Owning the Future: USVC Explained with Ankur Nagpal

Josh: Right now, if you want to invest in the hottest companies in the world, Josh: SpaceX, OpenAI, and Anthropic, you really can't. Josh: It's normally an activity reserved for the ultra-wealthy who are accredited Josh: and involves a lot of jumping through hoops. Josh: Well, this week, there's a fund that enables you to invest in all three and more. Josh: And it seems like a pretty awesome deal, but the internet has some skeptics Josh: and questions about how it works.

Ejaaz: Well, the good news is we have the GP of the fund here, Ankur Nagpal, Ejaaz: on the show to answer all these questions. Ankur, what's up, dude? Ankur: What's up? Excited for this. It's been a really, really fun week and yeah, Ankur: looking forward to digging in. Ejaaz: Okay, so the headline I keep seeing everywhere is with this investment vehicle, Ejaaz: now the average show can invest 500 bucks in their favorite company before they go public.

Ejaaz: So if you have 500 bucks, you can invest in Anthropic and OpenAI. Ejaaz: But I want to take a few steps back because I think people are missing the wider Ejaaz: story as to why this makes sense now and why you're doing it.

Ejaaz: So that's my first question. Ejaaz: Why does USVC exist at all? And why is now the right time for this? Ankur: So if you look at where most of the money is being made in private technology Ankur: companies now, Now, it's been happening before these companies go public. Ankur: Businesses are taking so long to get out there. And the result of that is the Ankur: average person misses out on that wealth creation.

Ankur: So the goal with USVC is to build a vehicle for people to invest in the future Ankur: of American technology. Ankur: Now, it's easy to look at, you know, OpenAI, Anthropic, and all of that. Ankur: Those are the names we have today. Ankur: But a big part of this fund is investing in the companies of the future.

Ankur: So it's not just late stage private tech of which, you know, Ankur: there are other products as well, but it's also backing the smaller companies Ankur: starting today that will be relevant three, five, seven years from now. Ejaaz: Okay. And how does USVC specifically solve this problem? Can you like walk us Ejaaz: through like if I'm someone that's investing 500 bucks today, Ejaaz: what is exactly happening with my money?

Ankur: Yeah. So historically, the way investing in private startups work, Ankur: and this is kind of bizarre. Ankur: In the U.S., historically, you have to be something called an accredited investor, Ankur: which means you need to have a net worth of millions of dollars in order to invest in a startup. Ankur: And there's different opinions on why it exists, but it's a bit ridiculous when Ankur: you think about, you know, you can invest in any sort of derivative crypto product

Ankur: without that. I can go gamble. Ankur: I can go bet on Polymarket on how long Donald Trump will shake his hand for. Ankur: But investing in Enthropic or OpenAI is illegal for the average person. Ankur: So the goal with US VC and, you know, we're SEC approved to do this is to offer a registered fund. Ankur: Again, you know, people should understand that this is investing in venture capital. Ankur: It is still a speculative asset class. We always say with VC,

Ankur: only invest what you can afford to lose. It is an illiquid investment. Ankur: Like, do not think of it comparable to investing in the stock market. Ankur: However, if you're someone that otherwise has a balanced portfolio, Ankur: it could make sense to allocate, you know, 3%, 5%, 7%, something like that to Ankur: this basket of high growth technology companies and effectively own a piece of the future.

Josh: Awesome. So I'm investing in this. I see a price on the page that says the NAV is $19.95. Josh: And I have a little bit of PTSD, right? There was a company that launched, Josh: or an ETF that launched a few weeks ago that went up like 10x in one day and Josh: then it crashed back down. Josh: But I understand that that's because the NAV was actually much lower than the Josh: company was trading for.

Josh: I believe USVC is handling this a bit differently. So when I see the price $19.95 Josh: on the screen, what is that getting me and how do you handle the pricing? Josh: Is it subject to that fluctuation? Josh: How would you explain NAV to a person who doesn't really understand? Ankur: That's a really good question, because ultimately, US VC is a fundamentally Ankur: different product from all the ETFs.

Ankur: I believe there is, you know, Fundrise has an ETF called, can't remember the Ankur: ticker, Robinoot has an ETF as well. Ankur: And while these are trying to give the average investor access to private companies, Ankur: they're fundamentally different products. Ankur: And the reason for that is, their price is sort of divorced from the underlying

Ankur: value of assets. So even right now, the Fundrise ticker VCX, Ankur: for instance, it's trading at roughly four times the price of the underlying companies. Ankur: And if you're an early investor, that's great. You're opting the money and it can work really well. Ankur: But in down markets, this can also sort of trade not in lockstep with the underlying companies.

Ankur: So you could, as an example, buy this ETF, the companies could do well, Ankur: but you could still lose money because the pricing is sort of divorced from Ankur: the underlying value. Now, USVC is a different structure. Ankur: It is not an ETF, so it is not easily tradable. However, the price is determined Ankur: by the price of the underlying companies. Ankur: So the NAV that you see only changes if and when one of the underlying companies Ankur: has an updated valuation.

Ankur: So it's a slower sort of moving NAV. Ankur: Now, in turn, you may wonder, okay, this is well and good, but if it's not tradable, Ankur: how do I actually get my money out? Ankur: And the way this works is quarterly, the goal of this fund, and we caveat it Ankur: with like, look, we aim to do this just because according to your perspective, it's not guaranteed. Ankur: But if we are to do our job well, we have to meet a quarterly redemption of Ankur: up to 5% of the fund at the actual NAV.

Ankur: Now, that doesn't mean each investor is limited to 5%. it means 5% of the entire Ankur: fund will be made available for redemptions every single quarter. Ankur: So as an example, if we have 100 million in assets, we'll do 5 million every Ankur: quarter that'll be available to investors on a pro rata basis. Ejaaz: On the point of redemption, I understand that the shares obviously aren't listed, right? Ejaaz: So redemptions are quarterly, like you mentioned, but there's a cap.

Ejaaz: I think it's like 5% of NAV at the board's discretion. Ejaaz: So a two-part question that I have for you is, in a real panic, Ejaaz: like what actually happens to someone who wants to get out of this vehicle, right? Ejaaz: Has the board already pre-committed to offering the tender every different quarter or can they skip? Ejaaz: Like what are people liable for? Who's liable for here? Ankur: So ultimately we or the board reserves the right to skip.

Ankur: However, it is in our best interest. Our interests are aligned. Ankur: If we are a fund that is skipping tender offers, it becomes a less attractive Ankur: investment product and it ultimately hurts us quite a bit. Ankur: However, it's still important to anyone listening. Like, again, Ankur: this is venture. It's a different asset class. Ankur: Like, think about a venture fund. It is a highly illiquid investment.

Ankur: This does have tender offers, which is typical, which is better than a venture Ankur: fund. In a venture fund, your money is locked up for 10 years. Ankur: You have nothing you can do about it. Ankur: However, like, you know, we're kind of repeating, this is an illiquid product. Ankur: Think about it like, you know, like similar to how you think about a venture fund. Josh: So there is a lot more stability than something that we saw with BCX.

Ankur: Absolutely. Yeah. The upside is, look, like you're actually owning something Ankur: close to the underlying asset, which the ETFs, I think, are really fun. Ankur: I mean, I, you know, dabble in it myself, but I think of it almost like a speculative Ankur: ticker to kind of trade the sentiment on these names more so than anything else. Josh: So you mentioned owning the underlying asset. I guess I'm curious, Josh: how close are we to that underlying asset?

Josh: And the question there is, I understand some of these are SPVs. Josh: They're not directly on the cap table. Josh: SPVs generally come with fees, which has been a big thing that I've seen people Josh: on the internet talking about is the fee structure, what you're paying for as Josh: a premium in order to access this. Josh: Could you speak to the fee structure a little bit here? Yeah, absolutely.

Ankur: So our strategy is multifold. One of the tenets of our strategy is when it comes Ankur: to early stage investing, like pre-seed and seed, it's very hard for us to keep Ankur: track of what are the most promising companies. Ankur: So there, our goal is to find the most promising GPs that run these specialized Ankur: pre-seed and seed funds and be their source of capital. Ankur: The benefit of doing this is when they want to write a follow-on check,

Ankur: like a series A or a series B check, we can be their source of capital. In terms of how we're Ankur: This is a very small seed portfolio. We'll hopefully be announcing a lot of new investments soon. Ankur: The early investments are largely through a single underlying fund. Ankur: However, moving forward, a lot of investments that are planned are direct on the cap table. Ankur: And this is important because if it's direct on the cap table, Ankur: it means there's no management fee.

Ankur: But also because this type of registered fund doesn't charge carry, Ankur: there's no carry as well, which makes it very, very competitive from a pricing Ankur: and fee perspective for any of those direct investments. Ejaaz: Wow, that's great if you're getting the direct investment on the table.

Ejaaz: But just to kind of step back for a second and kind of walk through maybe an Ejaaz: example, like I know a lot of the companies that you're investing in right now aren't public. Ejaaz: They're meant to, they're very highly valued. They've been valued maximally Ejaaz: over the last couple of months, especially in the AI world.

Ejaaz: If we stepped back, say, a year ago, right, when OpenAI was worth a couple hundred Ejaaz: billion dollars or even a hundred billion dollars, let's say this vehicle existed back then. Ejaaz: Can you walk us through an example of if I'd invested a thousand dollars in Ejaaz: here, how much would I be up right now? Ejaaz: How much could I have taken out? Are you able to give us a kind of walkthrough? Ankur: Yeah, let me, we can try and work through this live, right?

Ankur: So again, this fund took us a while to set up and we sort of don't control the Ankur: market conditions and they are what they are. Ankur: But theoretically, every time there's a markup, what happens is you look at Ankur: what that company size is a percentage of NAV and that markup is reflected in NAV. Ankur: And so that goes up and you could theoretically start redeeming quarterly based Ankur: on that sort of inflated NAV value.

Ankur: Even now, part of our strategy is we believe there are opportunities to come Ankur: in and buy out certain positions at discounts. Ankur: These could be secondaries in funds, secondaries in companies. Ankur: And the benefit there is as a company raises a new brand of financing, Ankur: that's a little, that's a markup to NAV, which theoretically could benefit people.

Ankur: Working backwards, it's tough to model out exactly what this is because Ankur: There's a huge sensitivity on position size and fund size, right? Ankur: Because as an example, if we own a SpaceX position that is 20% of our fund, Ankur: but then our fund grows, our position effectively gets diluted unless we're Ankur: kind of buying more to keep up with it. Ankur: And that sort of makes some of this math a little bit more complicated.

Ejaaz: One thing that kind of stood out to me when I was digging into this and I tweeted Ejaaz: about this, you responded to me because you were like, some of these management Ejaaz: fee estimations are wrong, is this is happening on AngelList. Ejaaz: Now, AngelList is a widely successful platform, but why is it particularly suited Ejaaz: for this particular product? Ankur: For people who don't know about this, AngelList has been around for 15 years.

Ankur: They're sort of, you know, at this point, they've had multiple sort of generations Ankur: of leaders and employees come. And, you know, it's been around. Ankur: It's been a fixture since... Ankur: I've now built and sold two companies and they are how I raised money for my Ankur: first company over 10 years ago. So they've been around for a very, very long time. Ankur: But the benefit of the AngelList platform is they are where the majority of Ankur: early stage investing happens.

Ankur: They are the fund manager of choice for a lot of early stage investors. Ankur: They are the SPV tool for most companies. Ankur: And as a result, their platform has really good exposure to all of these early Ankur: stage assets, which is a very good vantage point for us if we're like, Ankur: hey, you know, we want to go acquire a stake in Anthropic. Ankur: Let's see, you know, there's a lot of Anthropic investors on AngelList. Ankur: We know who to reach out to.

Ankur: So that makes it a very attractive sort of very logical institution to start a product like this. Ejaaz: So when I think about I saw someone explain this on X, there was a lot of activity yesterday. Ejaaz: So if you understand, right, the walkthrough, I put in 500 bucks and the way Ejaaz: I outlined it in my explanation yesterday over here was there's a 3% management Ejaaz: fee in total aggregated, not 1%.

Ejaaz: It's a double layer vehicle. So you go at USVC at the top, you're paying them Ejaaz: a management fee. There's no carry. Ejaaz: So there's no necessary incentive for you guys to maybe like work on the or Ejaaz: like hold particular positions. Ejaaz: But then at the bottom, right, the layers that you guys are investing in where Ejaaz: these GPs are actually like putting in chunks on the cap table on L1 SPVs, Ejaaz: they then take a 220, right?

Ejaaz: So in my mind, that made sense as 3%. But you clarified over here, Ejaaz: you said our management fee is actually 1% and the total expense ratio right Ejaaz: now is 2.5%. I think that's really important and people don't understand that.

Ejaaz: Can you, would you mind like explaining how exactly you get to that? Ankur: Yeah, absolutely. Yeah, that's a, it's a nuance that matters to people closer to this. Ankur: What investors care about is their expense ratio but that's different from a Ankur: management fee you know the idea because a 2.5% management fee looks like 2.5% Ankur: going into our pocket the reality Ankur: is the expense ratio which is the net percentage investors are paying Ankur: is 2.5% right now.

Ankur: And the mechanics and the scare to some people is it's really right now 3 point something percent. Ankur: We subsidize it out of our pocket to make it 2.5%. Now you may wonder, Ankur: why are we doing it? Why is it so high? Ankur: The reason is when you start funds like these, they're pretty expensive to start. Ankur: So all these funds will have very high expense ratios up front because there's fixed costs, right?

Ankur: And when you have like 10 or 20 or 30 million in assets, those fixed costs are really high. Ankur: However, we think the 2.5% is very competitive because again, Ankur: you know, if you compare this to a Vanguard fund, you'll be like, Ankur: this is like why 2.5%, that's crazy. Ankur: But venture funds typically are 2%. And Drees and some other funds are 2.5%.

Ankur: However, if you're a venture fund of funds, which we partially are, Ankur: those are typically 3% if you include the underlying. Ankur: So this 2.5% cap, I think makes us very competitive, especially when you factor Ankur: in, we don't charge carry. Now, some of our investments are in funds and they Ankur: underlying have their own carry. Ankur: However, all the direct investments don't have that and there's no carry on our end.

Ankur: The combination of that, I think, compared to the world of venture products Ankur: makes this very competitive. Ankur: And a big part of why even, you know, you're like, okay, why is it even two Ankur: and a half is when you try and distribute a fund like this to retail, Ankur: there's just operational fees that really add up. Ankur: But from a management fee perspective, I mean, you know, we were looking at 1% or 100 bps.

Ankur: And within that, we're, you know, have to do sales and marketing and a lot of other stuff. Ankur: And right now, we're honestly subsidizing most of it.

Josh: Awesome. Okay, so we understand why this works. The fund structure. Josh: Now, let's talk about the portfolio of what you actually get when you invest Josh: in this thing. I see XAI on there, Anthropic, OpenAI being three of the larger ones. Josh: And particularly when I see the largest holding, I mean, 20 and a quarter percent is XAI. Josh: Now, as most people know, XAI has been acquired by SpaceX on February 3rd at Josh: one and a quarter trillion dollar valuation.

Josh: So that position now is functionally pre-IPO SpaceX. Josh: Is that kind of how you think about it internally? and are the people investing Josh: in that acquisition price or is this a higher markup closer to what it's looking Josh: like as it IPOs this year? Ankur: Yeah, so I think the most recent mark on this, and I think we've shared this, Ankur: was a few weeks ago based on some internal documentation. It's not the IPO price,

Ankur: right? That's speculative. That hasn't happened. We don't know when that is. Ankur: My general caveat with all of this is like, look, some of this may look super Ankur: opportunistic. You can get in before certain marks and all of that. Ankur: I don't encourage that type of thinking in general. I think you should think Ankur: about this as a long-term investment. Ankur: Are you long-term bullish on venture as an asset class? If so, great.

Ankur: I think these positions are great. I obviously like these companies. Ankur: However, this is such a small percentage of what we will and plan to do. Ankur: And something you'll see soon is we're going to be very public with our investments. Ankur: Hopefully as soon as next week, we'll announce newer positions. Ankur: And so people can kind of see the portfolio evolve in real time.

Ankur: But my general guidance is like consider Ankur: investing in this if you're generally bullish about the asset class Ankur: you want to own a piece of the most important technology companies in Ankur: the future you can withstand the Ankur: lack of liquidity and the fact that it's a speculative asset class and do it Ankur: for that don't do it because you really like the SpaceX position or the Anthropic Ankur: position these are great companies we wished we owned more of them but right

Ankur: now we've added a lot in cash these positions have effectively gotten diluted Ankur: and we think the future is not just these companies, Ankur: but the companies that everyone will talk about three years from now and five years from now. Josh: Awesome, so yeah, notably in the portfolio, 56% of the holdings, Josh: if you purchase today, are cash. Josh: So you're buying basically this potential upside opportunity for whatever the Josh: fund decides to invest in.

Josh: How do you consider allocating that and what is the velocity people can expect you to deploy that? Josh: I found a lot of people were kind of mentioning they don't want to invest in Josh: something that's half cash. Josh: So what is the plan to deploy that and kind of how quick?

Ankur: Totally. I mean, our goal is we'd want to ideally hold close to Ankur: 10 to 20 percent somewhere or maybe even a little bit less in cash and cash Ankur: equivalents and again the reason we want to do that is we have to quarterly Ankur: tenders right like if all your dollars are invested in venture that's very illiquid Ankur: and quarterly tenders become a little bit difficult so Ankur: ideally we would like to keep some kind of buffer in either cash or public equivalents

Ankur: where we can go make our tenders however we intend to be deploying these dollars Ankur: quite aggressively and aggressive doesn't mean we're going to index all of late Ankur: stage private tech but you know we're going to be backing a lot of early stage fund managers, Ankur: a lot of companies directly on the cap table, Ankur: buy out some kind of fund positions as well. Ankur: There's a lot I can't talk about because these are deals in progress.

Ankur: But again, we've been very active on the social so far and we will continue Ankur: to be when we announce each new position. Ankur: And what's cool is for a lot of these companies, they're pretty small. Ankur: So they will also announce it to their community and it could be a great way Ankur: to activate their community to own a small piece of the business. Ejaaz: A very important nuance that you've described several times on the show so far

Ejaaz: is this isn't trading like a public stock, right? The VCE game, Ejaaz: venture game is very, very different. Ejaaz: It is more asymmetric. Deals are Ejaaz: kind of like aggregated and dealt with within a very few set of actors. Ejaaz: And these rounds of valuations can mark up pretty massively. Ejaaz: So it takes time and it's a long haul thing. Ejaaz: I get that. You mentioned like, it's the long game, right?

Ejaaz: Three to five years is what you said. In three to five years, Ejaaz: or maybe even a decade, what's the best outcome for USVC? Ankur: So the best outcome for us is if you look at the data, venture capital as an Ankur: asset class has the potential to outperform public markets while also being Ankur: somewhat uncorrelated. Ankur: So if we can sort of index that, right, like I can't commit to an IRR, I can't commit to that.

Ankur: But if we can effectively outperform while not being fully correlated, Ankur: that's sort of, that's why endowments invest in venture, right? Ankur: Like it's two things. It's the alpha and the lack of beta. Ankur: And that's sort of the goal here as well.

Josh: Awesome. Well, thank you. Sadly, we are out of time. I wish we had more time Josh: to chat about this, but I very much appreciate you coming on the show to join Josh: us to kind of explain the perceptions around it, to give some clarity to this fund. Josh: Any final thoughts for anyone on kind of the steps they should take if they're Josh: interested in participating or just learning more?

Ankur: Yeah, look, I mean, usvc.com is our website. At this point, you know, we've been, Ankur: the response has been phenomenal and it's honestly blown every expectation so Ankur: it's gone from like oh you should invest in usvc to all the reasons people should Ankur: you know be careful and think about liquidity and you know what they can afford Ankur: to invest and stuff but no check it out at usvc.com and thanks for having me guys

Josh: Awesome we really appreciate the time thank you so much thanks.