Venture Everywhere Podcast: Nathan Sutton with Federico Baradello
Nathan Sutton, co-founder and Managing Partner of Tangible, chats with Federico Baradello, co-founder and CEO of Finalis.
In episode 62 of Venture Everywhere is hosted by Federico Baradello, co-founder and CEO of Finalis, a business that's building the AI operating system for the private capital markets. He chats with Nathan Sutton, co-founder and Managing Partner of Tangible, a company transforming the way secondary markets work for LPs, GPs and Wealth Managers.
Nathan shares how Tangible is enhancing liquidity in private markets by expanding access to previously underserved wealth channels. Nathan and Federico also discussed broader shifts in investor sentiment and the growing opportunities driven by increased wealth allocation into private assets.
In this episode, you will hear:
Tangible’s vision to be the go-to liquidity platform for top global wealth managers.
How Tangible's technology connects private market funds with retail investors.
Strategies employed by Tangible to address liquidity issues.
Technological innovations in the private capital sector.
Growth potential and future outlook for private capital markets.
Addressing common misconceptions regarding liquidity needs.
If you liked this episode, please give us a rating wherever you found us. To learn more about our work, visit Everywhere.vc and subscribe to our Founders Everywhere Substack. You can also follow us on YouTube, LinkedIn and Twitter for regular updates and news.
TRANSCRIPT
00:00:00 VO: Everywhere Podcast Network.
00:00:14 Jenny Fielding: Hi, and welcome to the Everywhere Podcast. We're a global community of founders and operators who've come together to support the next generation of builders. So the premise of the podcast is just that, founders interviewing other founders about the trials and tribulations of building a company. Hope you enjoy the episode.
00:00:34 Federico: Welcome to the Venture Everywhere podcast. My name is Federico Baradello, founder and CEO of Finalis, a business that's building the AI operating system for the private capital markets. I'm thrilled to be here today with Nathan Sutton, co-founder and managing partner of Tangible.
00:00:50 Federico: Nathan, really excited to be here with you today. Full disclosure, Tangible is a valued customer and partner of the Finalis platform, which powers its regulatory and compliance back office. So Nathan. Let's start with a brief intro about you and Tangible. Give us a high level background on yourself and also the business.
00:01:10 Nathan: Sure. We at Tangible, we are enabling liquidity in private markets, focusing on wealth channels. And the reason we focus on wealth channels is because it's the most underserved channel with the highest potential. When we started Tangible a couple of years ago and to some extent now, it's very easy to have liquidity for private markets position.
00:01:35 Nathan: If that private markets position is 500 million plus or 200 million plus, if you have a private markets position that is 100K, 1 million, even 10 million, it's a completely different ball game. And there's no real solutions for that. So we are solving essentially for that.
00:01:52 Nathan: And what we do today is three things. The first thing we do is we run one-off auctions, one-off liquidity events through our auctions platform. So think about that as your advisory process for your private markets position, but we can go as small as 100k and as big as more than 100 million and the whole process, both in the buy side and sell side, is covered in technology.
00:02:15 Nathan: The second thing we do is called Liquidity Hub. We run secondary marketplaces for some of the largest wealth managers globally, GPs, multifamily office. We enable their investors to exchange their interest internally in a way that is cost effective and in a way that we reduce the spread. And additionally, we inject liquidity when there's more supply than demand.
00:02:42 Nathan: The third thing we do, we weren't planning on doing it, but we're doing it because they've asked us to do it, which is we're actually about to start to license our technology out to some of the largest asset managers and other advisors.
00:02:55 Federico: Well, Nathan, thank you so much for that background. And one of the things I wanted to dig in a little deeper was your wealth channel strategy.
00:03:03 Nathan: Wealth channels because, as I'm sure, private equity started as an asset class for large institutional investors, whether they be pension fund, insurance companies, and so on and so forth, writing $50, $100, $200 million dollar checks with typically a minimum of $10 million.
00:03:22 Nathan: The private equity model has evolved over the last, I call it 15, 20 years, and private equity products began being distributed also to people investing $250K or $1 million. And these would be done directly with the GP reaching the family office, for example, but most of the times through distributors, and those distributors are the large banks that repackage these products and fragment the broader commitment to smaller commitment.
00:03:51 Nathan: So this is great. And if you look at the whole asset management industry globally today on a private equity side, private markets, it's $10 trillion invested in private markets, $9 trillion is institutional, $1 trillion is wealth. And that trillion of wealth did not have liquidity options.
00:04:10 Federico: Yeah, it makes a ton of sense. And it's certainly in line with the inflection that Finalis is taking advantage of as a business as well, which is just the explosion of the private capital markets over the last 20 years. They've grown close to 30X over this period of time, but the lion's share of that growth is on the lower end of the market.
00:04:31 Federico: And actually, when you zoom out, you realize that there's a lot more capital that could be allocated to the private capital market than is currently being allocated, which is a direct consequence of the lack of efficiencies and access that the lower middle market has to access opportunity.
00:04:48 Federico: Any tech play that's focusing on lowering the barriers of entry to discover and transact in the private capital markets, I think is primed for significant growth in the decades ahead.
00:04:58 Nathan: Absolutely. I remember the statistic which relates to your business more than mine, which is something like 90% of the private equity capital was going towards the company's 500 million and above in enterprise value.
00:05:14 Federico: Right.
00:05:14 Nathan: And 10% was going towards the 500,000 companies that were below 500 million in value. And that was a whole underserved market before you guys and other players came. I think there's a similarity between what you're doing and what we're doing. It's just shifted by 10 or 12 years.
00:05:32 Nathan: So what I think is happening now in the secondary industry is that the smaller deals are begging the attention of the institutional players, which have saturated the whole large cap market of the secondaries.
00:05:45 Federico: Yeah, and one of the things we focus on, I think this is really just endemic to what the investment bankers who we serve are focused on. They tend to be more on the primary issuance side. I'm sure that you're familiar with the stat that baby boomers are going to be handing off over $80 trillion of alternative assets to the next generation.
00:06:05 Federico: And so we're seeing a tremendous opportunity and growth in primary sales, issuances, capital raises, and the like. But clearly, one of the most exciting asset classes that has emerged over the last 5 to 10 years is in secondaries.
00:06:21 Federico: And so maybe it would be helpful for the listener if you wanted to share just a little bit about how Tangible sees the opportunities in the secondary markets evolving over the next five, 10 years. And then we can go from there.
00:06:35 Nathan: We see it as a once in a cycle opportunity. As I was saying before, private equity has evolved over the last 40 years, but the phase we're looking at now, it's not so much an evolution of how the job is performed, but how the product is distributed.
00:06:56 Nathan: At the very basic level, a private equity deal looks more or less the same as it looked 10 or 15 years ago. But when you look at distribution, it's quite different. You have new pockets of large institutional piece. You have products that are being designed for the wealth channels.
00:07:15 Nathan: And then you have the products like the ones we focus on that have been already distributed to the wealth channels, but they require an innovation, they require an evolution. So the way we see quite simply is retail and wealth continue to buy more and more private products.
00:07:35 Nathan: The penetration of private market products in the wealth portfolio is very low. It's particularly low outside of the U.S., but even in the U.S., it's very low when you compare that of an individual to that of an institution by a factor of three or four times. So we see this gap narrowing and we see products evolving with that.
00:07:57 Nathan: And essentially we're building the infrastructure and the tools enabling that, similar to what you're doing, just we're doing it from a different angle for a different need.
00:08:07 Federico: There have been over the course of the last five years, Nathan, a number of companies that have popped up purporting to support the secondary markets. I saw an announcement just a few months ago, one of the 8VC businesses, Opto, that popped up and is working with Adapar.
00:08:25 Federico: There's a lot of innovation around building secondary marketplaces. I'm sure you're familiar with Nasdaq Private Markets, Zambato and others. I'm curious to understand how you have set up Tangible to be competitively differentiated and what excites you about the go-to-market strategy that you're pursuing relative to some of these other players?
00:08:48 Nathan: When it comes to private market funds and fund of funds, I think it's safe to say that no one has come close to the depth of our understanding of pain points and bottlenecks, let alone build a product around them. We are today playing a bit of our own.
00:09:06 Nathan: Now, I want to caveat these by saying that when you talk about individual stocks, employee stock options or secondary sales of growth stocks, these are all things we do not do. And that market, not only it's already developed, but it's almost saturated.
00:09:25 Nathan: Nasdaq Private Markets and all of the other guys you mentioned, they're focusing on that. From what I know, from what I understand. I don't know enough about it, but I'm not sure how deep the tech really goes. I hear that when it comes to settlement and execution, it all goes back to manual mode.
00:09:44 Nathan: And again, this is one pocket of the market. We're focusing on the different parts of the market. So when you look at our market, there's a couple of players that for which we have tremendous respect for that have had similar ideas and started 10 years prior to when we started.
00:10:00 Nathan: I think they started too early and they were focusing on the wrong problems. So this was a bit of a premise, but to answer more precisely your question, we go and build a technology infrastructure that solves for the real bottlenecks within the wealth manager, within the GP, thinking about what the hardest problems are.
00:10:23 Nathan: And we continuously evolve the product at an incredible pace. Every quarter we launch evolutions of a new product. And from what we see, there's just nobody else really doing it out there.
00:10:37 Nathan: But I'm sure they will come. I'm sure it's going to be much more competitive at some point. We're very well prepared and equipped for that. But yeah, even in terms of feedback we're getting from the market, that's a bit where we are.
00:10:50 Federico: Sometimes when you're launching a new fintech business, we certainly experience this at Finalis. There were certainly moments early on when we just after we launched in 2020, where we were asking ourselves, I can't believe nobody else is building this.
00:11:04 Nathan: Yeah.
00:11:05 Federico: Because it almost seems too good to be true that the insight into innovating in a corner of the market, and that catalyzing innovation, and the opportunity to be a true and of one ecosystem is something that we feel every day in this business. And I'm constantly just amazed that we have had the opportunity to have a running start.
00:11:28 Federico: Tell me a little bit about the story of genesis of Tangible, some of the many epiphanies along the way that gave you and your partners conviction in your current go-to-market strategy.
00:11:40 Nathan: Sure, the main epiphany came, our background. Both Khalil, who's not online with us today, he's my co-founder. Khalil and I both came from private markets. We had been both investing money of individuals and family offices for 15 years in two different funds. He was doing real estate, I was doing corporate.
00:12:03 Nathan: And at some point, the liquidity question just came up again and again. And there was never a real answer. I mean, that was a bit of a first epiphany. We put that together with the fact that technology had already arrived in finance, left, right and center, but not really on private markets.
00:12:20 Nathan: And then we saw the whole growth of, as I was saying before, private markets and wealth. So we put one, two, and three together and we said, okay, there's something to do there. So that was the first moment.
00:12:31 Nathan: And then we validated that by going and speaking to literally every secondary investor on the planet, every wealth manager on the planet. We spent six months researching and brainstorming and thinking about an MVP. And then we decided to launch.
00:12:47 Nathan: In terms of moments. I can definitely remember two. One, there was a weekend where Khalil and I were still at our jobs and we said, in his words, let's decide this weekend whether we're pregnant with this idea or not. And we spent 48 hours brainstorming. We randomly met a very well-known investor in a lobby of a hotel.
00:13:08 Nathan: And so Khalil just walked up to him and said, hey, I really want to pitch you this idea that I have with my partner. And he generously sat down for two minutes, listened to us, said, that's a great idea, come back. And he actually said, do you have a deck?
00:13:21 Nathan: And we literally responded yes and no at the same second, which looked really bad. Clearly, we did not have a deck. And so we built a deck, we sent it to him, we spent two hours, two days later, and we actually changed and pivoted that idea.
00:13:35 Nathan: But that gave us a real boost to say, okay, we have something there. This guy is listening to us. Second moment, I want to mention when we're about to start and hit goal, I had one major concern. He had another major concern.
00:13:50 Nathan: And we both automatically, without even thinking, demystified each other's concern just because we had a different perspective. And that's where I also said, okay, yeah, we're really counterbalanced ourselves. He was saying, oh, I'm not sure that so much liquidity requests will actually be there.
00:14:07 Nathan: I said, what are you talking about? It's one trillion. The institutional market trades are 2%. I think it's going to be 5%. I'm not concerned whatsoever. Zero. It's okay. And my concern was like, maybe banks will want to do it by themselves.
00:14:20 Nathan: And he's like, there's no way on the planet that actually going to go and build the type of product that we have in mind. And that was true. So...
00:14:28 Federico: What do you think is the biggest misconception that people have about the secondary markets today?
00:14:37 Nathan: It depends what type of segment of the market you look at. The biggest misconception that you had in wealth up until we started was that if bankers were doing their job correctly, then liquidity would not be needed.
00:14:53 Nathan: It was almost a shame to say that your client needed liquidity, but it's not true. Things happen and rebalancing is a good strategy. Interest rates change, needs change. So that's one.
00:15:08 Nathan: The second is that the bid-ask spread in the lower part of the market is too wide and the discount is too steep. That's simply not true. It's just a matter of empowering sellers and buyers with the right tools so that they can actually price the assets accurately.
00:15:25 Federico: It's interesting. In my former life, I was a deal attorney. And so I distinctly remember negotiating in all sorts of transfer restrictions into private stock. To what extent is that a hurdle to overcome, or are you finding that the industry is moving towards enabling and unlocking liquidity for privately held stock?
00:15:47 Nathan: First part to the answer is, that is built into our product, and we're happy that that is a problem because we built great features around that, and it's a great setting point. Just by reference, one large investment bank was telling us that every quarter, there's 150,000 emails going back and forth to coordinate all the closings and that's just crazy.
00:16:07 Nathan: But the second answer I would give you is it will evolve even more. I think we will get to a point where GPs will disclose more data in a more standardized way and we'll be able to enable the settling of transactions in a more standardized way. It's just a matter of time.
00:16:25 Federico: Yeah, I certainly feel that and I'm wondering the extent to which some of the recent volatility in the public markets and the uncertainty that's been generated in the public markets is actually applying some pressure into the private markets to open up opportunities for greater liquidity. How do you see the interplay between the public and private markets today?
00:16:47 Nathan: From an investor standpoint, you just need to have both. From an instrument standpoint, as a former investor, I never thought there should be a lot of difference between making an investment in a public company or in a private company.
00:17:00 Nathan: At the end of the day, as an analyst, as an investor, your conviction and your motivation to invest in a company should be exactly the same. But clearly in terms of execution, it's radically different.
00:17:12 Federico: I think underlying that is just the shift in investor sentiment and I'm sure these are part of the tailwinds that Tangible and Finalis are riding. The investor is increasingly interested in exploiting opportunities that exist in the private capital markets.
00:17:27 Federico: But maybe we can dive a little bit deeper on that. I'm curious to understand, what are the key factors that you think are driving that shift in sentiment?
00:17:34 Nathan: First of all, as we know, companies stay private for much longer. That is a tailwind for that part of the secondary market that we don't really cover, that we were talking about before. But that certainly is there. So at some point, employees need to get or want some liquidity, early investors want some liquidity.
00:17:56 Nathan: That is clearly a driving factor. But if you look back the last 15, 20 years, private markets have delivered incredible returns and some managers have done it with incredible consistency. And so it only makes sense that investors would allocate part of their capital there. It just makes a lot of sense.
00:18:17 Federico: Yeah. Totally agree. And I think the other thing that we've observed is that there have been regulatory shifts as well, not just in the U.S., but across many of the jurisdictions where you'd want to engage in private market transactions making it easier for people to invest.
00:18:33 Federico: Even in the U.S., their 401ks, into private assets. And so I think that that is very much a trend that we're going to see continue in the years to come.
00:18:44 Nathan: Absolutely. And you see that also in some European countries and you see products being built around that. Absolutely. I agree.
00:18:53 Federico: So let's fast forward 10 years from now. We're sitting in a cafe in London and we're talking about Tangible. What do you think the story of Tangible will be in 10 years time?
00:19:05 Nathan: The default liquidity platform for the largest wealth managers globally. Essentially speaking, all these platforms built with and speaking the same language, just customized, tailored to the needs of the individual banks and all tapping into the larger institutional secondary market of buyers that don't want to go through the hassle of buying 100K stake or a million stake, but through us they can because we standardize the process and build the rails to do that.
00:19:41 Federico: That sounds pretty ambitious.
00:19:42 Nathan: Well, I haven't told you the real ambitious part of it.
00:19:45 Federico: Let's hear it.
00:19:46 Nathan: But yeah, that is the default. But I think that a lot of technology that we're building eventually, we think both Khalil and I really that a lot of the technology that we're building, once we're done with the secondary market, we can go and start offering it to parts of the primary market, maybe rightfully so in partnership with companies like yours.
00:20:08 Nathan: We don't want to be placement agents. We don't want to be intermediaries in the primary markets, but we do want to give our tech. Some of the tools that we're building, sometimes we look at ourselves like, this is not only for secondaries. So there's an angle there.
00:20:21 Federico: Yeah, one of the things that we spend a lot of time thinking about is how do you align incentives to adopt change?
00:20:27 Nathan: Sure.
00:20:28 Federico: When I was practicing law, I was confronted every day with this incredible irony, which was that I was working on these amazing technology company buyouts in the San Francisco office of my firm on behalf of some of the top private equity funds making these investments.
00:20:44 Federico: And yet I was using a 40-year-old tech stack to execute those transactions. And of course, if you're a law firm, there's strong incentives. A very meaningful part of your revenues comes off of the basis of manual work and manual deal execution.
00:20:59 Federico: And I remember having a conversation with the CIO of the law firm on innovation. And I think one of the things that became clear to me was that what was really going to drive the CIO to explore change was really fear.
00:21:14 Federico: It wasn't necessarily going on the offensive to explore new solutions. And the attitudes have shifted because of generative AI and I think they're going to continue to shift even in legacy industries.
00:21:25 Federico: But it is clear that many of the businesses that have popped up or the legacy players that have popped up around the private capital markets are going to need to redesign their business models in this new future.
00:21:39 Federico: How do you at Tangible think about incentives as a way to catalyze more and more participants into your platform?
00:21:48 Nathan: You're making great points. A great question. To me, it really all boils down to the individual. And when I was speaking about product before, that's exactly what I was saying.
00:22:01 Nathan: We obsess around the behavior of the single banker, the single person, the single investor, the single buyer. I mean, it seems like a trivial answer, but we simply build product around that.
00:22:14 Nathan: I was speaking with a large bank the other day with a senior executive and he was telling me it's incredible to see how many platforms build products to solve problems that are not there. And I agree.
00:22:25 Nathan: We only try to build things that it seems trivial, we were lucky enough. And one of the reasons we started this business is because we understood that we understood the pain points. We were doing that business ourselves.
00:22:36 Nathan: Similarly, probably to what you were seeing as a corporate lawyer and seeing this whole hugely vast, fragmented market, amazing middle market companies that nobody really was doing. Why wouldn't anyone do that? You need to build the railway, the tools in order to make that happen.
00:22:53 Federico: It's interesting because you had mentioned earlier, well, there was an earlier generation, some of the OGs innovating in the secondary markets, right?
00:23:02 Nathan: Yeah.
00:23:02 Federico: I don't know if you've ever done this analysis, but if you look at the ratio of venture dollars paid in to transaction volumes out, the ROI is not great in many of these platforms.
00:23:15 Federico: I don't want to name names, but clearly the ROI historically just hasn't been there. I think it has a lot to do with what you just said, which is, there was for a while a Silicon Valley view about almost like a very idealistic view that from day one, you're going to make the secondary markets.
00:23:36 Federico: You're going to make corners of the private capital markets be as liquid where price discovery is as evident as what you might be if you were just buying and selling shares on Robinhood.
00:23:48 Federico: And I think that what makes me excited about companies like Tangible and others that are driving some innovation in the private markets today is that the ideas aren't necessarily these idealistic views about building something that should be, but they're much more grounded in the reality of these incentives and understanding that the technology and the experience cannot lean too far ahead of the skis. You need to bring the user with you into this new direction, into this new future.
00:24:20 Nathan: Yeah, very well said. And sometimes we're trying to stop each other from going too far and being patient and doing exactly what you're saying in stages.
00:24:30 Federico: So tell me a little bit about what keeps you up at night today. Obviously it sounds like Tangible has been on a really exciting growth path. What are the key things or themes that are keeping you up at night?
00:24:43 Nathan: It's a potentially long list.
00:24:45 Federico: You're in good company.
00:24:46 Nathan: Yeah, exactly. I mean, I'm sure you understand. No, listen, what keeps me up at night is if I lose track of what's happening, if I feel that I'm losing the grip on certain themes, if I don't re-center, if I don't do my work out, some meditations, then I will be up at night.
00:25:05 Nathan: But if I try to stay calm and carry on and do what I have to do, I sleep very well, but I wake up very angry. So it's okay.
00:25:13 Federico: Keep calm and carry on. What practices have you found, you mentioned meditation, that you have found to be very useful to you as you manage the day to day?
00:25:25 Nathan: It's very personal, but I think it depends, right? For me is to have a very clear idea of what I want to accomplish and what I am not able to accomplish. Knowing what you're leaving behind. If you know what you're leaving behind, you're fine with that.
00:25:38 Nathan: If you don't know what you're leaving behind and just know there's a pile of scary ghosts behind your back, it's different. And then some routines, basically. And then having great partners is the best way to calm yourself down and re-center, and that I think we're very lucky at Tangible.
00:25:54 Federico: You mentioned great partners. How did you get connected with Khalil?
00:25:58 Nathan: We met on a deal quite a few years prior to us founding Tangible. We remained friends. I think we were meeting either purposely or randomly at least once a year. At some point he was passing by. We had lunch.
00:26:14 Nathan: He said, I think I want to do something new. I wanna be an entrepreneur. I have these 99 ideas. Tell me what you think in a rapid fire. We started chatting. I said, I'm thinking the same. We started exchanging ideas and then, yeah, that's really how it started.
00:26:31 Federico: Very cool. Let's move on to the speed round. Curious Nathan, what's a book, newsletter, podcast that you would recommend?
00:26:38 Nathan: Okay. One of my favorite books of the last years has been The Way Out by Adam Gordon. Technically speaking, a self-manual to get out of chronic pain. I was under chronic pain for some time, but it's been a great instrument to understand the connection between mind and body. I recommend it to anyone.
00:26:56 Nathan: Newsletters, I'm still stuck with the good old The Economist newsletter. Podcasts, besides Everywhere, of course. I try to listen every week to two podcasts. One is Invest Like the Best of Patrick O'Shaughnessy. The other one is The All In Podcast.
00:27:13 Federico: It's a great podcast. Good stuff. And then if you could live anywhere in the world for one year, where would it be?
00:27:21 Nathan: If I could go back in time, it would be Hong Kong before 2014. Not anymore. If it was now, probably Tokyo.
00:27:29 Federico: That's an incredible city.
00:27:31 Nathan: What about you?
00:27:32 Federico: For one year, probably Madrid.
00:27:35 Nathan: Yes. Amazing one.
00:27:36 Federico: It's a great city. Incredible quality of life. Great food. I love Spanish food. So favorite productivity hack?
00:27:45 Nathan: Superhuman email without a doubt. Changed my life. It's not a paid ad.
00:27:50 Federico: Do you use all of the keyboard shortcuts?
00:27:53 Nathan: Yeah, I love it.
00:27:54 Federico: Once you master them, it's a game changer.
00:27:56 Nathan: For me, the fact that it's so fast, it just keeps me in the whole productivity flow. I love it.
00:28:03 Federico: Yeah. How do you unwind when you're stressed? You mentioned meditation. Anything else?
00:28:08 Nathan: Yeah, urgent things out of the way, workout, meditate, glass of wine in this order.
00:28:16 Federico: I didn't think you started your morning with a beautiful glass of Nebbiolo. I don't think that's a good idea. But there is something about that transition from work to the evening routine where that first sip of wine, it really helps. Where can listeners find you?
00:28:35 Nathan: I'm not on social media, Federico, but I am on LinkedIn and my email is nathan@tangible-markets.com
00:28:44 Federico: And I'll go ahead and plug the fact that I'm also on LinkedIn. That's probably the best place to find me for listeners, or you can email me at Federico@finalis.com.
00:28:54 Federico: And with that, Nathan, it was really great to have you for this conversation. And thank you for Everywhere Ventures and the Everywhere Community for creating this forum. Look forward to seeing you back here sometime soon.
00:29:07 Nathan: Thank you so much. And thank you, Everywhere.
00:29:10 Scott Hartley: Thanks for joining us and hope you enjoyed today's episode. For those of you listening, you might also be interested to learn more about Everywhere, where a first-check pre-seed fund that does exactly that invests everywhere. We're a community of 500 founders and operators, and we've invested in over 250 companies around the globe. Find us at our website, Everywhere.vc, on LinkedIn, and through our regular founder spotlights on Substack. Be sure to subscribe, and we'll catch you on the next episode.