YouSaid · the spoken record

Ryan Caldbeck

lines on the record: 83
first: 2018-10-30
most recent: 2018-10-30
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“We think quant in the private markets is going to be a meaningful part of the future. I think it'll be here sooner than a lot of people gave it credit for. In the public markets, it took years and years, even with the advantage of being able to backtest models fairly efficiently. I think, though, that that has helped pave the way. And I think there's a number of different dynamics that lead Quant in the private markets to be something that will catch on much more quickly. First, there are LPs and asset managers alike who are desperate for access to the private markets, but want a scalable, repeatable investment strategy. The problem with VC or private equity is it is not scalable or repeatable. If done, the traditional way. You basically hire a team of star analysts, star private equity or VC pros, and they source companies the same way today that they did 30 years ago, which is they go to a trade show, they go to a cocktail party, whatever, but it is manual.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“We have a model on category that looks at things like category momentum, also the proportion of a given category that is dominated by stale incumbents. So categories where incumbents dominate a high percentage of the category historically have been categories that are ripe for disruption. We've been able to show that with data, those are the categories that I like. To be frank with you, I don't spend a lot of time myself as the investor picking the categories. We more look at it through that lens of what's working for in the data.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“Another one related to brand in this case. This company spiked, reached out to them, developed a relationship of a couple months, and tried to invest. When we first started talking to them, they were a couple million dollars in revenue. And we closed the round a few months later. They had a term sheet on the table for evaluation that was about 50% higher than ours. They took ours because they wanted access to Helio. They wanted access to the technology. That's one of the interesting things about the space. There's such a lack of data and information in this industry. People are hungry just for transparency about how do companies grow, what leads to success, what can we do to help ourselves succeed. So this company took meaningful haircut evaluation to work with us because of Helio. A year after we invested, the company had grown almost by AidX in a year. So that's over the last 12 months, still relatively early in the process.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“A company called Liquid IV. Liquid IV is a hydration company. So think of it as a powder that you pour into water. And 75% of Americans have a hydration problem. I mean, they don't get enough water. They don't get enough hydration. And they're dehydrated. So doctors tell you to drink 10 glasses of water a day. No one drinks 10 glasses of water a day because it's really hard to drink 10 glasses of water a day. With liquid IV, if you pour it into water, it's the equivalent of having three glasses of water, one glass equals three glasses. And this company, we found solely through helio. I had never heard of the company. Kindle had never even really looked at the category as an investor. It wasn't found in any of the typical ways an investor in this space would find companies, which is, and this sounds like a joke, it's not. Typically, investors just go to trade shows. That's all they do. This company doesn't go to a lot of trade shows. We found it through Helio. So we were looking in Helio for factors that we have seen to be predictive of success, one related to distribution.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“We're working through building a rules based system that we haven't finished yet, where we would give assigned points effectively that lead into evaluation process, but we haven't done that yet.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“I remember you had Michael Richie from Newberger Berman on a while ago and he talked about pricing in the public markets and evaluating the strength of the company, the operating company itself versus the price, which might be impacted by the behavior of the public markets. In our case, I think our problem is a little bit easier from that regard in that we don't necessarily have to predict how the price will respond to the public markets. We don't have to do that. Pricing for us, it is a revenue multiple. And we have a ton of data about what fare is, about what market is. We use that data and then a rough sense of how that historical multiple has compared to revenue growth and apply it to a given company. So if the average in a category is forex revenue and the average revenue growth for that data set is 200% and this company is growing at 150%, that'll cause us to dial back that multiple a little bit. It is candidly still a bit human heuristic driven.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“But it is the metric that every consumer investor pays a lot of money for, and we have not found a relationship with success.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. Exactly. So units per store per week for a given SKU. So if I've got two granola bars selling at the same store, one sells five units per store per week, the other sells three. The one that sells five must be better across tens of thousands of companies. We have not been able to show any relationship with success. And that has been just mind-blowing. It's been something that we haven't really talked about publicly before because I can't give any economic intuition for why this is true. Other than this, we think the only possible explanation could be that buyers, they're the people that make decisions at a given retailer. So I decide what goes into my store, may value uniqueness, a different sale to a new customer more than just whatever is the top performing skew. So that might be the logic instead of having Budweiser, Miller, Coors, to have Budweiser, Miller, and the”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“If you ask any consumer investor or just someone that's lived and breathed a space, they would say that velocity is, if not the most important metric, one of the top two or three most important metrics.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“With some guests. I think D2C is an amazing channel to iterate on a product to basically A-B test a product because it's hard to do that with a physical product on a shelf. You have to base slotting and change it out, et cetera. But to scale a business, the customer acquisition costs online is just brutal for these companies. And tech VCs tend to think, gosh, because I can strip out the costs of going to a store, this thing's going to be higher margin, they don't take a step back and say RX bar sold for 600 and raise the total of $10,000. Halo Top just had a billion dollar valuation, raised a total of $2 million. But my company is raising $100 million. Why is that? It's because these things aren't profitable. Selling only online is a really difficult way to make money. So the thing that we've learned, which is intuitive to us, but we've been able to show it offline matters a lot still.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“My VC friends in Silicon Valley will not like this. Offline matters a lot more than they think it does. I mean, it matters a tremendous amount. And I'm not going to say that D2C businesses, there are some D2C businesses that are being built that are really interesting businesses. A fun game to play is to make a list of all the DDC companies that have ever existed that have had successful exits and raised more than $50 million. That list is very, very short. There's a lot of DDC companies that have raised a lot of money. Very few have ever had success. Like Dollar Shave Club is one, but then the list gets really, really short.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a complicated answer that we haven't nailed yet. And it's in part because it varies based on the size of the company. We focus on one to $15 million revenue companies, but even within that, it varies a little bit. And the category itself. So we're talking about consumer, this massive industry, as if it's all one thing. But there is still personal care, which is sold through, let's say, Sephora versus food sold through Costco, et cetera. So it depends, is the short answer. But to sum it up, we have found a better correlation with dollar revenue growth than percent revenue growth.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“And so we look for positive and negative sentiment. And it turns out that those kind of signals are very correlated with success of the business. Success going back to the objective measure of revenue growth. And third is product uniqueness. But distribution and brand are two key ones.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“Albertsons, it tends to start at one of the smaller chains that isn't tracked by those providers. So we have to find that data. So breadth and quality of distribution is one. Another is brand intensity. So brand intensity, what I mean is if you think back 12, 15 years, vitamin water had an intense positive relationship with the consumer. Today it's owned by Coke. People don't have that relationship anymore with vitamin Water. But at the time, people loved it. They tell their friends about it, isn't it? neat how they have these little sayings on the side of the bottle, et cetera. And that brand relationship with the consumer is expressed in a lot of different ways. This is one of the beautiful things about consumer in, let's say, enterprise software. No one's talking about that business publicly. In Vitamo Water's case or RXBA, Halo Top, those are brands that people talk about. They talk about whether or not they like them. So they're talking about it on social, on reviews, et cetera, blogs, et cetera. All that information is out there.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“So we have looked at a lot of factors, hundreds and hundreds. The things that matter tend to fall into buckets. So distribution, brand, product uniqueness are the buckets that matter the most. Distribution, so online or offline distribution. If it's offline, it is basically breadth and quality of doors. Doors meaning, are you in one Whole Foods or 400 Whole Foods? That data is outrageously valuable and it's really hard to pull together. It's really messy. There are data sources like retail level sales providers, IRI, Nielsen or two that provide it for a small number of the largest stores. They focus on grocery only and it's usually the top 50 or so retailers. They don't track the long tail. And that's what's so critical in this space to identify innovation because innovation tends to not start at Kroger or say.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“Or when Sam Hinkey was on talking about what he was doing in basketball, not every NBA team wants to copy that for some reason or another. In this case, I think that kind of copycat mentality may occur over time. I think it is a long period. And I think we keep going back to the general thesis, which we've been able to prove out, that differentiation matters, uniqueness matters. So if everyone moves to clean label, clean front package and fewer number of words and that small, silly example, then something else will matter. Some other type of uniqueness will matter. And it'll be our job to identify that.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“So to date, we have found that they are not very short. Now, the life cycle may shorten over time as information about what breeds success increases and is more readily available to entrepreneurs. But I think like any industry, just because one company had success with a strategy doesn't mean that everyone copies it. I mean, we see that even in the public markets, where something that may work for someone, and I've heard this with some of your guests, other folks may not copy as readily as perhaps that they should.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, sold 600 million. They raised a total of $10,000. That bar, when it came out, it kind of caught investor and consumers' eyes a little bit, well, more consumers, because a lot of investors passed on it, but it captured consumer eye because there weren't a lot of words on the package. It doesn't sound like a big deal, but it stuck out in terms of how clean it was. So one of the things we looked at with computer vision is we took apart the package of that and I think we tracked about two or three thousand other snack bar companies and money more than that products. And we just looked at the number of words on the front of the package and looked at a correlation between that and revenue growth. And it turns out that there is an inverse correlation, meaning more words, the less the company grows. That is an example of something that we would never invest solely based off of that metric. That would be a very bad investing strategy. But we try to combine that with many, many other factors to look for things that make intuition.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“Classification that they don't need to interpret, but many of the prediction models are very interpretable. So we look for data sources that are trying to solve core problems for us. So as an example, one of the things we look at is trying to understand how unique a product is. It was driven back to your original question. It was driven by human heuristic that product differentiation in the consumer space matters. If you just have a copycat of vitamin water, you might get shell space for a little bit, but it's not going to end up being successful. We then had to go out and get data on products, packaging, ingredient decks, nutritional profile,”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's funny when we first started the classifier, we had never heard of quan hedge funds. I had never heard of Renaissance technologies or any of the quantge funds until one reached out to us and said, we should be doing this with you in the private markets. And when that concept appeared, the entire concept of looking for new data sources and the frameworks with which many quant funds evaluate, search for new discourses came into our view. So early on, we were not sophisticated at all about this. We kind of would stumble across a new data set or someone would get an idea in the shower and we'd try and look at that. Today, we have a pretty robust methodology that the product team has built at CircleUp to find and evaluate new data sources. We care a lot about interpretability, particularly for models that the investors will be using. There's some models that we use that are black boxes that around entity resolution, industry.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“Specifically, witch Whole Foods are sold at, or Target, Walmart, et cetera. You can find how many skews they have, meaning they have one skew or ten skews, flavors, sizes, et cetera. You can find information about the pricing, what the end users think of the product. And if you're tracking it, you can see how all those things change every single month and how they compare to every other company in the category. That data is the building blocks of success for that company. I mean, it is almost the entire revenue equation for that consumer brand. So we've been pulling that data together for years. Now, it is a really ugly process. It is messy. There was a ton of cleaning of the data, normalizing it, combining it, et cetera. But when you have that data together, it paints a really interesting mosaic about how the business is performing. And there's some interesting correlation between that and the success of the business going forward.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“A widget business. It is. And I mean that with a ton of respect because I think these people are doing really, really important things. But you make a product, you sell it. You don't make the product and give it away for free for five years by putting ads in the front. You don't make a product. You don't make the granola bar and say, actually, Patrick, you can only have the granola bar if you buy a five-year subscription to the granola bar. Unlike tech, where you've got a game for your iPhone, a securities business, and a cryptocurrency, wildly different business models. Because it's the same business model, it's the same game of chess over and over and over again, which makes it easier for us to build models on top of it. That's a key component. The other thing that is not very intuitive to most people is that there's just a ton of data in this industry. So in consumer, if you walk down the street here in New York and go to local bodega and pick up the smallest company you can find, you can find, if you google that, you can see where that granola bar, let's say, is sold. Not just that they're sold at whole foods, but”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“A couple reasons. First, it starts with tech, early stage tech, I think there's too much capital to be gained with you. There's 750 BC firms that chase that industry. In consumer, if you just Google early stage consumer product funds, there aren't 10, 15 in the country. There's a ton of consumer-focused private equity funds that'll invest $25 million into a company, but not many that'll invest $2 or $5 million in a company. But beyond that, I think there's two things that aren't always obvious to folks that don't live and breathe consumer. The first is that in consumer, the business models are basically the same.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's twice as high, that's going to hurt them in the long run. Let's show them why that is. But this is the valuation range that we're willing to pay, and this is the data behind that. It doesn't always work because sometimes the entrepreneur's got a friend in tech who's going to tell them, nah, you're worth 20 times revenue. And that's sad, but our quest is trying to systematize this as much as possible and bring transparency and data to the conversation so that they feel fair.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“But what we're trying to do is we're trying to bring data to that conversation to transform what has traditionally felt like a used car buying process, where no matter what deal you get, you kind of leave the conversation feeling, did I just get the best deal I could have? Did I just get robbed? How do I feel about this? It's never a great feeling. We're trying to transform that as Tesla has done or as Apple has done in terms of buying a car or a computer. And it's always the same price. You feel a little bit better. So what we're trying to do is just expose the data that we have over time and say, look, we've worked with tens of thousands of companies over the last six years. We have an understanding of what market is in early stage consumer. Let's expose this data to the world. Let's have them understand why we're pricing their company accordingly. And if they want to evaluate”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“We first start with a funnel, effectively a B2B sales funnel. And there's some private equity firms that do something similar, TA associates, summit partners that have kind of funnel metrics. They traditionally have relied on the equivalent of, let's say, a phone book or trade show lists, et cetera. We start with Helio. And then the team has reach out metrics that we can measure and look at that performance. Clearly, it is dramatically less efficient than the public markets. That's just what we do. Then we're able to measure success along each step of the funnel. When we are able to get in touch with the entrepreneur and work with that entrepreneur, it becomes even less efficient.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's very hard, and it's a lot less efficient than the public markets, and it'll never be close to as efficient as the public markets in terms of getting the deal done. So we try to systematize that process of reaching out, working with an entrepreneur, helping the entrepreneur as much as possible. But at the end of the day, you're absolutely right. It is still a relationship. And we put a lot of weight into the relationships that we have. So the people we hire, while we have a number of quants on the team, we have a fairly large engineering data science team, at least for an asset manager. We also hire folks that are able to build deep relationships with these entrepreneurs. And we've tried to apply some skills that we find in analogous businesses in terms of using the data to reach out methodically, but also layering on a personal element.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“Look for things that were correlated with exit. We found a few different things, one of which is revenue growth. So revenue growth, which also makes just intuitive sense. Revenue growth then became the objective measure for what we're doing. And so we looked for other factors that had high correlation with revenue growth. And that progressed meaningfully over the last few years. So today Helio tracks about 1.4 million consumer retail companies. And then evaluates them on a series of different dimensions related to brand, product, distribution, and a number of other things.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“The more we got back, meaning we began to think, okay, this is helping us find companies that meet this criteria. Is there other criteria that we would care about? Then we began, and you quickly hit on the concept of the objective measure, we didn't immediately recognize that. But over time, we said, okay, well, is what matters that we care about working with a company or is what matters is that the company's going to be successful. Let's go look at what is correlated with success. Now, in the private markets, that's really hard. In the public markets, and you know super well, it's a bit easier because you've got so much data on pricing. In the private markets, while you have exits, it's really hard to determine whether or not an exit was successful or not. So we took a long time to pull together a large enough data set that we felt comfortable with that as an objective measure, but then we had a problem because as soon as you start whittling it down to say, okay, what's an exit in food versus personal care versus pet, the data set isn't big enough.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. Exactly. And we'll come back to that later on in Helio. But you're right. Initially, it was just trying to make our lives easier. Just what is correlated with us saying yes or no? Which is clearly bias and everything else, but that was the objective measure. And so that was a bit of an aha. And anyone who saw this data put on the screen, I still remember where I was sitting in our old office. Anyone who saw this data would say, oh, if eight of the 10 data sets that are most predictive of whether or not we're going to say yes to a piece of company are things we can get elsewhere, let's just go get that data on a lot of companies. So then we built another model called the sourcer, which does exactly what you probably think, which it goes out and finds companies. The sourceer would go out and find companies, and it started by looking at, we put in the list of maybe 10,000, 20,000 companies we got from trade shows, things like that. But after a couple months, we began to recognize that we could build a new algorithm that would proactively find companies and then pull in the information that we thought was predictive. Over the next couple years, the more we leaned into that algorithm.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“We also then pulled in some external information, but most of the information that we really cared about was the company's financials, revenue, gross margins, stuff like that. And as a private equity investor, I figured that we'd make the decision based solely off of their financials if the company is declining. We're not going to accept that company. If the company's got 3% gross margin, we're not going to accept that company. When we ran that for nine months or so, we discovered that eight of the ten pieces of information that were most predictive of whether or not we would say yes to a company were pieces of information that we didn't need to ask for.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“85% right. So after a couple months of that, I kind of began to think a monkey can do this. A monkey could do this churned into a computer could do this. I had no idea what machine learning was. I was not a CS major in undergrad. It just struck me that this was not what I wanted to be doing with my life. And this probably could be done by a computer. So fast forward to CircleOp. I started CircleOp six years ago and we had a online portal that companies would apply to. And they'd apply, they'd give us their financials. And so I wanted to take that application process and streamline it. So we hired a data scientist whose name's Arvin. He's still with us today doing an amazing job. And we built what we called a classifier, which is exactly what it sounds like, which is people would give us their financials, and then we'd say yes or no to the company.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. So Helio is a collection of algorithms and data sets, which go out into the world, first find companies, and then evaluate those companies. We focus specifically on consumer and retail. So the Spark, so to speak, was when I was in consumer-focused private equity 12, 13 years ago at a business school, I had a job. And the job was someone would hand me a list of companies, four or five hundred companies a week, and say, go through this list, tell me which ones we should reach out to. And we didn't have any data on the company. I would just have to Google that company. And when I would Google the company, I'd find they were in Whole Foods, or maybe they weren't sold yet, just rough information about distribution, what I thought of the brand, stuff like that. Candidly, it was really boring. It did not take a lot of intelligence, and you began to get into a rhythm after you look at a couple thousand of these. You can make a decision in 30 seconds and be.”
2018-10-30 · Invest Like the Best · Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] · IDENTIFIED FROM THE TRANSCRIPT · source