- yesterday
Chris Versace sits down with SuRo's Chairman & CEO to discuss investing in high-growth private companies, monetizing those positions, OpenAI, CoreWeave and BDC dividends.
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00:00Hey folks, I'm Chris Versace, Portfolio Manager of the Street Pro Portfolio, and thanks for
00:07joining me on this latest episode of the Stocks and Market Podcast, where we talk about everything
00:13ranging from what's driving the markets to particular stocks and everything in between.
00:18In this time around, we have a pretty special conversation, one that I think is going to
00:23resonate extremely well with Pro Portfolio members, because we'll be talking with Mark
00:28Klein, the Chairman and CEO of Suro Capital. And this is a Pro Portfolio position, and it's
00:34a company that we're pretty bullish on, given its prospects, both for its investment portfolio,
00:40but for the dividend opportunity that we see ahead.
00:49Mark, thank you so much for joining me. Thanks for having me, Chris. Really appreciate it.
00:53So Mark, I know Suro Capital. We know you know Suro Capital, the Pro Portfolio.
00:58folks do, but you know, we do reach a wider audience than that. So give us the elevator
01:04pitch, if you can, for Suro, its investment portfolio, and what you guys do.
01:09Thank you. So Suro's been around for 14 years, it's been publicly traded, and the premise was
01:14to provide access to some of the best private companies around. And 14 years ago, it was very
01:20hard to access any private companies, and companies were starting to stay private longer. So the idea of
01:26being able to get in early on growth-oriented companies was really challenged, and that's only
01:31exacerbated over time. So we've been around since 2011. We've owned names over the years, like Facebook
01:37and Twitter and Palantir and Lyft and Spotify and Dropbox.
01:41Well, hey, slow down, slow down. So when you rattle those off, these are the big names driving the market today.
01:48Absolutely. And so our investors have been very fortunate that we're able to provide access
01:53very early to those names. And we've continued to do that straight through to 2025. In fact,
02:02during the period of 2020 to 2022, which was obviously a robust time in the market, we were
02:08fortunate enough to be able to distribute to our investors more capital than we actually had coming
02:13into that year. So almost $9 in dividends. I was going to say, that's impressive. And I think it
02:18shows the power of the BDC or Business Development Corporation model that you guys have. But I think
02:24a lot of folks are probably sitting there going, wow, I listened to these companies that you're
02:29invested in. We know some of the ones you're invested in now, CoreWeave, Plaid, you were just
02:34exiting a position in Service Titan and others. How do you identify these companies, Mark? How does the
02:40team kind of think about the world, if you will, to recognize these opportunities early enough to
02:45get in on them? Yeah, I mean, it's investing and it's not easy. And we use both bottoms up and a top
02:51down approach to investing our money. And we are typically in mid to later stage companies that are
02:59either institutionally backed or venture capital backed companies. In this last iteration, as we came
03:05out of 2022 in the beginning of ChatGPT, our first thought was, what company is going to benefit from
03:13it and what are going to be disruptive by it? And that was the lens that we looked at companies
03:17through very much as we were moving almost into 2023 and into 2024. In 2024, after it was pretty
03:26established that AI was going to be something massive, we wanted to understand how directly to
03:31invest in AI and not necessarily end product specific, but picks and shovels and sort of the
03:40baseline of an infrastructure. And that's how we ended up investing in CoreWeave, OpenAI, VAST.
03:47We had investment in Oklo, obviously, the nuclear powering company. So this is how we approached that
03:52and thematically how we got there and then tried to find the best of breed and the leaders in their
03:59space and then be able to access it for our investors. Well, I like what you're saying
04:02thematically, because as pro portfolio members know, we tend to look at the world that way
04:07with our various strategies, everything from AI, digital infrastructure, as you said, picks and
04:12shovels, but also the energy pain point, right? We have an investment in Eaton Corp, which is a play on
04:19the exploding demand for electricity. So that registers extremely well with me.
04:25But let's talk, Mark, about some more of the portfolio, because, you know, I think a lot of
04:33people are talking about CoreWeave, a lot of people talking about OpenAI, but those are two great
04:38investments in your portfolio, but just two investments in your portfolio.
04:42Right. And they're very large. CoreWeave is the largest investment at cost we've ever made in 14 years.
04:48The next largest investment before that was Twitter in 2014. So we were very committed to make that
04:54investment. OpenAI is the second largest investment we've made. And so we sort of pushed all the chips
05:00into the middle last year in that space. But sure, that's not that is only a couple of names in our
05:05portfolio. As you alluded to, is Service Titan in 2023 made an investment in Service Titan. We love the
05:11business, the way the capital structure was set up. We felt it would go public by the end of 2024,
05:17which it did. It was a very, very successful IPO. And like others, once we were able to sell our stock
05:22and lockups are released, we've sold it. And we did sell Service Titan with a very sizable gain for
05:28our investors. Some of the other names in our portfolio that continuing on the AI side is vast
05:35data. So most people don't know vast data. Vast data is really how data is manipulated, both
05:42retrieval and storage for AI use cases. I believe in the next couple of months, it'll be a name that
05:50will be in the forefront of every and everybody. But it is a name that people don't really recognize.
05:55Moving away from the AI front, we do, we've made an investment a little while back in Whoop.
06:02Whoop is obviously a wearable, health wearable device. It just introduced its next version,
06:09the Whoop 5, which has a medical grade to it. It's fantastic. I'm wearing mine. I haven't taken
06:14it off since I got it. So what I like about Whoop, it's a little, is the subscription nature
06:20of the business model. And they're almost, if I remember correctly, they're giving the device away
06:24for free today to capture that subscription revenue. Right. They're absolutely inverted from
06:30Aura. Yeah. So, and that's who they're compared to most often. And Aura is you buy the ring and then
06:35you pay a de minimis subscription. With Whoop, there's no upfront, but you buy, you subscribe to
06:42it. So you have the valuation based on a subscription model as opposed to a hardware model.
06:48So we found that to be very interesting. I think you'll see that the users of Whoop are a little
06:53different than Aura. Both of them, you know, they track sleep and some other things. Most, but Whoop is
06:58for really the athlete to athlete. So you have Ronaldo wears it, Patrick Mahomes wear it. Most
07:04of the professional golfers wear them. It's a slightly different use case than Aura. And
07:10our valuation right now is substantially less than where Aura was recently valued in their
07:16last round. We're extremely excited about Whoop. So you just said something that's pretty
07:20interesting, right? That you kind of discount your value in the portfolio, it sounds like, for
07:24some of these investments. That kind of argues that you guys are more conservative than you could
07:30be. Maybe there's a little upside, maybe, to some figures that are in those portfolios?
07:37Well, our valuation process is amazingly rigorous. I won't bore you with it, but suffice it to say,
07:42it takes weeks for us to value our portfolio every single quarter. And that valuation then goes
07:49through our independent valuation committee, our audit committee, our valuation committee. So
07:53our value matters to our investors because it's how folks can determine whether they should enter
07:59into our portfolio or not. It helps sets the net asset value for share. How are you trading? Where's
08:05your stock price? These sort of things. But as part of our valuation, we look holistically based on
08:11either rounds that have occurred, secondary trading, or public comparables. And there are instances
08:18where we discount the value for a multitude of reasons, especially if we have public companies
08:25that their stocks aren't registered, there's discounts applied to that, extreme volatility,
08:29discounts are probably applied to that. So we do our best to be as accurate as we can with our
08:35valuations. But you're hitting, I mean, to be fair, you're kind of hitting a little bit of a
08:38moving target. Sure. And when a market's moving as fast as it's going, like it has been,
08:45our valuations tend to lag. Okay. And a perfect example was, you know, we had a net asset value
08:51at the end of Q1 of about $6.66. We just published a pre-release of our nav between $9 and $9.50.
08:59And that just doesn't happen in a day. So, you know, the markets had moved over those three
09:06months and significantly impacted our portfolio. Well, I will say as, you know, again, we own
09:10Suro Capital shares in the portfolio. I would much rather hear that you're rigorous and conservative
09:16than aggressive and stretching. Right. That's just not what we do.
09:20Yeah. No, no. That's just, I think it bears repeating. So. Thank you.
09:24Um, so you've got some other companies in the portfolio. You just made a new addition with Plaid.
09:29Sure. Um, why now with Plaid? What's the opportunity?
09:33I will tell you, we've, we've been trying to own Plaid since 2018. So that's a long time for anybody.
09:40Plaid is one of the best fintech companies out there. Um, it was almost bought by Visa several
09:46years ago and, and, and that deal ultimately didn't happen. And this was a period of time where
09:52Plaid was raising money and in a secondary manner where there was access for investors like us to
10:00invest. And it was stated as their last round before they go public. We're extremely excited
10:05with Plaid. And it's, it's, when you look at the fintech landscape, which there's a multitude of
10:11companies, this is clearly one of the best in the space. Now you just said last round before they go
10:16public. That's how they've, that's how they've framed it. Okay. So where I'm going with this is
10:21one of the things that attracted me to the stock as a, as an investor is the BDC or business
10:28development company structure, because you have to pay out 90% of your profits to shareholders in
10:31the forms of dividends. So when I think about Suro, you know, a lot of folks don't think about
10:36most stocks in terms of price return. Sure. This is not that. We're a total return, total return.
10:41Exactly. Which, which for some folks, you know, who may not be familiar, it's a combination of,
10:46uh, capital appreciation, dividend income, you'll lump them together. Total, total return. And you
10:52know, you guys hadn't paid dividends for a while. The IPO market was not, you know, friendly, let's
10:57say. And one of the catalysts that I saw is, Oh, eventually as some of these deals go public,
11:02you will have to come back and start paying dividends. And, uh, and you re recently announced
11:08that you sold out of your position of service Titan, you sold, I think 35, 40% of core weave,
11:1440% of core weave position. And you started to return, you announced the return of dividends.
11:20The first one's 25 cents a share payable at the end of July. Correct. Okay. So as I said before,
11:27in the 2020 to 22 period, we paid out approximately $9 in dividends, which was about, I think our stock
11:34price started around 11 or 12. So it was, it was a very huge, and we're really transparent
11:40about our dividends. We want, uh, our investors to understand our cadence and what it looks like.
11:47So there's not a lot of surprises. That's, that's really a hallmark of ours being very communicative.
11:52So as you said, as actually as a business development company with cat, with capital gain income,
11:57we have to distribute virtually all of it. Right. So we, we started, we, in a press release,
12:04there's limited things you can really communicate. Of course. So we, our first conversation was first,
12:09what we did about a week ago is we declared a 25 cent dividend. And we said, we anticipate more
12:14dividends to come throughout the year. Correct. Correct. And as we continue to monetize portions
12:18of our portfolio, which we expected we would do, whether it's core weave or some of the other names
12:23that we have the ability to exit, that it'd be either have completed IPOs and, and off of their, um,
12:31lockup period, we'll, we will monetize those. We will communicate our dividends and we will
12:36distribute a fair amount between now and the end of the year. Right. And just because of that 90%
12:41figure, you know, you mentioned, like I said, a 25 cent dividend per share, maybe you have another
12:47or something like that, but it is possible that as you get closer to the end of the year, as you kind
12:52of true things up, you might have to have a special dividend, not saying you will, but it's possible.
12:57We do our best to sort of anticipate where our monetizations are. And then we want to communicate
13:04that. And our ability to break those dividends up as opposed to one super large dividend is our
13:11goal. We may not have that opportunity. It depends how our monetizations go. And if that's the case, we
13:17would declare a significantly larger dividend as a, as you called it, a special dividend. But we are hopeful
13:24that we can have it a little bit more of a cadence. It, it, I think it's better for our investors.
13:30Oh, it's smoother. Yes. And it's smoother. So that's the anticipation. Okay. Okay. So two questions
13:35to follow up on that. One is if the IPO market for some reason slows down again, is that monetization
13:42at risk? Are there other levers to monetization that you can pull M and A in the portfolio or something
13:47else? Sure. Well, first of all, we have our largest positions already IPO and the lockup expires
13:56sometime next month. So that is clearly one that we can monetize over time. We have another one,
14:02Columbia acquisition two, which closes their merger today with grab a gun is actually going to ring the
14:09bell tomorrow at the New York stock exchange. And that will be free to trade that sometime by the end
14:14of the year. Okay. So those are monetizations that exist. We've been able to monetize in a couple of
14:19different ways in the past. We can sell back into the private markets. There is a private market for a
14:24lot of our names. If we choose to do that, um, there is M and A activity that occurs in the 20 to 22 period.
14:31There was a lot of SPAC activity. So several of our companies went public via SPAC. I think the world's
14:35quite different right now. So there's a lot of different ways that we can have monetizations, but I think
14:41we're where I thought core weave was initially going to be the beginning of the IPOs. And then
14:46it was a test of the IPO. The IPO market is clearly opening up. And so if the markets continue to stay
14:53firm, I believe the IPO market will remain open. And we have several names in our portfolio that will
14:58probably go public in the next 12 to 18 months. Yeah. So I, I agree with you, but I just wanted to,
15:03you know, for, for, for people who are listening to understand that that's not the only route for
15:08monetization. No, there's multiple ways for us to monetize. Right. Right. And I, but I agree with
15:11you and you know, uh, as JP Morgan, Citibank and, uh, Wells Fargo reported, and I suspect we'll hear
15:17from others, you know, the backlog of investment banking activity, IPOs, M and A, it should be a
15:23better second half of the year. I think so. I think what folks thought was going to happen,
15:26would have happened end of Q1 into Q2 is probably mostly pushed into next month or into Q3 and Q4.
15:35Okay. So, so, um, my second followup is you're clearly, clearly now reaping the benefits or about
15:42to reap the benefits of investments that you made two, three, four years ago. Right. And I know as
15:48a portfolio manager, you're always looking for fresh opportunities. Sometimes you have to make room for
15:53those opportunities. Sure. So what are some of the things kind of on your radar screen today for
16:00future investment? It's, it's, it's, it's an interesting phenomenon. It's thank you for what
16:05you did yesterday, but what are you gonna do for us tomorrow? Yes. And so we're on that, you know,
16:09that ongoing treadmill and a lot of the investments can, and we really made last year that we're reaping
16:14the benefit. It's sort of, it's been pretty amazing for us, but as we look out and this is a question that
16:20we, is what's next. Right. And we continue to move up the chain in AI and go above that sort of baseline
16:28of base layer of infrastructure to, you know, software that takes advantage of, of AI manages AI,
16:37you know, into the agentic side of it. There's a lot going on. Our deal flow is almost impossible to
16:43keep up with which we're, there's an awful lot going on. I think the biggest challenge for us,
16:49because we're seeing a lot and have app, the ability to access a lot is picking the right ones
16:56and the right price. So which have the right to win and which are priced in a manner that is,
17:02that works. And I'll give you a statistic because we've started to look at the, there are a lot of
17:07companies that are raising money that are valued somewhere between call it one and five billion.
17:12And how many companies do you think, I'll answer the question for you. How many companies do you,
17:16it's rhetorical, you think are worth privately more than 10 billion dollars right now? 75.
17:22Really? So if you're buying a company at five billion and there's only 75 of them that are 10
17:28billion, which is a double, and that would be, you know, 30 some odd percent, you know, percent IR over
17:34a couple of years, you have to be right because you're starting to get rarefied air. So we spend
17:41a lot of time identifying who really we believe have the right to win in somewhat crowded spaces
17:46and can we access at the right value. So clearly the AI side, there's a lot going on. Fintech,
17:51there is an awful lot going on too. It's become a pretty exciting space again. So we're spending
17:57a lot of time in both of those spaces. And I would say our deal flow is clearly at the highest level
18:04it's ever been, which is great. But there is froth out there and you have to, you could easily misstep
18:13and be right on the company or wrong on the valuation. So how do you maintain that discipline?
18:19I mean, we've been doing it for a long time. I mean, it's really hard sometimes. And look at any time
18:26in markets where there's been, you know, excesses. Those have been tough years for people to win unless
18:32they were really selective. We did a pretty good job. We sold out a good chunk of our portfolio in 2022
18:39and sat mostly in cash, at least 50% in cash till almost 2024. So we've tried to find our spots and
18:46then we deploy it. There is a lot of actionable ideas. So I expect we will redeploy a lot of our
18:53capital that we're monetizing and that's not being distributed to our investors. It happens to be,
18:58it's a fun time now, Chris. No, no, 100%, 100%. You know, we've been patient. We've zigged
19:05basically when we should have zigged. We've zagged basically when we should have zagged.
19:08And we are, as you said, reaping the benefits now. But I think we're earlier. We're not later in the
19:12game. We're sort of earlier. And the IPO market is catching up. The private capital raising is now
19:19catching up to what's going on. And we're right in the middle of it. It's really a fun time.
19:23So 33, 36 positions, three public companies. You know, we've talked about some of the larger ones
19:32and the big opportunities there. But look, we all know portfolio theory. There's not,
19:37not everything works all the time. Sure. So, you know, if you look through, I think your 10Q,
19:41you guys do a wonderful job kind of recapping all the portfolio's positions. There's, you know,
19:47there's a couple in there that are not great. We don't always win. Yeah, exactly.
19:49Of course. Exactly. So, you know, just conceptually, how do you guys deal with,
19:54like, I don't want to say losers, but... The ones that didn't work? Correct.
19:59Well, a couple of ways. First of all, of our names, somewhere in 80 plus percent are in our top 10.
20:08So the rest of the portfolio is small for a variety of reasons. Sure, sure. Some is small
20:13because intentionally small. Some are big ones that are small ones. And so that's where we are.
20:20Our view is, unless the company's out of business, we don't write it off. We write it down to zero,
20:27but we don't write it off. And we learned that lesson several years ago. We had a company that
20:32we had written down to zero and you could have easily just crystallized the loss. But through
20:36negotiations with the company and other shareholders, we got a recovery that was actually a gain from our
20:41initial investment. Okay. So they're there and you can see the names. So you're not inclined to,
20:48as they say, throw in the towel. Only because there's just optionality. If it's already zero,
20:53it's reflected in our NAV. Right. So for our investors, we're not attributing any value to it.
20:58So it's not impactful to their investment decision. But things happen and all of a sudden
21:05something changes and that company becomes valuable. So, but we, we're not obviously like
21:10anyone else with VEST, we've had some that haven't done so well. Right. But, you know,
21:14we've had enough good ones to take care of that. But, but from a management perspective,
21:17perspective, right? Because, you know, it's 36 positions, plus all the ones that you're looking
21:23at, plus, you know, the board level activity that you guys participate in. Right. Right. Right. Right.
21:27Right. Um, the ones that are zeros, um, they are, we check in with them, but make sure they're
21:35trying to do what they're trying to do. That doesn't take a heck of a lot of our time. Okay. Um,
21:40our bigger portfolio names, you know, they take as much time as they take to stay in contact with
21:45management, ongoing calls, monitoring the situation broadly, their valuation versus. So that does take
21:51a fair amount of time. Um, and then we'd spend a fair amount of time finding new, I mean, our team,
21:57I'm really, really fortunate. I have a really, really good team and they work very, very hard as do I.
22:02Excellent. Excellent. Now talked about quite a bit about some various names in there,
22:07but the one I don't think we gave enough due is probably open AI. Sure. You know, uh, you know,
22:13how did you guys come to find that? What do you think the longterm opportunity is big picture,
22:17if you want with open AI and AI in general? Well, first of all, we, open AI is an extremely difficult
22:26company to access because of their capital structure. Okay. And we spent quite some time
22:32trying to source it in a, um, a way that we knew what we were actually buying was interest in open AI's
22:39profit interest. Okay. And we wanted to own it because it has been, is the clear leader in what's
22:46going on in AI. And they literally have an announcement every day of something like, oh my
22:52goodness, how did that happen? Or am I good? It's, it's, it's amazing to watch. And we were able to buy it.
22:59We, based on our diversification rules as a BDC, we bought the most that we could buy, which was 17
23:05and a half million dollars. And they didn't, we invested at $150 million pre money, $157 million
23:14post. They just complete around at the end of the first quarter at a $300 billion valuation. I said
23:20million, I meant billion before. And I suspect open AI is going to be a trillion dollar company.
23:24Well, I can only say that when I talk with folks about, you know, who are they using for AI,
23:29you know, there's Claude and the perplexity. Nobody mentions them. It's all ChatGPT.
23:34Right. It, it, it's an amazing to watch from the outside and, and all the different things they're
23:41doing. It's incredible. And that's why they've been able to attract both the capital they've
23:46attracted and the valuation that they were able to.
23:49Is there any kind of fun thing that you've used ChatGPT for, Mark?
23:54I, no, not really. But I will tell you, you know, given it's, yes, not really anything terribly
24:02special. Okay. All right. Sounds, sounds like there's a little something. No, I, we, we,
24:05Joe, you know, when you get to the power of consumption that occurs for just actually
24:11just querying something silly. Yeah. Yeah. Yeah. I know what you mean.
24:16So that, you know, it's, it's, that part's sort of amazing. It's like, well, you just ask it
24:21what time it is. And all of a sudden a light goes out in somebody's house in Oklahoma city because of
24:25the power drain. It's, it's, it's not really what happened.
24:28No, no, but still, but still, but, but pain points, as I like to say,
24:32are investment opportunities, right? Now that's why you own some of the nuclear stuff. Do you have that
24:37nuclear exposure in your portfolio? We have eaten in our pro portfolio. So, okay. Well, Mark,
24:42uh, covered quite a bit, right? Anything we didn't talk about any, any, any lasting thoughts
24:48you want to leave, uh, the viewers? Oh, I, first of all, I truly appreciate the time spent with you
24:54now and in times before I been in the business an awful long time. This is clearly one of the most
25:01exciting periods to be on the investment side. It's exciting just to be watching all of this.
25:07And the rate of change is amazing. We are very fortunate that we are right in the middle of it.
25:13And our ability to have, to identify, have access and deploy capital against it
25:19is probably the most fun experience I've had in investing in almost 40 years.
25:24Excellent. And Mark, last question, folks who want to learn more about Suro Capital,
25:29what's the best place to go? Certainly our website, our social, our social channels.
25:35Feel free to email me directly through our, our IR site. I am really responsive to all our investors.
25:42I want folks to understand our story. We're proud of it. I'm excited about it. The market is taking
25:47notice to it, which is always fun, but I'm happy to, I love talking about what we're doing. So I'm happy
25:52to talk to whoever wants to reach out to us. Excellent. The only other thing I would add,
25:56go to the SEC website, pull down all the financial filings, 10Ks, 10Qs. There's a ton of information.
26:02That's true. All right. Thanks, Mark. Thanks, Chris. I appreciate it.
26:06All right, folks, that is this week's Stocks and Markets podcast. Thanks for tuning in.
26:11We'll be back with a fresh episode before you know it.
26:25All right, folks.
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