0:00Every company on the planet has a celebrated persona. In a world where you believe that alpha comes from engineering and AI, you need to create a culture whereby the celebrated persona is the engineer. And that's what's required. You think about your typical investment at a fund. You're typically trying to figure out how do we start to package to sell this thing in 3 years.
0:15That is just a very different framing for how we think about technological transformation and what what are the investments you're willing to bring to bear here. What we do is scarce. We're trying to do one deal per year. That's it. Our job is to do one Hi listeners, welcome back to No Priors. Today I'm here with Michael Lee, co-founder and CEO of Sequence Holdings.
0:39They just announced the largest AI take private to date with the Dell family office of Baldwin for $7.7 billion. We talk about this the sequence story how AI transformation is actually going to permeate the economy and what transfers from public investing to private equity to operating. Welcome Michael. Michael thanks for doing this.
1:01Thanks for having me.
1:02So you started Sequence Holdings which is a permanent holding company that works with management teams to buy and refound their businesses to be market leaders with AI. uh uh we should talk about that and it's a very exciting model but you also announced this big transaction in Baldwin. Tell us about it.
1:19Yeah, you know we started the company 20 months ago really with an eye towards can we partner with worldclass businesses and management teams working closely with our frontier engineering team to forge market leaders. Um the brokerage space is an area that we've been spending a lot of time on since the founding the business. We've met dozens of insurance brokers and Baldwin was truly N of one of all the insurance brokers that we've met. Um, it was it's been a privilege over the last few months to spend a lot of time with Trevor Baldwin and the management team.
1:46And we could not be more excited about the journey that lies ahead between us, the Baldwin team, and the Dell family office that supported us in this transaction.
1:54I want to zoom all the way out to a little bit about, you know, your background, you and your co-founder, Alex, how this idea for Sequins came about because you've been, you know, an investor now, you know, a hybrid investor operator. Like tell me about how you arrived at the idea to begin with. You know, when I first joined Lomumpine in 2017, one of the first areas that I was asked to cover was AI.
2:16That's actually quite early. Yeah, it was, you know, as I'm sure you recall, it's kind of when AlphaG go came out. Um, it's actually when the first transformer paper came out and there was a lot of excitement at the time around what would be commercially viable if you scale these architectures. And at the time, these were convolutual neural nets, GA scans, LSTMs and the like. And you know, I think we all know how the story ends, which is we obviously saw a lot of exciting things come out of it.
2:38But as he scaled these architectures, there were degrading effects over time to scale. You know, I share that context because you know when the models came out or chatbt came out at the end of 22, you know what became obvious to me at least is that the world had forever changed. You know, we finally had an architecture that we knew could scale infinitely. Now whether or not that was possible, what would come from that was not clear, but we knew we did know that we could scale with compute that these the architecture would improve.
3:05And you know like an investor I started to think about what were the impacts to the world and I kind of felt strongly that AI would have an uneven impact on the economy. There are certain parts of the economy that I felt that AI just wouldn't impact at all. Right? Take restaurants, golf courses, things like that. There are certain industries that just feel like a startup would win.
3:26Right? Take coding for example. like conviction and sequence going to go buy an outsourced coding services business feels like a terrible idea which you will give money to cognition or philanthropic but there as a student of business there have always been certain industries where I felt like the incumbent had all the advantages and that could be brand that could be scale network effects regulatory and in light of what is going to be the biggest technological shifter of our lifetime I felt very strongly that if
3:56you could acquire the right incumbent and inherit the advantages of being that incumbent could forge the market leader and the kernel of that idea is the one that really is upon which sequence was founded upon. came up with the idea in early 23. Had a handful of people try to get me to leave Lumpine to go do it. Then just wasn't the right time for me.
4:13And then I remember going for a walk with my wife in 24 letting her know that hey, it's pretty rare in life to be in the middle of the most important technological change of our lifetime.
4:22Having the kernel of an idea, I felt very strongly about and feeling very strongly that I could pull together the team to go and pull it off. And so that's why we started sequence and couldn't be more excited about kind of what we've been able to achieve to date and kind of what we see ahead of us.
4:36It's a super first principles approach to you know what is the macro change that is happening technology how it's going to impact the economy. Um but you know many investors at least venture investors would be like oh no incumbents have a bunch of advantages I guess it's just not for us. How did you think about, you know, scale and the idea of being able to engage with or even um own incumbents? That's a I guess you can just do things, but that's a ambitious um premise.
5:06I I think it's more just it's the business model that meets the opportunity today. So like if you take a giant step back, you know, at least at sequence when we think about what's happening with AI today, we think we're living through the equivalence of the next industrial revolution. And you know what we generally see in most enterprises, what I typically see from a lot of the software companies that are producing AI agents today is this giant push to give small machines to every human in the human assembly line
5:34and to speed up work. And like there's nothing wrong with that. That's great.
5:37It's better than nothing. But as you know, when you have machines that can work 24/7, that can scale with electricity, that can accomplish what no individual human or group of humans can do, the right answer is to think about how do you start to reorganize what an organization should be to meet the opportunity with of what's available today with technology and that's the context upon which we're sitting in. And I think for the really in the first time it we have a real opportunity here to partner with amazing companies with
6:06great leadership teams partnering them with our platform and our engineering team and really thinking critically around how do we reorganize the organization how do we lean into what's best in terms of what these the technology can do what can humans do and rethink how we can compete in these various industries and I think it's just really more of an opportunity piece more so than an ambition piece in that like I just think this has to happen and I don't a natural way for it to happen unless you do it through our approach.
6:32Can you talk a little bit about the structure of the company like why a permanent holding company you know what has ownership enable you to do that being a you know a vendor or partner doesn't yeah I think there's two parts to that question so in terms of like the holding company structure itself you know when I thought about what is required to accomplish what sequence holdings wants to do which is how do we partner with worldclass organizations how do we bring frontier engineering to bear how do we build a platform that we can share across all of our portfolio
7:01companies is the only natural way to do this was through a holding company. How do we build a business whereby we can forge market leaders? How do we align the duration of capital with the sustained investment and operational commitments that are going to be required to drive the transformation end to end? How do we create an organization that culturally is oriented around forging market leaders not deploying capital? Um and lastly like how do you create the right structure upon which you can take the retained earnings in
7:30your business to rethink about how do you support your existing companies and net new investments and so when I think about the opportunities in front of us the only natural way to go do this was through a holding company in terms of your second question around like ownership you know let's maybe just play this out through an example let's say that you're an incredible business you I won't pick on one say we're a Fortune 500 company you have unlimited resources is the if I challenge you to say, "Hey, you're the CEO of this Fortune 500
7:59company today and your job is to refound yourself." You're stuck with three options. One is I'm going to go do it myself. The structural challenge with that, and it's not a bad one, it's just it's impossible to recruit and retain the talent required to go and do this refounding.
8:15And the ob the answer to that is actually much more obvious than people think, which is every company on the planet has a celebrated persona. So let's take Blackstone for example. Incredible organization one that I admire a lot and in fact I make every person sequence reading can king of capital but the celebrated persona at Blackstone is the investor.
8:36And that's why they're able to aggregate the greatest investors in the world. In a world where you believe that alpha comes from engineering and AI you need to create a culture whereby the celebrated persona is to engineer.
8:49And that's that's what's required. is the reason why does Palunteer exist? You know, I'm sure Alex Karp would hate how I would describe this, but it is foundationally an organization that is aggregated world-class engineers that celebrates the engineer and and foundationally what they do is it's a rapper to sell it to other organizations that are not able to get that talent. So that leads me to my second point. If you can't get the talent to do it yourself, then there's this huge multi- trillion dollar industry that got formed called the services industry. And these are
9:17great companies Accenture, McKenzie, Palunteer that have do celebrate the engineer that do celebrate change in technology. But the challenge that you have when you partner with a services provider in terms of rethinking and refounding your business is an incentives problem. Services companies optimize for kind of three things.
9:39Getting in your wallet, staying in your wallet, growing the share of your wallet. It is a path towards incrementalism. To compound that services pro providers can't actually change the things that you really need to really kind of meet the moment. How do you change how the people are organized? Who's working in these organizations and the incentives? And so if you can't do it yourself, you can't use vendors and you have the third option which is what a lot of people do which is they go buy software. The challenge with buying software
10:08is twofold. The obvious one is that it's beta. If it's available to everybody that you it's available to everybody. I think the part that's more nuanced that I think people often miss is that if you and I were starting a software company, the thing we would optimize for is what is a workflow that's reasonably homogeneous that exists in a lot of places and then how do we install it fast enough but deeply enough such that we can sell a lot but it's sticky. That those are the genetics structurally. Yes, that sounds very attractive.
10:33That would be the genetics of what we'd look for. What that means though is that you're always going to sell to a workflow as it's designed today as a humans are set up in that human assembly line today. It's the only way you can sell a product. You can't sell a product around a new human assembly line that doesn't exist today because that's how you think it is. And so when we think about why does our mo motion work, it's how do you have ownership so therefore you're aligned. How do you bring uh create an organization like sequence holdings that celebrates the engineer and bring frontier engineering to bear?
11:00And then three, how do you drive a long-term horizon and economic model such that we're aligned with management around how do we think about how do we forge the best version of this company possible based on the technology that's available today. And so that's how we think about our business model. It's why we think it works. Um and the early evidence from kind of Bank South and kind of what we've observed in the field today um have pro proven that out to date. I want to talk a little bit about Bank South as well, but in in you know, you have a team that includes a bunch of
11:27like scale and palunteer DNA. Uh you are trying to keep the um quality bar really high. What is compelling to the team, the engineers that work at sequence?
11:38I think it's a a bunch of things. I think the first is really it's an opportunity to kind of work on the companies that actually are the capillaries of upon which people interact with. You know, the AI model companies are phenomenal. We would not be here today if it weren't for Anthropic, OpenAI, XAI, and the like.
11:55But the reality is is like the impact to everybody's day-to-day lives really are going to be impacted by the companies that serve them today. And so for us, it's the opportunity to partner with really important companies that play an important role in the economy and really thinking about how do we bring world-class technology to bear to deliver differentiated experiences for their customers. And I think that mission is like quite powerful. I think you know when I think broadly about the two engineering personas that we typically hire from I think you know call it the four deployed engineers the
12:24I think that the thing that appeals to them is the opportunity to be really aligned with the value that they create and I think that's an extremely rewarding experience and I think the ability to drive the type of change that would not be possible if you were a service provider is quite appealing. I think the other hand which is probably not as fun for venture capitalists to think about is like you know when when I talk to application software engineers it's hey we're one of the few business models in the world that's completely immune to what the model's going to do as the model performances improve we celebrate here at sequence and that like that gives us more tools to bring to bear in the companies that we partner
12:54with and like there's no real existential risk to whether or not our business will be around and I think those are kind of things that have appealed I think the mission is probably the thing that drives it at the end of the day but I do think there are tangibles when we talk with candidates that have been quite appealing for kind of what we're trying to build.
13:08I remember when uh you first told me, "Hey, we think we're going to go buy a piece of a bank and partner with um uh with the Bank South team. I might have reacted with some mild horror about the um difficulty and regulatory concerns around that." And I was like, "Michael, you must know that there's a reason that banking is not a popular private equity sector traditionally." Um tell us a little bit about how you, you know, chose financial services and then what you've learned in the Bank South partnership so far. Yeah. So, you know,
13:37I think it's worthwhile to take a step back and thinking about how did this investment come to be and then kind of maybe to tackle kind of how and why it's been kind of the perfect place for us to start our business. So, you know, when we started this business, call it March of last year when you first kind of wrote the first investment, the sequence, you know, we had a cold start problem, right? So, the holding company model is a weird business. Like without money, you can't do a deal. If you don't have a deal, you can't hire engineers.
14:02If you can't hire engineers, no one wants to give you money. Thankfully, you know, you were willing to support us.
14:06Um, you know, we were able to get a handful of engineers to come work with us, but yet we were stuck with kind of the cold start problem of nothing to really to do. And one of the things that we were debating at the time was, do we just go buy something to prove to the world that we can buy something and change it or do we wait for the right asset? And as I think you know, we've always had a bias towards scale and enterprise. Unfortunately, there are not a lot of investors in the world that want to give you hundreds of millions of dollars. to go buy an enterprise to see whether or not your technology works. So
14:35what we decided to do is to go and take on a customer and you know called a dear friend Jamie Reynolds. He's one of the co-founders of Aanir and basically frame for him hey like here's the problem that I've run into and very fortunately he his family happens to own a bank down in Georgia. Um and that's how it became our first customer. And that started off August of last year. In fact it was August 4th. It was my anniversary. I remember skipping it. Um, and it was an incredible experience. And so from August to about November, like kind of
15:04late November of last year, basically operated in a services motion and like really started to tackle kind of the key workflows that existed at the bank. Um, fortunate to us, you know, the family asked us at that point in time whether or not we'd become a permanent partner and that's kind of became our first investment. We ended up closing the investment in March. Took us a little while to kind of negotiate everything as well as get Fed and OCC approval. Um, but I think it's I I I share all that context to say that like operating in a services motion and then being an investor, we saw night and day
15:33difference, right? It's a lot of things.
15:35One is from an engineering perspective, you know, you're going to be here for a long time. So the level of complexity and depth that you're willing to take on versus being a service provider knowing that you'll eventually leave and have to leave behind applications that other people have to maintain is demonstrabably different. The second thing is is just a lot of excitement from the employee base around, hey, these people are here to support us for a long time. So, how do we push the most ambitious version of this? And then three is like really we can take a long-term orientation around like what do we want this bank to look like three years, five years, 10 years from now and how do we lay the technological
16:05foundation such that we're always benefiting from model performance and that's what we've been able to do. In a weird way, the bank was the perfect pilot for what we needed to do to validate our business model. It was an ability to buy a minority stake, so a venture scale type check to operate in a real enterprise like environment. And in a weird way, the regulated nature of the bank was a feature, not a bug. One of the nice things about a regulated institution is that um how it operates is well defined. The data hygiene is
16:34excellent. Um there are well- definfined rules around how your business is supposed to operate. And so if you think about that context, it actually works extremely well for agents. That's one piece. The other piece that's really important for banking which has been a quite quite a learning for us in terms of how we think about investing is a centralized nature of it. So when we think talk at sequence about companies we're looking for we talk a lot about organizational physics. We like organizations that are quite dense and the operations are centralized. So anything you build can be advertised
17:02over a large base. So like take a bank for example. A bank may have a bunch of different branches but all the underwriting happens centrally. So everything we build at at headquarters can gets advertised over all the branches that they're working with. Mhm.
17:14You contrast that with, you know, I think, you know, a lot of the rollups that we see out in the marketplace today, which I think is an awesome strategy, but there's a lot of complexity with it. You have to iterate different systems. You have to send engineers to a number of different places. You have to standard standardize operating procedures. You have to standardize cultures. And for us, the nice thing about the bank is that while it's a large organization with, you know, $100 million plus of sales, like the physics of the business are quite dense. And therefore, we've been able to make a lot of progress in a short period of time. There's a central nervous system, there's a ledger, there's some
17:42key processes, there are levers you can pull economically.
17:46Why insurance brokerage?
17:48So, the brokerage space has been an area that we've been spending a lot of time in since the founding of sequence. Um, it fits a lot of the things that we look for. And so, what do we look for broadly when we're as an organization? We think about one is scale of the market. You know, what we do here at sequence doesn't scale. So if we're going to make a an investment, we need it to count. We want to work on companies that we think we can build into hundred billion dollar plus companies.
18:14Like you're not going to do this 10 times a year.
18:15No, we're not we're not an investment shop. We partner with great companies to forge leaders. The second thing that we cared a lot about is is it an industry where the incumbent has all the advantages and I'm happy to go into that in greater detail. And then three is if we think about what the organization does and what AI is good at today and we think about the overlap, can we build something special? And the brokerage industry in a lot of ways fits all of that. It's a $2 trillion plus of premiums per year going to carriers. The brokers take a a vig on that and it's
18:45been an industry that has minted dozens of very scale company large companies over time. In addition to that, it's just been a wonderful industry that's been really hard for startups to compete in. And it's for reasons that are less obvious to people than people think. Um, if you think about the uh the insurance value chain, there's three parts to it. You have the carriers, you have the distribution partners, and then you have the customer.
19:07The carrier has makes money two ways. You have underwriting, which is I price risk. I hope to pay out less claims than what I receive. And then the other part of the business is investing. The insurance industry since the beginning of time has almost made no money underwriting and has made the principal amount of their money through investing.
19:23So what that incentivizes is asset gathering. So getting high quality gross written premium is the name of the game.
19:29And so that's why the brokerage industry is so powerful. Another indust interesting feature about the brokerage industry is that your customer doesn't actually pay you, the carrier does. So if you think about the nature of the business, which is a very relationshipcentric business, gross retention rates are 90%. And you think about the fact that a broker doesn't can't doesn't really compete on price, it's a very difficult industry for startups to get into. So if you think about what's perfect for sequences is a huge market. You have companies that are
19:57largely immune to startup risk. But what if we could partner with the right one?
20:01And that's what the opportunity at Baldwin presented which is a scaled a scaled asset with a centralized technological foundation and a world-class leadership team that is both ambitious but also extremely excited about what's possible today with Frontier Technology. what can you say about what is uh generalizable or shared from a like a platform technology perspective across um the different companies? Yeah. So I think if you take a step back, you know, we think about
20:30our shared cap shared platform capabilities as two broad in two broad areas, right? One is Atlas, which is our platform, which I'll tell you about here more in a second. And then kind of our engineers and kind of, you know, we have a playbook for how we work with companies. Like this is an art, not a science. You know, I often joke internally that we have two problems here at sequence. We have an engineering problem and a human engineering problem.
20:51And the human engineering problem is much more difficult than the engineering problem. But if we think about the engineering problem, we think about Atlas. So what is Atlas today? Atlas is our platform that we have built at the bank that we think that we expect to generalize over industries over time.
21:07And part of that is an observation that a number of our engineers have had from their prior lives both at scale palenteer and others which is if you break down the business to its atomic units 80% of it largely homogeneous and 20% of it is vertically specific. And so if you think about what is Atlas, Atlas is basically our platform that both does a number of things. One, it helps improve um the speed to which we can deploy, improves agent performance, it improves our build rates for our own engineers and ultimately it's a builder
21:36platform that allows the operating company engineers to build upon. There's four layers to it. So we the first layer is a data ontology. So think about that is just simply how do we define the organization the motion of that business in code and that's extremely important the way that we talk about internally is how do we make the business legible the models right how does a business how does an agent know that this customer is the same as this the customer in this system here and how the properties of
22:06that customer um interrelate with the claims or the loan the the the loan policies that that that that are associated with it. The layer on top of that is our agent builder which is basically how do we build high performance agents grounded in ground truth kind of kind of the the things that we I think we we hear and read a lot about. The third component to it is what we call lattice what which is our orchestration engine which is like how do we actually instrument workflows using the agents that we've built and on top of that at the top is what we call
22:35artifacts which is basically our application builder that sits on top of everything that we've built. And so if you think about what we've built in terms of uh Atlas and what we've built here at the bank, foundationally all the core infrastructure we've built is reusable at Baldwin and any future company that we do. And so that's like a core component of what we've built to date. On the playbook side from an engineering perspective, yeah, like I think this part is is an art, not a science. You know, I think one of the nice things about having great talented engineers from places like Scali and Palunteer, they that they have developed
23:04the playbook, but you know, what we do is different. You know, I would say that, you know, one of the learnings that we've had with the bank post the investment is how much more hyper attuned we need to be and sensitive to how employees feel, which is like there's, you know, as exciting as it is, it does draw a lot of anxiety around like what does this mean for us as an organization. And the key thing for us to sequence is how do we make people feel like what we do and what we bring to bear here is how do we make elevate what you do here at the job? How do we exercise what is the best parts of being
23:34a human? How do we think about making your job more fun? taking away really the wrote kind of repetitive work out of your work workflow and then how do we make feel make you feel like your organization is winning and like that playbook is something we're going to continue to refine. I think we've learned a lot here at the bank. We expect to learn a lot here at Baldwin and like that's going to be a key component of what compounds over time for us to sequence.
23:53What do you think is going to be special for you guys over time here that's very hard for let's say uh more traditional large buyout shops to replicate, right?
24:03because I I I don't know a single one that doesn't I I think at least think about AI transformation today and like much of what they do from a returns perspective um is probably dominated by you know underwriting consolidation to platforms multiple expansion uh some financial engineering but um I I do think you know people have like let's say portfolio value teams so how do you how do you draw the distinction more strongly between we're not an investing shop and like here's what we think it's
24:33still hard for other people to do without us.
24:35So, I have a lot of admiration for all the big private equity firms. Um, you used to work at Apollo.
24:39I used to work at Apollo. I have a lot of friends who still work at all these various firms. Um, I think they will continue to do great. But I deeply believe that we have a very different business.
24:50Right? If you think about your typical private equity firm, they are set in a fund structure. The fund structure economics are such that it incentivizes you to deploy capital. They're in the business of finding great assets, pricing them attractively, putting the right capital structure in place, doing sufficient amount of value creation to generate the the required rate of return to satisfy their LP base. Our business is very different. Our business is around how do we find world-class organizations run by exceptional people and taking an extremely long-term
25:19horizon around how do you forge the market leader and what we do is is different by virtue of that. Now I think there's a the pointed question I think you're getting to is can private equity firms over time do radical AI transformation through their motions and I think many will definitely make a lot of progress on this front like I I certainly think private equity firms are incentivized they have the resources they have the capabilities to start to go and make meaningful progress on this front. I do however think that there are a number of limitations that they do run into and I think many will find ways to
25:48solve parts of these. You know one is like how do you recruit world-class engineers to come work at your firm?
25:53It's really difficult to do. Your typical PE firm has designed itself to celebrate the investor. And when I look at my great engineers, they want to be in the room when decisions are made.
26:04They want to have a say in terms of like, hey, like whether or not this is a good or a bad business. My guess is that if you go to your typical large cap buyout firm, it'd be highly unusual to find a 25-year-old engineer have any say on in terms of that investment profile.
26:17Um, so I think that would be challenging. I think the second part that's challenging is just the time horizon, right? The reality is is if you think about your typical investment in a fund, it's, you know, they'll tell you it's a long time horizon. You're typically trying to figure out how do we start to package to sell this thing in three years.
26:31That is just a very different framing for how we think about technological transformation and what what are the investments that you're willing to bring to bear here.
26:39And I really think the last thing is just, you know, for us, we just have a extreme extreme focus on like quality of business and team. And it's not to say other private equity firms do not, but like we what we do is scarce. We're trying to do one deal per year. That's it. We don't have a deployment cadence.
26:54I don't have a group of investors and LPs are telling us, hey, like you guys are underinvested in the year. Our job is to do one. And if that means that we don't do any this year, that's fantastic. And like it's just like a very I think a very focused and deliberate approach that's just very different. We're going to touch a very small surface area of the world and I expect all these other private equity firms to continue to do great. But I do think there are core differences in terms of the genetics of the companies that we've built.
27:16I hope to hold sequence equity for, you know, the rest of my life. So, you know, go forth. Um, what uh uh just just one more one more question on uh your own underwriting and and the scarcity. It must be true that every CEO in their earnings calls over the last few years has talked about AI. Um I think people recognize the change. I think um people genuinely want to invest in these capabilities for their companies. Um what are you looking for in management
27:45teams where you say like we can help you become a leader or even a more um uh dominant leader? You know, I think you you can learn a lot about a management team just in terms of like how how do they play the game in the industry upon which they grew up in and like that's like just a core part of what we look for which is at the end of the day Sequence has wonderful engineers. We have a very talented investing team but at the end of the day like I have no expertise running a broker. I have no
28:14expertise running a bank. We're heavily rellyant on the management team to be the best at their craft and competing in their respective industries. And like that's a core component of like how we evaluate management teams.
28:26The second piece which is kind of more kind of central native to what we do is what we do is difficult. Like change and transformation is hard. Um and as I alluded to earlier like the human engineering piece is like the hardest problem that we're going to work on. And so when we think about the management teams who we want to work with are management teams that have been excited about technology that have already started to put the groundwork and the lay the foundation around driving change. These are going to be small
28:54things around being in the cloud like centralizing your data infrastructure. It probably means that you've already started to install open AI andor anthropic across your organization. you're making those efforts and it tells you a lot about the individual who is willing to go ahead and do that at a point in time where it's still like not obvious to go do.
29:14There's a lot of noise about like is there any real ROI on AI today?
29:17Yeah. And then also there's a lot of angst and anxiety and understanding, you know, how do you how do you get your employee base excited about the fact like this is where the world is going and we're going to be at the forefront of it. And so, you know, I think Baldwin is a perfect example of that. you have you know Tre and Trevor Baldwin an exceptional CEO um he was early in terms of driving entropic end to end within Baldwin um they are on a single instance of um applied epic which is your AMS uh
29:46which is functionally call it the core operating system and insurance broker and these are not easy things to do it takes a lot of intent kind of investment and change to go and do that and so when we think about what is it that we look for in management teams is exactly that are you great at what you do on the field and then two have you already been driving the change in terms of adopting technology and leaning into what's possible today. I remember when we first uh started talking about the sequence thesis, I um I was actually like a
30:15little mixed on the idea of rollups. I I just said like, "Hey, you know, there's the technology piece, there is change management, there's operating the actual company, and then there's underwriting."
30:26Um and then there's deal making, right?
30:28There's like there's a lot of pieces go I I believe that this is the this is a way that enormous businesses can change and go win industries. And then I think it's much much harder than people think and I think it's better at scale. And I I remember you describe you and Alex described that to me much more clearly where they're like actually we think change management and operating the business is going to be the hardest part and we have to assemble the team to go attack it but we're also going to partner with people. And as a as a 0ero to1 venture person I'm like ah with
30:57incumbents but I I uh uh I now um believe that is the correct path with the right management teams of course.
31:04what have you actually already accomplished at the bank if anything and then what is giving you confidence on um doing this at more scale?
31:10Yeah, as I mentioned earlier you know you know post investing in March um we took a giant step back and we thought about as we look forward over the next decade what does like the leading community bank look like? So if you break down a community bank into its simplest parts it has three parts of the business. You have a part of the organization that hunts for deposits.
31:32You're the part of the organization that hunts for loans and then you have the core apparatus in the middle today that works very closely around how do we underwrite underwrite loans and ensure and ensure that you know we're giving loans to the right people in the community such that we're servicing the community in the right way but we're also creating kind of the right economic model for bank south. Um if you think about what we have done today is if you think about your average bank historically speaking loan volumes grow linearly with call it middle and back office headcount for no other reason
32:02than the fact that like processing a loan is a complex endeavor and it does require a lot of individuals to be involved as a part of that process. What we have spent a lot of time on since we've got involved with the bank is how do we not only improve underwriting, but how how do we ensure that all the people at the organization are focused on the things that they're best at? And so how do we get the underwriting team to stop spending time in terms of inputting numbers but spending much more time on loans that have exceptions? What we've done since we got involved in the bank since March. And so it's been call it
32:31roughly six months since we first invested. What we've done now today is we've built a system that can take take on all consumer loans within the organization. So the average consumer underwriting today has decreased by 94% since we got started in March. Um another good example of kind of what we've done sorry the timeline the timeline. So that's really powerful.
32:52We've started to roll out commercial loans underwriting over the last few months and we functionally have taken the average loan at the bank which used to take 30 days to go go end to end to 11 days. Um, I share that to saying that why is that powerful and why does that matter is that foundationally what we've done with the tools is that we've allowed the organization to be able to take on significantly more loan volume than was ever possible before with the same amount of headcount. This is purely luck. I'm not going to say sequence had anything to do with this, but in Q2 of
33:22this year relative to Q1, loan volumes doubled at the bank. Historically, the bank would actually turn away business and that like the middle and back office, you know, while everyone's working really hard has limits to how much bandwidth that they can take on.
33:35Um, given the systems that we've built, actually the bank was actually able to handle all the loan volume, not change their underwriting standards at all. In fact, we're was able to do this with a significantly smaller underwriting team than what had existed prior to our investment. And reason why the underwriting team is smaller is one person retired and one person got moved into the front office. And I think that's just exemplary of kind of what is it that we do which is like how do we ensure that the right people are in the right places? How do we get them to work on the things that they enjoy working on
34:05and how do we allow the organization to do more with less? And what that has resulted in is that every individual at the at the bank today gets to spend time on what they do best. Loan officers are spending more time in the field versus writing credit memos. the credit underwriters are working on the hardest and most complex loans versus thinking about how do I figure out whether or not we should issue a loan for a boat when the person already clearly has enough money. And that's what we've achieved at the bank so far. And as we look forward, we think we've laid the foundation for what should be a really exciting road map ahead around spinning up new products and new businesses. Um giving
34:35new tools to the loan officers and relationship managers such that they can sell more products and then how do we start to think about delivering a differentiated customer experience that no one else in the industry can do. So when we met you were leaving the privates business at Lone Pine, a career investor. Uh what is the biggest surprise or realization having started a company?
34:56You know I get asked this question from friends of mine in the investing business and you know maybe like if you take a giant step back the level of empathy I have for founders today versus even when I was running the private business as Lone Pine is like just night and day. It is it is remarkable to see people take an idea and will it from nothing to something. Um it is not easy to attract
35:25people to come join you on your journey.
35:27It's not easy to attract capital to join you on this journey. Um, but it's exceptionally fun and rewarding and I have an an immense amount of gratitude to the people who supported us at the beginning like yourself, like Joe and Druid VC, um, and to all of our early employees. And you know what I'd say is that it's a it's a it's the highs are highs, the lows are low. There are days where it's
35:54extremely exceptionally lonely, but I could not be having more fun. And all I have to say is that everything that Elon and Jensen talk about in terms of being exceptionally painful is exceptionally true, but um it's been a lot of fun.
36:08I love this partnership of Equals, Sequence Holdings, and the Dell Family Office. Tell me about how this happened.
36:14It's a great story. Um you know as you can imagine in a take private scenario um you do need to have certainty of capital and as ambitious as we are and as amazing our partners are um most people don't have billions of dollars around to support an equity commitment letter for take private and so you know we started spending time with a number of partners in the market to think about approaching Baldwin together around kind of exploring the thesis that we brought to bear. Uh, we got introduced to the
36:42Dell family office. Um, and you know, I have to give Michael Dell, Dan Batar, who's the head of global direct investing, a tremendous amount of credit for working closely with us to underwrite the deal. Um, underwrite our technology platform, our technology transformation motion and supporting us in this transaction. Um, they've been wonderful partners to us. Uh, we are going to be co-ontrolling this at Baldwin together and we expect to be partners for a long time. So you have
37:10been a private market investor, a public investor, um an operator, you know, I guess you know, you're doing take privates. How do you think your career uh has affected like the way you predict markets, the way you look at markets and and um the unrolling of this technology?
37:28You know, I think I've been very fortunate in my career to have the opportunity to wear a lot of different hats and learn the different call it crafts of investing, you know. So I worked at Goldman coming out of college.
37:39I went to work at Apollo which was just like an awesome experience learning how do you structure a deal? How do you think rigorously around capital structures? How do you understand credit agreements and documents? How do you design management incentive plans and like really learn the blocking and tackling of like private equity? Um the opportunity to go to Lomine was really an opportunity to start to study the best companies in the world. You know what's amazing about Lomine and working
38:08in an organization that gets to look at the full public company universe and have the difficult challenge of figuring out what are the best companies in the world is just an amazing aperture to learn, right? Like why what makes Nvidia great, what makes Microsoft great, what makes Visa great? And I think you learn, you know, this may be an overused term today, like a real taste for like what is a great business.
38:33And then you also learn to appreciate the benefits of long-term compounding. And that was a really really powerful kind of five years that I did at Lumpine around studying the greatest companies in the world and like really deeply internalizing that the greatest companies in the world compound at rates that no one ever thinks that they can.
38:52The opportunity to kind of go and build out the private investing business at Lumpine was really an opportunity to start to spend time at the frontier of technology. spending time with founders working on really hard problems that like other people didn't really see. Um seeing what it takes for someone to will something to from nothing to something and then really getting really really deep in terms of understanding where technology is taking the world. And so if I reflect on like how and why I think
39:22about the world that I do, it's it's kind of the amalgamation of these experiences which was like how do I think about kind of an ownership the benefits of ownership? How do I think about that with the taste of what is a great business and having a real appreciation for the benefits of long-term compounding with like man like here's what's possible if you marry that with worldclass engineering and frontier technology and like I think that's you know the that experience is really what
39:50colors how we think about investing here at sequence holdings which is like how do we marry kind of all the skill sets and the best of what I think are kind of the key domains for my best investing career. you've never um been officially an earlystage venture capitalist. What do you think that this class of asset managers misses?
40:07If I were to take a giant step back and if I were to like rethink like how I would approach private investing today if I were ever to go back into it, which I won't, but is just finding exceptional people working on hard problems in big markets. if I've learned anything in terms of my experience of sequence, spending time with other founders today is that like ideas are cheap and execution is really hard and like truly exceptional people will always figure out how to make something work and that may be because they bring someone on
40:36board that highlights a weakness that they have. Um it may be that they're able to with enough persistence get the right people to come support them on something that everyone else thinks is crazy. And so if I were to go back and do it again, I think betting on exceptional people is the kind of the only thing that matters. Like I just think that the vast majority of other things, whether it's the greatest idea I've ever seen, like the greatest hottest traction you've seen in a little short period of time, like I think are important signals. But at the end of the day, this is a people business particularly early on. And people
41:05working on who are highly ambitious on really hard problems that are in very large markets. you should back them all the time even if it seems crazy because I think the you know the upside convexity of backing those people largely offset kind of the rest.
41:18That's a very Isn't that the most purist venture attitude?
41:21I think that's exactly right.
41:22Mr. Michael Lee, private equity and public markets guy is saying back great people in huge markets.
41:27That's exactly right. I think that's the name of the game. I think that's also true in public markets as well. Like if I think back and I reflect on like the best investments that we've made at Lumpine, if I think about the the best companies I've been in the market today has been like go find exceptional people. Like I think the best example of that is like I remember meeting Jensen Hong in 2017. It's kind of crazy to think at the time like today that like it wasn't what it is today. And he has been remarkably consistent. clarity of
41:57thought, incredible execution, been able to surround himself with the smartest people in the world who are extremely loyal and has constantly figured out ways to kind of refound his business to compete in a ever changing market and find exceptional people working in big markets. And I think whether it's early stage or late stage, I think most people will be surprised to the upside in terms of how that always plays out.
42:20This is a great note to end on. Thanks so much, Michael.
42:22Thanks for having me.
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