Joe discusses why private assets are operationally often superior to public ones, driving higher returns.
I'm Joe Lonsdale. I'm the founder of Palantir, Addepar, Resilience Bio, and other technology companies. I also lead 8VC, which is a leading venture capital firm. We have about $6 billion in committed capital.
Private markets can very often outperform public markets, and there's a few reasons why. At a very high level, I like to think about it in terms of how hard is your money working and what's its backing. In private markets, you're very often backing top talent. It's working very, very hard, on a specific project. When you get to a big public company, there's just a lot going on and there's a lot of things you have to manage.
Private markets tend to back smaller, very focused groups that usually have found something that's broken or something that can be fixed, something it's very exciting, that's worth throwing tons of talent and working really intensely on kind of fix and grow over time. That can happen in the public markets. Even if it does, it's usually one of many, many things you're betting on when you're in a big public company, and it's just the most intense work that most interesting, positive ideas tend to be tied to the incentive of people who own a lot of them. And so when you have private markets, you have a smaller number of people who own a lot of something. They're pushing really hard. And so it just makes more sense how that tends to outperform over time, which is what the data shows the last 20 years.
One question is how could these private markets impact value in a way the C-suite can't? Should the C-suite be able to go and do this? And you know what? I'll tell you the very top of the C-suite and a lot of Fortune 500, we have very often steal them away and use them to work on our private equity and venture capital companies. Because when these people see something that's an amazing idea and they're really excited to work hard on it, it's going to be a huge change and an evolution of the economy. They love having real upside in that, and they can't get real upside in that big public companies. It's just from a pure incentive perspective, from a pure like, what does the best of the C-suite do when we're going to build Resilience Bio at 8VC, for example, like we steal away the guy who was CEO of Novavax and who was COO for Takeda in the pharmaceutical side and who helped build all these other big companies. They come and they work really hard. These new projects and then everything is aligned perfectly and they create them. And so there is a lot of value creation going on that is being taken advantage of in the private markets.
There's other reasons why private markets outperform. One is that funds have a really strong incentive to give unfair advantages to the projects they're working on. So a fund will have a big network and will be able to help make tens or hundreds of sales. They'll be able to help get these things going off the ground, so they really have momentum as well, and they'll be able to make the plans for what they're building for these things over a very long amount, again it takes sometimes five, six, seven years, at least to really build something right and really get the full plan where it's launched with all the right talents. With a public market company, it's very hard to plan ahead five, six, seven years. You may not be there. It's not clear you have real incentives that are going to be given to you based on what happens five or six years from now. Most your incentives are tied to the next quarter in the next year if you want to keep your job. So just a lot of reasons why the structure of private markets allows people to build things better.