Transcript 0:00 Inefficiencies have always troubled me. If you can, like, streamline those inefficiencies, now you are in a world where there are no handoffs. 0:06 That leads to a much more efficient business that's also way more cost effective. Welcome to the Purpose Driven Capital podcast, where we help you align your money with your mission and maximize your impact. 0:17 Here's your host, Matt Johns. Today, I had a great conversation with Nick Talreja, co-founder and CEO of Sidecar.io, a streamlined approach to investment vehicles, primarily SPVs. 0:29 As he puts it, he's, quote, "Laying bricks for a product that will enable the next generation of alternative investing." Sidecar is the culmination of three previous phases in his career. 0:39 He started in investment banking before going back to school to get his JD. 0:43 Toward the end of his nine years of practicing law, he started gravitating toward the startup space, even starting his own venture capital firm, which he still runs. 0:51 In this episode, you'll hear how he came across the idea and opportunity for Sidecar. 0:56 His story provides a unique and interesting perspective to understand special purpose vehicles, how they work, and how they can increase access to alternative investments. 1:06 Nick is a tremendous guy, and he has a ton of insight to share. Welcome to my conversation with Nick Talreja. I saw where you guys were on Times Square. Yeah [laughs] Where Sidecar was featured in one of... 1:17 in lights in Times Square. Yeah. That was very cool to, to see. So what was that like? 1:21 You know, this is the second time we've had our company on a billboard, and yeah, it's a bit surreal just seeing it up there, something that was, like, just an idea three and a half years ago to something that now is visible to a lot of people. 1:33 Obviously, there's an emotional chord that's struck. 1:35 But more than anything, like, when I saw that, I was just thinking about all of the work that goes into building Sidecar to make it something that a company like Ramp wanted to acknowledge on a billboard that they're paying for, and how that work is done by all the people around me, you know? 1:49 Like, the, the team that we built. You mentioned Jeremy, right? And someone that you guys are getting to know. Mm-hmm. 1:53 But that passion, that energy, the ownership that everyone brings is something that I'm incredibly proud of and just honored to be on this team. So that's where my mind and heart went. 2:01 And it says you're a co-founder, right? Who's your other founder, or who are your other co-founders? Yeah, I started this business with two other co-founders back in 2020 before we even formed the company. 2:09 A good friend of mine and someone I'd worked with and, and become friendly with and started investing with. First individual's name is Sugam Arora. He was a, a friend of mine. 2:18 We went to college together, and he's, he always had this knack for product. So I tapped him and I said, "Hey, do you wanna help build this thing?" And we started working on it together in mid-2020. 2:26 And the reason we chose this business opportunity was because I was investing with someone named David Meister, who was my other co-founder. 2:33 And David and I spun up a lot of STVs for our business investing, and we felt a lot of pain. Like, we just felt the pain that, that you might feel firsthand, and we felt that directly. And that's despite being attorneys. 2:43 David's also an attorney. We had cheat codes when it came to documentation and understanding of the process of creating an investment vehicle and managing it. 2:51 But even with those cheat codes, we still had a lot of just barriers when it came to understanding compliance and staying compliant for these vehicles, when it came to banking and funds flow and tax and accounting, and when it came to relating to investors and getting everyone to make a decision and sharing information to get everyone on the same page. 3:07 You know, all that stuff was just very painful. 3:09 There was no software to automate any real part of it, and the only platforms out there at the time were marketplaces, and we just didn't see ourselves moving to a marketplace given that our LPs were critical to our journey, and we didn't want to take them to a place where we might seem less special. 3:22 So we felt that pain. I tapped David to help because he understood the business side. We were running these deals together. 3:28 And Sugam on the product side, and that's how we started this thing back in January '21 is when we formally launched the business. 3:33 I love how you put that with the cheat codes, too, because attorneys control this process when we're looking at it realistically. Yep. And you being an attorney, what was it all three of you or just two of you? 3:41 Two of us, yeah. Even with the two of you being attorneys, you both felt the pain knowing all the cheat codes, as you said. 3:47 So I think that's fascinating, and it really organically leads into this business, why you're here, and frankly, your journey, and I'm fascinated by your journey. So you started out in investment banking. Yeah. 3:57 You ended up being an attorney for, what, nine years. Then you kind of teetered into the startup world. You, you started your own venture capital fund, but then you had this inspiration, I guess. 4:05 So what, what was it like going from one phase to the next in your career, and how do you think it's benefited your approach to Sidecar? Yeah, absolu- in so many ways. 4:13 I mean, having, having a diversity of experiences has really informed so much of what I think makes us special at Sidecar and informs who we look for to join the team. 4:21 But yeah, I started working when I was a kid, really. Like, I mean, my parents started a, a business when I was about, uh, eight or nine years old, and it was out of necessity. 4:31 We just didn't have a lot at the time, and my parents couldn't afford daycare. So I just started working at their shop when I was a child. 4:36 And that notion of going to work out of necessity at first, maybe because my parents just didn't want me to get into things they didn't want me to get into at the time, so they brought me somewhere that was safe. 4:45 But I, I found myself just gravitating to talking to people, to thinking about value and margins, to understanding the process of converting a customer and then fulfilling an obligation and making good on a commitment and standing by commitments you make even when things don't make sense because maybe the margins didn't work out the way you wanted them to. 5:01 I learned all of that when I was very young, and this notion of working hard is something that, like, stuck with me because I just... 5:07 That's all I knew was I would go to school, and then I'd go to work, and that was my life. 5:11 And when I went to college at USC, I didn't know how to spend my time outside of class [laughs] and I wasn't as studious as I, I wish I, I had been at the time. 5:19 So I would find myself just wanting to go to work, and I ended up getting jobs at banks in downtown LA, and one of those banks is Bank of America, and then an investment bank called Wedbush Morgan was another job. 5:30 And I would work these jobs simultaneously with going to school. And these jobs taught me a lot as well about the world of finance, which I then worked in for a short stint before going to law school. 5:38 But yeah, I just kind of took that with me. 5:40 So, you know, in banking, of course, I learned about professional services, about getting people to want to trust you and use your services over someone else, although they're all kind of commodity products. 5:50 I ended up going to law school after I got my undergrad degree because, frankly, I didn't know what I wanted to do. I actually was vetted in, in finance. I didn't really see myself as a banker for the rest of my life. 5:59 And I figured, hey, I could probably go get an MBA Or I can go somewhere else. And I ended up talking to a friend's dad who, uh, was a lawyer, and he just... 6:08 He was very sharp, seemed like he knew what he was doing, and had really positive things to say about being a lawyer. And I was like, "Okay, convinced. I'll be a lawyer," went to law school. 6:16 I wish I'd talked to more lawyers than just the one who happened to be really happy. [laughs] 'Cause now everyone I talk to has just got a trail of tears around being a lawyer. But anyway, I'm glad I went to law school. 6:26 I learned a different way of thinking about the world. You know, you become a lot more proficient with reading and writing because you just have to. 6:32 You're just consuming so much information as an attorney, as well as just thinking analytically and thinking in terms of just logic and applying logic to, like, precise ways of framing language- Yes... 6:40 that I thought was really cool. I practiced law for nine years, like you mentioned, which sounds like a lot. 6:45 I worked in New York in capital markets to begin my career, representing companies that were going to IPO and helping kind of mature them for an, for an IPO, and then the actual public company filing process of registering your offering, issuing shares in an IPO, and then staying public. 7:00 And I moved to a firm on the West Coast called Cooley after some time in New York, and Cooley's practice is the complete other side of, uh, company maturity. 7:08 You're talking about now companies that just have an idea, right? And, and a couple founders come together with an idea- Yes... wanna build a business. 7:14 We help them with the incorporation all the way through whatever may come on their journey. Financings, building a team, licensing IP, SaaS contracts, all, all of the stuff that you need to build a company. Mm-hmm. 7:25 I loved that work because I always found myself gravitating more towards entrepreneurship, given my experiences as, as a kid, and I ended up getting really close to a lot of founders that way. 7:35 And long story short, ended up starting my own law firm, built a nice book of business, worked with founders in a much more in-depth way than I did when I was a lawyer at a larger firm, and that led to realizing that a lot of my clients were interesting businesses that I wanted to invest in beyond just being their outside counsel. 7:52 Yeah. 7:52 And I started to write personal checks at first, which then led to raising some money, uh, with one of my co-founders at Sidecar to invest behind these businesses and others, which led to discovering the pain of being a venture capitalist, which led to realizing software could solve for some of that pain, which led to eventually stopping everything else I was doing, committing fully to building Sidecar. 8:11 And our vision is really to decrease that pain for capital allocators in venture capital and beyond. So it could be private equity, real estate. It doesn't really matter where in the value chain you are. 8:20 Our vision is to streamline the process of, of basically creating fund vehicles, these captive vehicles for capital, and in managing the investment for you through the life of that investment. 8:28 When I look at you, I just see Sidecar as being the culmination of all these things coming together in, in one really, really streamlined format. Very impressive format at that. 8:36 But one of the things you say when you're talking about the problem that you're solving, you refer to them as inefficiencies. Mm-hmm. 8:41 And as an attorney, I think that's probably where your perspective is when you say that, but what's the problem you're solving with these inefficiencies, and then how is your solution... 8:51 I'm gonna quote you on this, 'cause it says it on your profile here. How does your solution enable the next generation of alternative investing? That's a great, great question, and inefficiencies have always troubled me. 9:01 But, uh, in our world, when I think of inefficiencies, you know, if you think of the traditional route of creating a fund and working with your LPs and your founders that you're backing through your fund, a VC fund, the traditional route would be to talk to a lawyer first and negotiate documentation with your LPs, and then take that documentation to a fund administrator who will consume the documentation and interpret your obligations and how you need to manage your accounts, and then set up the accounting side of the equation. 9:31 You yourself may have to go to a bank to then open a bank account, and then work with a fund administrator to give them access so they can track money flowing in and out of your fund. 9:40 And then you have to go work with potentially a tax advisor for tax filings on an annual basis, and you may have to subsequently work with an audit partner if you need to have your fund audited for whatever reason. 9:49 And the inefficiencies that I think about as part of this sort of, like, traditional layout of creating and managing a fund relate to the fact that every provider here is essentially running a manual service for you. 10:00 And with manual services, there isn't a very clean download and, and sort of upload of information between service providers, and there isn't always software that is driving the internal obligations each service provider is doing for you, which means there is a lot of, uh, opportunity for error, right? 10:17 One, in understanding and consuming information between service providers, and second, within the actual vendors, how they do their job, as well as inefficiencies when it comes to timing, right? 10:27 So, like, if you need a job done quickly. 10:29 Let's say you have an S- you need to form an SPV to invest into a company that's raising a Series A, and it's a very attractive round for investors, and thus there's competition to get in. 10:40 And the founder says, "Hey, I'll give you an allocation now, but you have to fund in a, in three days." How do you make that happen if you have to go to a law firm, fund admin, a bank? It's impossible. Impossible. 10:51 There's no way. But with software, if you can, like, streamline those inefficiencies and just say, "Hey, we're gonna take a view that we don't need 100 different forms for this business. 10:59 We'll have a few," and you can toggle those forms using software. And once you've committed to a form of doing this business, we can automate the banking, the accounting, the tax, and beyond. 11:09 Now you are in a world where there are no handoffs, there's limited manual service, and you can create a vehicle in minutes to hours versus days to weeks to months. 11:19 And that leads to a much more efficient business- Yeah... that's also way more cost-effective, which decreases the cost of entry to be a VC. 11:26 And our vision of the world, again, is to make this sort of asset class or being a capital allocator more available and accessible to the broader private market. 11:34 We do so by bringing the efficiencies, by decreasing cost of entry, by decreasing the cost of compliance ultimately, and by making it so that- Mm-hmm... 11:42 if you're passionate about investing in something and sharing that with your community, wherever they may be, you can do that more effectively. SPVs are incredibly powerful vehicles in the alternative space. Absolutely. 11:51 Because it helps both on the allocator side, or on the investor side, I should say, and on the issuer side. It makes things more efficient on both ways. 11:59 And to have all that inefficiency removed in the middle, uh, seems like it could really benefit everybody involved. 12:04 But if you can take a moment and explain what special purpose vehicles are, SPVs, and how do they benefit investors in particular? For sure. I love talking about SPV [laughs] since that's our bread and butter at Sidecar. 12:15 [laughs] Good. So SPV, like you mentioned, special purpose vehicle. An SPV is, is basically a legal entity that is formed for a special purpose. It's not formed to run a business like starting a restaurant, right? 12:30 That then you serve res- you know, your, your patrons with over many years, and you hire waitstaff and whatnot. That's not the idea of this entity forming. 12:37 The entity's literally formed for a discrete purpose, typically a very discrete transaction that doesn't need to be actively managed by the stakeholders of the SPV. 12:47 In our world, in the world of venture capital that we're in right now, an SPV is formed, a legal entity formed for a special purpose of investing in a single portfolio company and holding that portfolio company's securities. 13:00 Like, let's say they're raising a round and they're issuing preferred stock or they're issuing a SAFE for their financing round. You form an SPV to buy that preferred stock or SAFE net. 13:10 That entity, that special purpose vehicle, will hold that security either until maturity, like a... 13:15 There's some liquidity event, or there is a secondary opportunity to sell that to someone else later because it's appreciated in value. So SPVs in our world, again, very specific purpose: to hold a company security. 13:28 And yeah, hopefully that, that helps the understanding. 13:31 So from the, the issuer standpoint, if you think of the SPV as a person, because I, a lot of attorneys I've talked to, they like to talk about these legal entities as persons, right? 13:39 If you think of it as a person, it's like having a single investor who's then interacting with that venture fund in this case. 13:46 So then from the investor standpoint, they're just part of this pool of people that represent, are represented by one investor. Is that correct? That's correct. Is that a good way of looking at it? In a sense. 13:53 You're basically creating that legal entity to collect capital from a pool of individuals, right? And that SPV then represents that pool as a single person on a company cap table. 14:03 So Sidecar, as you mentioned, automates so much of what attorneys charge thousands and [laughs] thousands of dollars for, for each of these issuers typically. And, and often that cost gets... 14:13 Well, it has to get pushed back onto the investors anyway. They're ultimately the ones who are paying for it. So Sidecar could end up removing those costs and improving IRRs and all that stuff for the investors too. 14:25 How do you ensure though that the customers, being the issuers or, or venture capital firms, whoever it is, are covered at least in a similar way to what these custom documents will do when attorneys are looking at specific circumstances for each fund manager? 14:38 It's a really good question. 14:39 Part of the beauty of an SPV, in addition to its elegance for collecting capital and deploying it into an asset and representing a group of people for a single time point event typically are when you're investing. 14:50 Another beauty of it is that the individuals coming into an SPV, the LPs, they're typically well aware of what they're investing in. 14:58 They're not investing in a fund that's gonna deploy capital over multiple assets where they're trusting a GP to apply discretion across how that capital's deployed. So LPs are in the know. 15:08 They know, like, what they're investing in ultimately. 15:11 What they're ultimately paying a GP for when it comes to sharing economics with a GP, like carried interest, is the access and diligence to make sure that if a company is raising, right, the GP is putting their neck on the line to make sure that that company does what it says it does, and it's a valuable investment, and sufficient information is sought from that underlying company, shared with the LPs out to help the LPs make a decision on whether to invest in this particular SPV, which invests in that company, right? 15:40 Sort of like acts as that layer, that defense. And as a result, the documentation tends to be a lot more simple than a traditional fund that invests in multiple assets because- Mm-hmm... 15:50 the, the time point of the transaction is very clearly defined typically. It's not like there's an ongoing obligation past the time point of making an investment in most cases. 15:59 LPs know what they're investing in for the most part, and the economics are usually very clearly laid out. 16:04 So as long as we make it really clear, right, in someone's documentation what they're getting into and what their rights and responsibilities are, it's usually a lighter document than, than others. 16:15 Now that all said, we have worked with larger law firms to create our document set and to make sure it is market standard, and we also encourage our customers to download that documentation to review with their counsels to make sure they understand it, but it is fairly boilerplate for good reason. 16:31 Well, you've made a boilerplate because obviously that's the inefficiency that you were seeing before, is that people were taking what should be boilerplate and trying to turn it into something that's maybe a little bit more complicated. 16:40 So that's an excellent answer there. I appreciate that. 16:43 Now, I can't remember where I saw this, but at one point you mentioned that Sidecar will help increase liquidity for investors, and we know that in the alternative space, uh, liquidity is one of the biggest hold-ups for a lot of people to get into it. 16:54 So how does that work with Sidecar? How does Sidecar help increase liquidity? So the way I think about this is we're not creating a marketplace for LPs to find GPs, for investors to find VCs or deals. 17:08 However, we're decreasing the cost of creating SPVs and investing in private businesses, and our thesis is that by decreasing the cost and standardizing the templates of how people get into this business, we will then create a very large volume of SPVs that look and act very similarly, thereby creating a volume of opportunity for transactions to take place within these SPVs or among them later. 17:33 So our version of a more liquid private market is within SPVs, where Sidecar could be a facilitator. Like let's say you're a GP and you invest in the next Google, we'll call them N- I don't know, N- NG, right, Company. 17:45 And NG Company- All right... is now worth, let's say $10, but tomorrow it's worth $100,000. You could sell that SPV or interest in the SPV later. 17:54 And if we've commoditized how you got into it as well as how you can get out of it, we can allow you to create liquidity for your LPs much more easily. 18:01 We also think the SPV is a nice layer for liquidity because it's not touching the cap table directly of an organization where there are typically investor limitations and rights at the cap table level. 18:11 If you wanna transfer your shares, there's typically a right of first refusal. There are transfer restrictions. 18:17 And there are other issues related to whether a company would want you to transfer its shares instead of value on it, given that they may be between financing rounds directly. 18:25 But if you're within the SPV, you're kind of separating yourself from some of those complexities, which is very beneficial as well. I need you to spell that out for me. I'm, I'm, I'm not sure I understand that fully. 18:35 Yeah. So let's say you founded a company, right? And I invested in it. And I invested in it between, I guess, your s- around your series C financing, one of your first financings, right? Mm-hmm. 18:47 And I'm sitting on your cap table directly. As a holder of shares in your cap table, you would not want me to have a unlimited right to transfer those shares to just anybody, right? That's right. 18:58 And there are a couple reasons why. One, information that I may have access, you wouldn't wanna... You wouldn't want that going to people you don't want it to go to, right? Yes. 19:05 So you wanna be able to calibrate that information. Mm-hmm. Second, you may be raising a subsequent round. If I'm out there selling sh- your shares also, I'm competing with you on that financing, right, in a sense. Yes. 19:16 I'm also setting a value, potentially, for your business that you don't want me to set, right? [laughs] Um- Great point. Yeah, yeah... 19:23 and for those r- for those two reasons, as a holder of shares in your cap table directly, I'm typically gonna be subject to a right of first refusal that the company holds. 19:33 And what that means, basically, is that if I were to go out and sell, try to sell those shares, you would have a first right to say, "You know what? No, you can't. Don't go sell those shares. 19:42 I'll buy them for you, from you. You, you can't sell them to someone else." Yes. The second thing is you would subject me to transfer restrictions. 19:49 Basically, that means I can't just go transfer them to anybody I want, because you wanna protect yourself from what I just mentioned, confidentiality, kind of like front-running a- a round- Yes... 19:58 and exposing the company to things that it shouldn't be exposed to. However, if I instead created an SPV to invest in your business, and I later want to sell- It's a layer... 20:07 the SPV interest, which is a perfect proxy for those shares, there are less limit- it's not that there's no limitations, for what it's worth. 20:14 There are limitations, but there are less limitations, less formal limitations on that transfer than there are on the cap table directly. That makes total sense. I, I'm so glad you spelled that out. Thank you. 20:23 Okay, so I guess I'll, I just wanna conclude with this. What advice would you have for anybody, particularly investors who are consider- considering investing in any kind of alternative investment through an SPV? 20:33 I guess for the person sponsoring the investment, the GP, my advice would be go in with your eyes wide open as far as the difficulties involved in sourcing great investments and sharing them with your community. 20:46 And know that while your community may be interested in one deal, they may not be interested in the next one. 20:51 That's not necessarily in any way related to how you do your business, but it just could be like the state of the markets or appetite for a particular asset class. 20:59 It's a hard business, but it's one that does reward those who are consistent and constantly meeting great founders and trying to establish relationships that lead to investment opportunities. 21:09 If you're an investor, you're an LP in an SPV backing a GP or a deal that you're excited about, make sure you ask questions about the underlying investment to fully appreciate the risks involved. 21:19 Private companies are risky. Of course, everyone knows that. But make sure you appreciate the risk of the industry that you're investing in. You get to understand the business model. 21:27 Make sure you, you hold the GP to providing the information to you. 21:30 And if the SPV is investing through multiple other layers, like multiple other SPVs, make sure you ask questions about the fee structures involved at each of those layers- Yes... 21:39 'cause it could ultimately impact your outcome. Although the company may do tremendously well, if you're paying fees at multiple layers before you get your return, that impacts the investment quite, quite significantly. 21:49 Nick, that's awesome. Thank you for sharing that, and thank you for all that you've shared today. Really appreciate all that you're doing at SideCar and wish you all the best. Thank you so much for having me. 21:57 We hope you enjoyed this episode of the Purpose Driven Capital podcast. If you found this valuable, be sure to like, subscribe and share. Are you ready to align your money with your mission? 22:08 Discover the Purpose Driven Capital framework, access practical tools, and build meaningful connections to grow your movement and multiply your impact at PurposeDrivenCapital.co. 22:18 The views and opinions expressed in this show are solely those of the individuals speaking and do not reflect the views or opinions of Honeyhive Capital, any broker-dealer, investment advisory firm or its sponsors. 22:30 The content is for informational and entertainment purposes only. 22:33 Nothing in this content, or any communications from it, should be treated as constituting financial, investment, legal, tax or other advice of any kind, or as a recommendation to buy or sell an interest with respect to any investment. 22:46 We look forward to you joining us next time. [upbeat music]
