TLP43: Mid to Late Stage Unicorns with Linqto’s Karim Nurani

[Karim] And we originally turned with acorns to unicorns and as investors and limited partners that we are basically accredited investors who would like to make investments. We found that the opportunity to access mid to late stage growth companies. Now think when I say that mid to late stage companies, before companies become a public company, for example, Robin Hood, Coinbase. Marketta, SoFi Nerd Wallet, Ripple, Dapper Labs, a BitPay. These are all companies that we think of as mid to late stage. The valuations are from between 500 million to a billion dollars evaluation companies, and that's what we allow accredit investors to come onto the platform and then use our app.

[Jake] That was Karim Nurani. Chief Strategy Officer at Linqto. In today's episode, Karim shares the origins of a platform built to give the average limited partner access to mid stage and late stage growth companies that have typically never been available before. Stay tuned. The limited partner shares in the potentially outsized returns of a well planned and executed investment, but as a passive investor and has the maximum leverage on their most precious asset, their time, and that is why we're here together. 90% of the millionaires out there built their net worth with real estate. However, 0% of the billionaires are hands on managing the real estate assets because there simply isn't enough time. My name is Jake Wiley and for the past 16 years I've been investing in real estate and I've learned a thing or two. But the most important lesson is how to leverage the expertise and time of others to maximize your investment potential. Welcome to the Limited Partner Podcast. [Jake] All right, Welcome partners. Again, this is your host, Jake Wiley. I'm really excited about this week's conversation, because it's gonna be a little different than we've heard in the past. I'm joined by Karim Nurani, who is the Chief Strategy Officer at Linqto. Karim, welcome to the show.

Karim] Jake, thank you so much for the introduction. Welcome to the audience and pleasure to be here today.

[Jake] Well, I'm gonna let you tee up kind of about Linqto, because it is a little bit of a twist on what we've talked about in the past. But for the benefit of my audience that hasn't met you guys yet, give me a little bit of background on you and how you got to where you are and a little bit of background on Linqto.

[Karim] Wonderful. So I'm gonna start actually with a background of Linqto, because that'll give us an idea of why I'm here. After you hear a little bit about my journey, So in 2016 or 2017, I became an early investor in Linqto. At that time, we were building the backend plumbing for regional banks and financial institutions that didn't have the power of the Big Five. We we're making money, but not enough to be a growth company that we don't like to believe that we are involved with to take it to the next level. So, we retooled the infrastructure in 2019 and we built a financial marketplace platform. And we originally turned it acorns to unicorns and as investors and limited partners that we are basically accredited investors who would like to make investments. We found that the opportunity to access mid to late stage growth companies. Now think when I say that mid to late stage companies, before companies become a public company for example, Robin Hood, Coinbase, Marketa, SoFi, Nerd Wallet, Ripple, Dapper Labs. BitPay, these are all companies that we think of as mid to late stage. The valuations are from between 500 million to a billion dollars valuation companies. And that's what we allow accredit investors to come onto the platform and then use our app. And it's as simple as point, click and invest, and you get a company of your choice out of a variety of, you know, anywhere between 15 and 30, 15 and 13 companies that we have on our platform to make an informed decision to make an investment. During the heyday of companies going public you know, we were fortunate enough to see about 30% of our companies go public. And depending on your investment choice, you were either making money and if you still held onto them today, you might be losing a little bit of money. But the difference really is as opposed to a brokerage firm where you're trying to buy secondaries on the market and become an owner. What we've done is we've already invested in these companies already. So, we own the shares and then we give you access to it through our SPV LLCs on the back end. And it was really fortunate for us to do this because access to these private companies growth stage companies was very limited to folks who had, you know, 30, 40, 50 million dollars in the bank and had connection to Wall Street. And we said, No, we've gotta change that model and create an environment where all of us as a credit investors can have access to these companies. And so we built a platform and we're doing really well. Really, that sort of pertains to my background is how I got here and why I'm so happy and fortunate to be involved with link to today is I started off very early after my university days as an entrepreneur, an investor in early stage startup companies, and you find that the opportunity are that most people will pay attention to, is within their educational background or their geographical background. And so, your opportunities are limited to those environments. Whereas with the platform such as this, your opportunities are global. And as I started along this journey very early on as investor in early stage startup companies, it always annoyed me to a large extent that we couldn't have access to the prominent companies, you know, Amazon, Facebook, Snowflake, et cetera, etc. Uber, why didn't we get an opportunity to invest in these companies? And as I look back in my life and found the opportunities existed for me within my environment, I decided that Linqto was a great opportunity for us to diversify investments as an accredited investor. So, for a long time I've sort of helped close to, you know, a hundred companies who were in early state startup companies either identify funding or identify growth opportunities or build out their teams for them. And this was a very strong learning experience for me throughout the number of years that I've been involved in this category of investment strategy.

[Jake] I really like the platform and the idea that one, you guys have invested already, right? So it's not just an exchange where people can go. So like, Is it fair to say that you guys have already done some diligence? You know, cause that's something we talk about a lot on the show is diligence on these companies. You know, these opportunities, these general partners, these sponsors. It's really important. I'd love to get your take on that.

[Karim] That's a great question and that question comes up all the time. And let's put it into a couple of different buckets, right? So if you are an early stage investor, and when I mean early stage investor, I'm talking about the angel stage, where you're putting in a pre seed or even series A funding into a company that you resonate with their mission, you understand their industry, and you've done some due diligence on the founding team and appreciate that they have an opportunity for success and that's great. Then we look at the companies that have gone to the right side of the scale that have become public companies. So, we play right in the middle of that. Companies that are raising, you know they're either C, D, E, or F round. And so, keeping in mind that by the time they get to a 500 million dollar valuation, they're probably already invested into by prominent VCs and private equities. Think Andresen think you know, Sequoia, SoftBank Greylock, any of these companies that have really put significant money into these mid-stage companies, what we believe is that they've probably done a lot of due diligence already and we rely on their expertise and we then identify the companies that within those environments that we think will be trending positively. So, for example, in the last two years, we've been paying attention to blockchain, digital assets, space technologies, and payments industry. And what we find is that a lot of these large size VC companies or private equity have made investments in these companies. Probability of success is much, much higher than a very early stage company that a lot of people are looking at to invest in. The statistics are, you know, 98% of their early stage companies will fail, so you have to make a lot of small investments into these companies, and if you may and you find one that's successful, your return is likely to be very high. What we've done is sort of done the middle ground is in identify companies that are mid stage, late stage so, they've probably already raised three, 400, 500 million. The probability of success is 85%, you know, 70 to 85%. So you have to make less of a monitoring investment. But there's still opportunity for growth when there is a liquidity event, whether it's through the public markets or through an M and A acquisition.

[Jake] So as we think about, like on the show, we talk a lot about cash flow investing, right? So we're investing in real estate that's kicking off cash. This is definitely different. What does the investment lifestyle cycle look like? Timelines, all of those factors.

Karim] Yes. In terms of categories of investments, you're correct. You know, you've gotta balance sort of where you wanna be as a personal limited partner or investor. Looking overall at your strategic investment cycle, there are opportunities, like you said Jake with cash throwing cash off on a regular basis. That's really great. Same with dividends although the returns are given what they are limited in nature. And then you're looking at early stage investments where the opportunity of failure is high, but the opportunity for a huge return is significant, and those timeframes are anywhere between 2 and 7 years. 2 and 10 years depending on how quickly they get funded and if they're targeting the right marketplace. And then if you look at what we're doing as mid stage to late stage the time horizons bearing the current situation we were looking at anywhere from 12 months to 36 months that timeline may be pushed out a little bit now. Not to say that there won't be any M & As without IPOs. So, you are looking to balance your investment in time horizons you know, three to five years. This is what you should be comfortable holding an investment in. And your likelihood of return is significantly more than a recurring dividend payout or an investment returning you know, 5% to 7% a year. And if you are looking at the IPO market, then you're sort of in the middle of very high returns with a high success, with high failure rate to very low returns with a public company. So we're in between that level of medium term, but possibility of a great return.

[Jake] Okay, so a little bit higher risk, bigger return. I guess for somebody that's looking to get started, right, they've just stumbled across on this podcast and they're like, Wow, this sounds great. This is a great way to kind of diversify my portfolio. How would you recommend someone start in, you know, investigating the opportunity and then getting their foot in the door?

[Karim] There are a couple of different things. I'd really focus on is, you know the time now the conversation is like, do you have a product or a company on your platform that makes sense to me? And I don't know? The response is, you should actually just go to Linqto.com. Take a look at what we have on the platform, see if any of the industries or companies resonate with your investment thesis. And this is an important part, your investment thesis is the crux of your investment strategy. You as an individual need to decide what is your risk profile, what is your time horizon and what kind of returns would make you comfortable? And what we do find in the current market and what we've seen is a lot of people follow and trace the hype, so they're listening to friends and making investments that they have no idea or knowledge of, whether it's the industry or the technology or the future potential of it. And they trace that hype without understanding the investments that they're making. So I would recommend that any investor be very comfortable with. What is a thesis that you are going with and what is the kind of companies and industries you want to invest in? Very simple question. Would you invest in electric vehicles having known nothing about the whole environment of electric vehicles or power or generation or climate. I mean, if you don't know these things, then do you wanna make an investment in that structure or in that environment, given that there's so many companies playing in that environment. So pay attention to what you are good at and what you like to do, and what you'd like to research on. All of this takes time. It's not as easy as going to your broker and saying, Hey, just pick me at 10 companies. if we're that easy, a lot of people would be making a lot more money. You just have to do the work.

[Jake] Yeah, I think that's a great point, and it dovetails really nicely with the conversations we've had on the show thus far. If you want a super stable, low risk investment, you know you're gonna get super low returns and you know, maybe non-existent returns with inflation. But if you want to up the game, there are opportunities like this. But you have to know what you're getting into. You have to make investment choices based off of your expertise. Right. And you can't just jump in. And I think, you know, that is something that I always stress and I think the more conversations I have on the show the more it really sinks in. Is that there is no silver bullet and it's, things are constantly changing and as I kind of think about constantly changing, I mean, the market that we're in right now is so drastically different than the one that was just a couple months ago. And I guess tell let's talk a little bit about that. What do you see? What do you predict?

[Karim] Don't you just love predictions? They're always wrong. As I heard recently, I'd rather be a futurist because whatever I say today, I could be right or wrong, but no one cares because it's a futurist. That's theory. So, I'm not gonna make a prediction. What I am going to say is this. Times are changing and times have changed. And if you look at what has happened in this current market cycle, there has been a lot of liquidity by the governments as well as large financial institutions who have made money previously. And they were chasing a lot of companies and funding a lot of companies, early stage, mid stage, late stage. And a lot of these companies, what you find once you dig a little bit deeper, are chasing growth without an understanding of their revenue. It's like, Hey, if we have more eyeballs, it means that these people will be customers. And certainly a lot of them may be customers, but the cost of having a customer sometimes outweighs the revenue and profit margins that you're getting from these customers. So yeah, you may be a rapidly growing company but not making any money, and in fact, losing money every time you get a new customer. So, as the liquidity environment crunches up a little and shrinks. What we will see is more and more investors paying do more attention to is this company viable that we're investing in? Do they have an opportunity to grow and actually make money with their growth? Make revenue so that at the end of the day, we don't have to keep funding the companies. A lot of companies out there that have good, huge valuations and large number of customers, but are making no money. So the market is teaching us a lesson today that investments need to be looked at carefully. We must pay attention to due diligence and the teams. If the teams cannot weather a storm collectively, then the success of those companies are marginalized. And because there's been no stress in the market for a good seven years, a lot of these teams currently have not been tested and we'll see the test today and moving forward over the next 18 to 24 months whether they can weather the storm and they can really actually show value in the companies that they're building.

[Jake] Yeah. Amen to that, I mean, the tide has been rising for about a decade, right? And that is a long time, and it's covered up a lot of mistakes. And there are a lot of folks out there that are young that have never been through a cycle. There's people that have gone full cycle on a couple, you know, IPOs that have never made a dollar, right? They just spend money, they spend it really well, and, you know, they're the unicorn out there. But the reality is that there are some business fundamentals that you gotta get your brain wrapped around is like, is there really a viable plan to profit, which is super important, and does the management team have a path to get there? And that is completely in sync with every conversation we've ever had on this show.

[Karim] And I would like to say this though, the management team today. You know, maybe the correct management team for the business today. But we have to also remember as you are a rapidly growing company, the new team members or employees that you bring on have to be aligned and adaptable because a growth stage company that has a, you know, 20 or 50 million valuation, and I think a 50 million valuation is when things change rapidly and the team members that you bring on board need to adjust to the demands of taking that 50 million company to a hundred million company. Those are completely different skill sets and endurance levels that are needed with an early stage. And the enthusiasm and hype that you may have growing a company up to 50 million is probably not the same that you have to have growing from 50 to a hundred million dollars. So, there will be a change both in management and team members to meet that growth and the demands of that environment and management has to be able to make tough decisions about who their team members are. So we have to pay attention to how effectively the management also recognizes this truism.

[Jake] Yeah. because there is, you know, in early phases, you know, you've got a founder and his bootstrap team and you know, here's a team that collectively is just willing to get it done, figure it all out, and it's messy and it's ugly and they're proving the concept. But at some point, you know, like what you're saying, maybe a 50 million, all of a sudden systems and processes, inefficiencies become the thing. Right. You can't push that much stuff forward, manual. You're right, it is a very different team. There's systems, there's things that need to go into place, and I think that's a really astute observation that we all need to be thinking about as we're looking at potential investments is where is the company in this cycle? You know, are they getting ready to make this transition? Have they made that transition? Do we think the management team, do we think the founder, whoever's leading this is, can make that call, can actually get it done? Okay, so what else? I guess what mistakes have you seen people make investing here?

[Karim] I would say depending on the stage of companies that you're making investments in. The most early stage companies, if you're investing in anything that's sort of like angel related, who've not really raised an institutional round from a top tier VC or private equity, you have to be very careful about the management team, the technology team, because let's be fair right now, most businesses have to have a very robust technology backend to be able to survive, and this technology will be constantly tested and constantly has to be renewed and ramped. And so the management team, whether it's the CEO, CFO, CTO, have to understand that there will be changes in sort of the mid to late stage companies, early stage companies. The mistakes people make very early on is they don't do enough due diligence on the management team, nor about the status of the bank accounts. And a lot of people are afraid to ask these questions of like, hey, you want me to invest X dollars in your company? But tell me a little bit more about the $5 million that you've raised over the last two years. Where did that money go? And what does the financial state status of the company look like today? There are a lot of people are scared to do that because they feel like they'll be insulting somebody, but I wouldn't if, look, remember, your investment as a limited partner is your money. It wasn't easy to get your a hundred thousand dollars or $500,000 that you want to invest. Why should you be giving it away without the correct due diligence, right? Why would you do that? So ask the tough questions. Don't be afraid. And if they turn you down as an investment partner, a limited partner, well walk away because it's not a bad thing. If they're free to share with you every point of success they've had or even the point of failures that they've corrected. Each gives you a little bit more confidence on the transparency of these investible opportunities. If you don't get that when you're making writing a check, then what makes you think that you'll ever get that?

[Jake] Yeah, that, I mean, that is your chance to ask the question, right? Because once the check is written, you can't get it back.

[Karim] Once the check is written, you're, it's gone.

[Jake] Yeah. I mean, you'll be surprised at the answers you get, right? It's like, if we had a ton of cash, we wouldn't be looking for investments, right? But I need to understand your plan. Like, where did it go? How did you use it? How do you plan to use this? What are the sources and uses? Like what is the strategy here? And there has to be sense as opposed to we just need more cash so we don't flame out.

[Karim] Even in the fast track record, you're gonna flame out in six months, you'll be coming back and I don't want that to happen.

[Jake] That's right. Yeah. Just ask the hard questions. Right. I think the other thing that I always tell people is, there is always another deal. There's always opportunity, you know? Yes. You know, there are the Facebooks and the Googles that just, you know, went through the roof. But there are always opportunities. If you keep going and you get some reps and you ask questions, like you just get smarter and you'll find yourself in front of the right opportunities.

I'll give you a very simple example. I think and Jake, you'll be able to resonate with this when you go to buy a house. Today is a different market. What, six months ago was a different market. If you were gonna buy a house, you wanted to put as much cash as you could down to win that house, but take that scenario out and what happens when you go buy a house, right? You go through the marketing cycle, you then go through the due diligence of the house. You look at the ownership, you look at, you ask for a pre-inspection report. You then go through the due diligence with your bank to get a mortgage. Think about all the questions that you are asking the seller of the house before you put down your $500,000. And then look at all the questions your banker is asking you before they give you a loan. Who are you? What kind of money did you make? Where did it come from? How do you spend your money today and how will you service our loan, right? You just take that as a very simple example of you trying to spend money at the same time to get a loan, and the questions that you ask of the seller and the questions that are asked of you as an investor who's trying to raise money. Why wouldn't you use the same criteria? For an investment that you are trying to make in somebody else's business, just use that as a guideline.

[Jake] Yeah, and I think that probably taking that analogy a step further is what questions have you asked to date with the investments that you put out there? You've got a 401k. Are you asking any questions about that? Are you just throwing it in some sort of fund? I mean, I think there is a time where maybe you're younger and you're like, Hey, I don't really have anything to lose, let's just go for it. But you know, you brought this up earlier, like it takes a long time to earn all of this money that you're gonna go invest. And you gotta be really careful with that and you gotta ask those questions and I'm challenging every one of you guys out there to probably ask more questions, ask something that you feel is maybe gonna be insulting, not on purpose, but be willing to do that because the answers you get will be so telling into where you were gonna place your money, and if you feel like it's the right person, because you'll know right away when you ask an awkward question, if you get a really like terse response. You don't wanna put your money there anyway, and that would've answered the question in less than five seconds. But, you know, we don't do that.

[Karim] No, we don't do that. And the other thing I would pay attention to is actually listen to what's not being said. When you ask a question, you may get a direct response to direct question that you have, but also listen to what's not being said. Oftentimes a very informative landscape is provided if you listen to what's not being said, and that's a good indicator.

Yeah, I like that too. I like that a lot. Well, I guess Karim, is there anything else on that you feel like we need to cover for this conversation to be complete.

[Karim] Yeah, linqto.com is, you know, we're democratizing access to mid and late stage growth companies that ordinarily as a limited partner or as an accredited investor. Without mega wealth there is no opportunity to access this. We've created this platform. We're really proud. We're doing well. We continue to grow this company and you know, spread the word that we're here, we exist, and we'd like to support you. I mean, the difference here really is from a lot of different companies. We're not a VC company. We're not a private fund company, which means I'm not asking you for your money, and then we'll decide where to invest it. As a company already making the investments, so we've already got skin in the game, we then ask you to take a look at the choices that are offered up to you and you can choose what you want to do with your funds and what kind of companies you want to invest in. But I would always you know, I've been doing this for, over 25 years now, and the most important thing I can say to you is, your wealth belongs to you and your family, and your children and your parents, and to ensure that you've taken good care of the basics where you're gonna live and how you're gonna support yourself now and in the next, you know, 10 to 15 years. If you then have some funds that you'd like to deploy, start looking at the various alternatives. Make a decision on what your time horizon is and what you'd like to receive back over the next five. It could be staggered. You know, I wanna see X dollars come back to me in three years, five years, 10 years, and 15 years, and then start categorizing your investment thesis. There are a lot of opportunities out there, but you really, the work for any limited partner any investor is to do the work. None of it comes easy. And especially if it's your hard earned money, you wanna make the right decision so do the work.

[Jake] Yeah, I love that it is so important that you do some work, right? Because I think a lot of us are tired. We have that full-time job and then they're like, I don't wanna do more work. I don't want another job. I just wanna put my money to work. But this investment is what's gonna pay for you to live in the future, right? It's gonna give you all the things that you're hoping for in retirement. So, yes, make it work for you, but do a little bit of work. Help it out.

[Karim] Do a lot of work. Yeah, we do a lot of work. I mean, you've seen the rug pulls and you've seen what's going on. I would tell you this. What are the things that people really underestimate is the research that you can do by your own. So, if you start looking at Linqto platform and look at the companies and you're saying, hey, what's your due diligence? it says, if we look at the 15 other VC companies that put money into the company, that's a big bunch of due diligence, but before you make the investment, right, go in and research that industry, research that company that you wanna invest in, and a couple of different things to look at that a lot of people forget to look at. It's like, go onto their recruiting page, see what kind of people they're hiring we in, which sector are they for? Are they falling in sales, leadership? Take a look at what they're, who they're hiring and for when. That'll give you an idea of the trajectory, potential trajectory of the company. Look at the products that they're offering and what is their value proposition? And then talk to your friends and do a quick message out to them and says, Hey, do you use this company? Do you understand who they are? Do you understand what they do? The other thing to do is look at if they're making significant transitions in their C-suite, are they hiring different caliber financial officers or different operators, or different technical people? You'll start to see, a messaging with all of these social things that's available publicly to see where the company's going. Are they investing more, Are they changing their marketing message? Are they hiring more people? Are they laying off more people? Are they changing their C-suite? Look at some of these things that they're doing, and you get an idea of where this company is likely to be heading.

[Jake] Well, I really like that it's a golden nugget, like where is the company going? And how do you get a good idea of that is what are they hiring for? So you could start your diligence just looking to see like what jobs are out there. Thank you for sharing that. I really like that. That's a new one.

[Karim] Okay, good.

[Jake] This has been a great conversation, but I like to end every show with a bit of gratitude because we all got some help along the way. Somebody gave us maybe an extra leg up that we didn't deserve, but we give you an opportunity to publicly say thank you to somebody that maybe gave you that help along the way.

[Karim] I would actually like to nominate a few people in my company who have done outstanding job. Bill Sarris, who's the CEO and co-founder of Linqto. Very low key. Probably hasn't made any social speeches, but Amazing deep background in technology and leadership. He's great. There are a lot of things that he said are wonderful. If you look up Joe Endoso, our Chief Operating Officer, a wealth of knowledge in the private markets and the public markets, and all things related to investments. There are wonderful people who I've worked with for a long time now, And it's from folks like this that I learn a lot every day. And I think that would be the value to the other limited partners out there. Surround yourself with people that you can learn from on a daily basis, right? It's really interesting. One of the things that we're always tasked with from our leadership team is guys, make yourself redundant. Hire people who are actually gonna put you out of your job. And it sounds horrible, but it actually, if you take it to what it means. What you're doing is, the stuff that we do on a daily basis are things that we do on a daily basis, and we can't really get better at what we do if we continue doing the same thing over and over again. So hand over those reigns to somebody else. Let them execute what you think you're good at. Let them be better executives than you, you can ever be in particular areas. And then hire. And then move yourself to a level that is new, exciting, and that you can bring value because you just constantly need to be evolving and growing. Because if you are stagnant. And eventually you work yourself out of a job by being stagnant. So surround yourself by great people is what I like to say.

[Jake] I don't know if you caught that in the intro, but that is really part of the thesis of this whole community is finding people to elevate your game. And then the whole put yourself out of a job is, has always been my, like my life thesis and I tell everybody that I work with, if you can get somebody to take over the work that you're doing today, it'll be scary because you don't know where you're going. But I was like, I can tell you from my personal life, every time an amazing door has opened up, but only when I've been able to close the door behind me and is so powerful. It's scary, but you gotta kind of step into this unknown. So, I really appreciate that message.

[Karim] Thank you, Jake.

[Jake] Well, this has been an incredible show and hopefully you can tell I really am excited because we're bringing something different here. We're not just talking about real estate's syndications, there are other opportunities out there. I like how Linqto is democratizing this opportunity for us where yes we typically, you know, you gotta be a super high net worth, you gotta be a pension fund to get into this game and we have an opportunity now. So Karim, thank you so much for being on the show.

[Karim] I appreciate the time, Jake. I really appreciate it. Thank you all and, looking forward to talking to you again whenever it's possible.

I hope you've enjoyed today's episode and I'd actually love for you to contribute to a future. If you have a question you'd like answered or a topic or a guest to bring on the show, please email me at jake@thelimitedpartner.com. Now, I realize there is a lot of lingo that's thrown around on these shows, so I've created a cheat sheet for you with the top 26 terms that come up most often. Head on over to the limited partner.com/lingo for the list. Enjoy and we'll see you next time.