indices for private companies

play_circle_outline Goal of passive investing in private markets, creating mass affluent solutions

play_circle_outline Connecting industry and financial analysts to track private companies

play_circle_outline Technology platform for creating new indices quickly and accurately

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Transcript

David Shapiro, OpenVC

David Shapiro

Co-Founder & CEO OPEN

TheCUBE coverage at the NYSE with John Furrier, founder of Open VC, discussing democratizing venture capital through indices, product opportunities, and access for retail and institutional investors. Exploring the challenges of private market trading, valuations, and liquidity. Analyzing the shift towards passive investing in private markets and the importance of data in making informed investment decisions. Examining the intersection of industry and financial analysts in tracking private companies and predicting trends. Highlighting the technology and method... Read more

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What is Open VC doing to provide access to liquidity for investors with fee and liquidity problems? add

What is the potential impact of the wave of passive investing on private markets? add

What are the benefits of using index products like the one built with ICE for industry analysis, and how does it provide more data for financial analysts to do their job effectively? add

What have you been working on for the past two and a half years in terms of creating new indices and data insights? add

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David Shapiro, OpenVC

>> Welcome back everyone. This is theCUBE coverage here at the NYSE. I'm John Furrier, host of theCUBE. This is our east coast studio. We've got Palo Alto and Silicon Valley, connecting Wall Street and Silicon Valley. All the tech coverage here on theCUBE, siliconANGLE.com. For all the journalism, of course, theCUBEResearch. We're tracking all the top tech companies, biggest trends. And here, we have David Shapiro, CEO of Open VC. Great to have you on.

David Shapiro

>> Great to be here.

>> So we were talking before we came on camera about your background at Goldman. Goldman's got the new look. Now, you adopted that with your firm.

David Shapiro

>> Very tech forward founder.

>> I love the name Open VC. That's the name of the firm. Open ecosystems is all the rage. Again, it's connected now with generative AI. Venture capital, used to be a cottage industry, hard to get into.

David Shapiro

>> Right.

>> You guys are kind of democratizing that tracking. What does Open VC do?

David Shapiro

>> Well, you're exactly right in terms of democratizing, right? Venture capital, and really private assets, have been holdovers with respect to allowing the everyman or investors that have fee sensitivity or liquidity problems access. What Open VC is doing is providing that access. We're doing it in two principle ways. First, we're working with ICE, which is actually one of our largest external shareholders, to create indices. Think the S&P 500, but for unicorns, right? Private companies that most people don't understand the value of but would really like to if they're going to make investment decisions. We actually just, in August, launched the New York Stock Exchange Open Venture Capital Unicorn Index and can be found where any reputable indices are distributed. And two, in light of that access goal, we seek to create product and opportunities to track our indices, ultimately enabling retail contingent, and again, institutional investors with those fee and liquidity problems to access private

>> So first, tracking.

David Shapiro

>> Correct.

>> And then ultimately, next step would be to open that up to work fund access or like an index fund or... Could you describe what the app is next?

David Shapiro

>> That's exactly right. So we believe that the wave of passive investing is going to take over private markets, right? Today, there really is no bulk player. If you want to go out and say, "I'd love to buy growth equity as an asset class," you have to make specific decisions. You have to bet on industry experts. You have to seek the alpha wherever possible, and that's very expensive, and it's very limiting in terms of who can actually get into a Sequoia or an a16z. And they do amazing work. We just believe that there should be a mass affluent every man solution.

>> It's interesting, everyone has the FANG or the Magnificent 7, and they just ride that wave in this market. It's been a good formula.

David Shapiro

>> Very good.

>> On the private side, you don't have a lot of data-

David Shapiro

>> No....

>> because they're not yet public.

David Shapiro

>> Correct.

>> But yet there's a kind of trading system going on the private side. And so valuations are elusive. It's what you say they are, right? It's like the old expression to the CFO. What's your evaluation? Whatever we say we are. Obviously I'm oversimplifying, and a little hyperbole there, but as like Databricks, Stripe, they could be public, could have been public companies years ago.

David Shapiro

>> Correct.

>> Snowflake is public. Databricks is still private. What's the comp? This is with a nuance that you get into in these stocks. It's like, okay, we know there's liquidity.

David Shapiro

>> Right.

>> I see trading all the time on Databricks.

David Shapiro

>> Right.

>> How do I get in on that?

David Shapiro

>> Right. And that's the big question, right? Companies have been staying private longer and longer, right? Whereas Stripe and Databricks, both fantastic companies that would likely be in either the rest of 2000 or S&P 500, should they list, have not. And ultimately what that does is it locks out folks who could take advantage of the appreciation in the public markets. But there is trading, to your point, and Databricks has a very robust secondary market where investors, early employees, folks are seeking liquidity. And what we've managed to do is go out into the secondary market and partner with really critical data providers and say, "Hey, what if we were to create almost like an industry standard SIP? What if we were to collate most of the data in these more liquid secondary names and create something that could benefit everybody through more transparency and ultimately provide more volume and liquidity to the people seeking it while misconduct?"

>> It's interesting, David, because I live in Silicon. I've been there 26 years, and I've seen VCs transform from the club to now basically an industry and asset class as it always has been. But it's different now because if you're a strong VC, like a Sequoia, a16z, they make their money on their winners, but they also have limited partners that they have to serve. They have investors. And so you can lock in gains, and then bring some liquidity portion of the pooling to retail through what you guys are thinking. So that's definitely happening. We see that for sure. The problem is that as a... I'd love to bet on that next magnificent private seven.

David Shapiro

>> Right.

>> Who are they, one? And how do I get in? How do you guys figure this out? Do you just hit the books, hit the street, pound the pavement, knock on doors and do some detective work? You have to go get the data. Take us through that process because this is an opportunity on all levels of the ecosystem to kind of take that VC model where it's already happening, standardize it. They'd love the liquidity. The limited partners love the returns.

David Shapiro

>> Right.

>> They can roll the dice and play with basically house money once they lock in their returns.

David Shapiro

>> Right. So you do have to effectively do some kind of data canvassing, to your point, knocking on the doors. We believe, however, pretty firmly that existing experts, people who are best at finding alpha and venture are going to continue to serve really important piece in the ecosystem, right? So a16z, Sequoia, Founders, et cetera, they are finding the winners, and the risk one is taking as an LP and into those funds is commensurate with the return they're provided. There is no solution in market today that says, okay, well, once the winners are identified, am I willing to de-risk my return a little bit, but still bet on something pre-IPO? And that is really what we're providing. So in terms of-

>> And you guys bringing data to the table. Right now, we take a lot of phone calls. Our CUBEResearch team, which is world over Databricks and Snowflake, like a blank... Obviously Snowflake's public. It's a little easier. But we have inside baseball on all the Databricks activity. And we cover open table formats. We understand the governance layers that are changing. We see the data lake stuff evolving, so we get calls all the time. Even before their last funding, their valuations were trading much lower than their next round of funding, which that valuation was less-

David Shapiro

>> Right....

>> predicated on real valuation, but they just wanted to get a position. So we pegged their valuation on certain number based on what we knew.

David Shapiro

>> Right.

>> But the funding triggers that next valuation,-

David Shapiro

>> Right....

>> which, again, how perfect information is that? So again, these are dynamics.

David Shapiro

>> Right. Well, this is why the secondary market is the best driver of real value, because you have insiders, you have investors, you have the C-suites of these companies looking for liquidity at levels that they know they can get with perfect information. So when we are coming to the problem without perfect information, our solution is, well, find the people who have the information. Where are they pegging the value? Let's go collect those values and create unified price ?

>> Dave, what's interesting is that the old model, it's like old way new ways emerge, especially with AI. We're talking about AI all the time here this week and theCUBE Media week, but the old way was you had industry analysts. We have a group of industry analysts. We know all that. We call it balls of strike, connect dots. But then the financial analyst market was a completely different animal. They were interested in what's going on in the market. How do you see those worlds changing? Are they collapsing together? Because in a way, the industry analysts were the ones tracking the privates probably more deeply-

David Shapiro

>> Right....

>> because it was things like product roadmap was important, sales revenue, what's going on market share. The financial analysts were more on earnings. What's the forecast for the guidance? Now you see kind of like a intersection at the nexus of what industry analysts do and financial analysts, never mind the work you did at Goldman and all the people that are tracking this anyway anyway.

David Shapiro

>> Sure.

>> What's your vision on this? Because this is not going away.

David Shapiro

>> No. We think that in terms of research capability forwarded by index products like the one we built with ICE, we'll probably lean more toward industry analysis because we're, again, never going to have perfect information, right? Until you're on the cap tables of these businesses. And frankly, even if you're on the cap of these businesses, sometimes you don't have information rights. You are not going to be able to get the type of financial data that a financial analyst really needs to do their job. That's said, you can get a lot more granular with data in market today, such as the data we've used to create our index, like where these names are trading, where peers in privates, not publics, are trading, what the primary round of a CoreWeave might portend for an AI software company like Anthropic, et cetera, and use that granular pricing information about where these assets are actually moving in between primary rounds to say, okay, now I can delineate trend information for a specific sub-sector in privates. I can delineate future growth potential for prospective IPO in terms of where something's trading at a discount or premium to that hypothetical. And that is going to power industry analysts with a lot more data to be able to move forward in the asset life cycle and actually start making-

>> I'm already salivating. I want that data. Let's do a deal. No, but this is important because you're connecting dots and you're putting the puzzle together at the same time. Some of the best financial analysts I know that are operating today, and the industry analysts, frankly, that's puzzle pieces.

David Shapiro

>> Right.

>> You're constantly collecting. It's like the puzzle. You get the corners. Now I got... Okay, what's this color? It looks like it could fit anywhere. You have to go get the puzzle pieces. You do have to do a little detective work and get that data because the information rates aren't there, as you mentioned.

David Shapiro

>> No. And candidly, that was really the biggest hurdle to creating our index, right? So in order to create something reputable, the pricing needs to be, institutional. Grade needs to be trusted. And a lot of that comes from working with an index administrator like ICE and having a brand of the NYSE associated with an equity index, but a lot of it also comes from our data partners. And we really work with best in industry to make sure that the secondary data we're collecting on these needs is accurate, is not duped, and is institutionally representative, right? There are folks out there putting out asks for $5,000 of megacorns, and that really should move price. And it takes a really discerning eye and discerning model to say, what are the trades? What are the business that are relevant in these markets? And how is that actually informing the data, to your point earlier, that could really create concrete analysis about where this should be valid?

>> Let's go through some of the work you've done. Take us through the privates. How would you rank them up? What's the current index look like? Can you share any data around who you're tracking, who's looking good? What are some of the data? What does the standings look like? Is there a standings? How do you guys report? Take us through some of that.

David Shapiro

>> There are standings. In order to get the full constituent list, you would have to purchase it through ICE data indexes. However, I'm happy-

>> You're a little tease.

David Shapiro

>> That's right. I'm happy to give it to you.

>> Who's trending up?

David Shapiro

>> So right now, the index is up 26% year over year, and a lot of that has to do with really quality years from SpaceX, OpenAI, and some other index name. So at the beginning of the year, for context, SpaceX was our number one constituent. Stripe was number two. OpenAI, with their recent primary announcement, has overtaken Stripe, and it's a number two. And that really speaks to when you look down index of other names, like Scale AI, Anthropic, Hugging Face, et cetera, AI's explosion. The fervor in public markets for folks like NVIDIA is translating into similar fervor for folks in private markets. CoreWeave, and we've seen that in the appreciation.

>> Dave, I can appreciate what the conference room meetings a like when you've got the comps, so divergent. You got the public comps,-

David Shapiro

>> Right.....

>> high velocity volume trading, private's just squinting through the data.

David Shapiro

>> Right.

>> You're connecting the dots. What's that? Take us through a day in the life of what you guys do. Give us a peek behind the curtain.

David Shapiro

>> So we are as algorithmic as possible, to be totally candid, and that's by design, right? Nobody wants my opinion, apart from maybe you during this interview. Where a specific name is going, we want the market's opinion.

>> Yeah.

David Shapiro

>> So we developed a methodology with ICE Data Indices to be able to ingest this information as uniformly, systematically and as candidly hands-off as possible, right? So every day, we receive pricing information. That can be bids and asks. That can be trades. That can be other index-like prices from data providers who are similarly tracking these assets. We collate all of that, put it through our proprietary model, make sure that we're running our dedupe checks, quality checks, et cetera. That then gets sent to ICE, and they are the ones who come up with the price.

>> Great for ICE. They're good at that.

David Shapiro

>> They're very good.

>> All right, what's the journey been like? Obviously, you're navigating through a new area on the front edge of the power wave that's going on with trading technology algorithms. You've got AI, I'm sure going on under the covers. Agents will play a big role in identifying some scale. What's the tech look like for you guys? How do you think about augmenting the work you're doing?

David Shapiro

>> We are. And so what we've really spent the last two and a half years building, apart from a network of data providers to create something institutional-grade and the technology apparatus to strike these prices for an index administrator like ICE is creating something that can spit out new indices, new insights, and new data on one-way basis. So today, we have the marquee index. It tracks the 50 largest, think of it as our S&P. Tomorrow, we can get even more specific. We can go into sectors, right? We're thinking of a unicorn index, excuse me, a unicorn AI index to focus on really top performers over the last year because of AI's resurgence. We're looking at a unicorn health tech index, a unicorn consumer goods index. And no matter really how you slice and dice it, we now have the technology platform to be able to do that repeatably and quickly. So we'll go where the consumer-

>> We're always constantly evaluating some of the dynamics around costs, CapEx costs, OpEx costs with revenue. Obviously, everyone's trying to keep the red line below the black line in terms of revenue profit, but we know you got to invest a lot on CapEx for some of these bigger players. At some point, have to cross. Costs are huge, so managing the cost data is huge. And then looking at returns on the top line become huge.

David Shapiro

>> Yes.

>> That's an art and a science.

David Shapiro

>> It is an art and science. The profitability flip and when to do that for these companies, I think particularly in the wake of 2021, has become a lot more prescient. We saw capital markets dry up in the late stage in terms of new primary rounds for companies that quite candidly were fairly overvalued and weren't proving to their investors that they could flip that switch. And frankly, we saw that in the index. We dated it back to 2021. If you were to have purchased it at the height of the last funding round valuation bubble, you would've been down 40%. But that also presents opportunity because that was left in the .

>> Yes....

David Shapiro

>> quality companies who are focusing on profitability and their investors have taken-

>> Yeah. David, the number one question I get a lot, because I've been through many waves of innovation, is are we in a bubble? And I take the premise that we're in a bubble hype for sure,-

David Shapiro

>> For sure....

>> but not like the dot.com bubble. Because unlike the dot-com bubble, there was no underlying catalyst for accelerated growth. The PC revolution, when Wintel was the big dominant Windows and Intel, they were constantly introducing more processors, and PCs got smaller, faster, cheaper that Moore's law on Intel side and Windows on the system software and Office Suite also was innovating in terms of capability. So I think there won't be a pop. Maybe a little air might come out of it, but at the end of the day, you have an underlying intrinsic trend line that says, "Hey, the infrastructure is getting faster. That's enabling apps to be smarter. So it looks more like the PC server revolution than it does the dot-com bubble. But from a user experience standpoint, it looks like the dot-com bubble. But I think the tech is clear that in that super cycle, the first, that 10 years of wealth creation had really nothing to do with profit. Look at Amazon. They had never showed a profit, but they dominated the sector, became a leader. If you go from '86 to '96, that ten-year super cycle, you went from proprietary systems, meaning computers and mainframes, to open systems.

David Shapiro

>> Right.

>> In that 10 years, from '86 at '96, Cisco's only two years old, they became the dominant player in routing and switching.

David Shapiro

>> Right.

>> First routing, then switching. So I think as an investor, I think the privates are interesting bet because what's going to come out of this private wave is that trend.

David Shapiro

>> That's correct.

>> Ignore the cost side. Will they be the leader, like a Cisco or someone else in that cycle, or Windows and Intel? I think, obviously Nvidia is a big layer. Broadcom on the chip side are two monsters that they're going to accelerate that piece.

David Shapiro

>> Right.

>> But all the GenAI, it's early inning still on that piece. So everyone gets hung up in the old dogma. Well, that's cost. And even VCs I've talked to are like, "Well, it's overvalued." If Perplexity goes out at eight billion, you could have gone in a two. That's a nice step up.

David Shapiro

>> Yeah. It's like a 4X.

>> But people tend to, on old school VC investment, gets shut off. It's way overvalued. There's no way they're going to , but it's a super cycle.

David Shapiro

>> Right.

>> I love the term. Some people hate it. I think it's a great name, because in a ten-year span, everything flips.

David Shapiro

>> Right.

>> And the winners are establishd in the first five years. That's generally the principle.

David Shapiro

>> Yeah. I think with respect to the broader super cycle and privates and how they're different, particularly from publics, to your point, GenAI is really still entirely in a private way. The companies that are going to lead the future from an infrastructure standpoint, in my view, are also largely still private. And even if they're not necessarily the next Nvidia, they're certainly acquisition targets for Nvidia. So if I'm a Cerebris, for example, and I have proven technology that can create with 10X less energy, the same output from an LLM timing and training perspective as an existing top-of-line, Nvidia GPU, that is very, very attractive to existing chipset makers. So if you are seeking value as an investor, you're going to find in the public markets, but they're always going to be a bit more constrained than privates. There is a ton, and we are very early innings here, to your point, but there is a ton to gain.

>> And more coming.

David Shapiro

>> That's right.

>> David, thanks for coming on theCUBE. What's next for you guys? Put a plug in for Open VC. What are you are looking to do? You looking to hire? What's next?

David Shapiro

>> We're always looking to hire. We launched that marquee headline index, the 50 largest US unicorns tracked on a daily basis with ICE and New York Stock Exchange Open Venture Capital Unicorn Index. We're seeking to launch further indices next year. And fairly shortly thereafter, we'll hope you'll see a fun product that will ultimately achieve our core goal, which is introducing new investors, retail institutional fee, and liquidity constraints into an asset class that, let's be honest, is where most of the innovation has happened.

>> Final question, what's the coolest thing you're working on right now that you can share?

David Shapiro

>> That I can share?

>> Yeah. Yeah.

David Shapiro

>> We are working on a way to create real-time custom indices. So imagine you like the unicorn index, but you want to slice it and dice it your way. We can create something bespoke for you, and that would enable specific baskets that investors could use to value existing portfolios, or ultimately create an entirely new product for themselves.

>> Dave Vellante, my business partner and co-host at theCUBE, has a great expression, slicing the salami, and that's what people want.

David Shapiro

>> That's right.

>> Thanks for coming on theCUBE. Appreciate it.

David Shapiro

>> Great.

>> All right.

David Shapiro

>> Thanks.

>> All right, we are here. This is theCUBE Studios here on the East Coast at the NYSE. This is our East Coast access point, new York and Silicon Valley now connected with our students. Of course, we cover events. We're in Munich right now for a great event there . UiPath is in Vegas, a lot going on. And then bringing all the action from Silicon Valley to Wall Street, wall-to-wall coverage on Wall Street, I'm John Furrier, your host of theCUBE. Thanks for watching.