0:00:00 - (Vasu Kulkarni): There's no way anyone is putting millions of dollars into anything and saying I don't care about the value. The raw cost of goods for a piece of art is literally nothing. If you have a sealed iPhone, one probably worth 100 grand today. This was what, 800 bucks when it came out? Which is considered crazy to me. Ultimately, the entire value of all of these items lives completely in the story.

0:00:26 - (Andrew Kazlow): Welcome to the Diligent observer, where we help angel investors see what most miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators. My guest today is Vasu Kulkarni, founding partner of Courtside Ventures, a sports and entertainment VC that he launched in 2016. And more importantly, an avid watch, ticket stub and game worn memorabilia collector.

0:00:51 - (Andrew Kazlow): Over the years, Vasu's fund has backed companies like StockX and the Atlantic, which exited to the New York Times for over half a billion dollars in 2022. In this episode, Vasu makes the bull case for collectibles as an asset class, explains why the hunt is 99% of the utility as a collector, and shares his top questions for evaluating angel deals in this really interesting space. I hope you enjoy learning from Vasu and as much as I do.

0:01:26 - (Andrew Kazlow): Vasu, thank you for being with me today.

0:01:28 - (Vasu Kulkarni): My pleasure. Good to be here.

0:01:30 - (Andrew Kazlow): Well, I would love to start with classic first question, which is what are you excited about right now?

0:01:37 - (Vasu Kulkarni): So much the World cup is going on, but more than anything, it's usually collectibles. In my life pretty much day in, day out. I think whether it's both professional life and personal life, my entire social graph these days seems to be collectors. I always say it's hard to make friends when you grow up after you're done with college. Unless you're someone who's gregarious and outgoing and you're at the bars and the clubs at night.

0:02:03 - (Vasu Kulkarni): Where do you meet people? And for the first 10 years of my life in New York, everybody I met was on a basketball court. And so my best friends in life are all people that I hoop with. And then over the last 10 years, I think that social graph has kind of shifted to collectors. And when I got into collecting thing, it was, I didn't think it would be a social thing. I thought it was something you sort of do yourself. And so it was, you know, you in a basement collecting these things and you're the weird dude who does it. And maybe there's a couple of people you find out in the Community who are into the same thing that you're in and then you start to meet up.

0:02:40 - (Vasu Kulkarni): But I mean, over the last 12, 13 years now I've built up, you know, probably a group of several hundred, if not thousands of friends around the world. I can tell people I can go to any country in the world and I can post online that I'm here and I will have no less than 10 to 15 collectors who will show up at my hotel, take me around their town, feed me, show me the sites. It's the ultimate hack in life.

0:03:07 - (Vasu Kulkarni): Collectibles are this little niche, but when you're in that hobby, you have this commonality that brings you together. But it's so niche that, you know, unlike something like sports, like yeah, yeah, if you're in a room with other Knicks fans, great, like you've got some, but. But there's also like 30 million Knicks fans in the world. Right? But when you talk about how many independent watch collectors are there or how many game worn jersey collectors are out there, it's so small that there's this immediate camaraderie that you find with the, with the other person and it sort of makes you friends for life. And it's been a, an Absolutely fascinating 10 years of being a collector in New York and then getting to know all these people around the world.

0:03:52 - (Andrew Kazlow): So when did your self awareness around this thing happen? Like when did you wake up and realize, wait a minute, I have a ton of friends around this versus your initial line of thinking that oh, this is a basement thing. When was the moment that you realized, wait a minute, this is special?

0:04:10 - (Vasu Kulkarni): I think it was Covid. And when you sort of look at also market trends, Covid was when every single collectible class blew up. And perhaps some of them had blown up before, but like everything at the same time happened. And I think a big part of that was we were all sitting at home, we couldn't go out, we couldn't, we couldn't meet people. And yet we started to form these communities. Online clubhouse, you know, had its moment for a year, year and a half there and became a billion dollar company. And now I guess it's worth nothing, but you know, it's a sign of the times it was you. We literally had nowhere else to be, nothing else to do, and nothing else that we could spend our money on. So all that money that would go towards going out and drinking and partying and going on vacation, like all of that was gone.

0:05:00 - (Vasu Kulkarni): But the one thing you could do is you could buy cool stuff on the Internet and have it shipped home and now you got a new toy to play with. And as an adult, you know, what other toys are there than collectibles? And so I think that even for me, that was really where I started to realize, holy crap, there's thousands of people around the world who know me, you know, perhaps by my screen name, perhaps know me by my collection, don't even know who I am.

0:05:27 - (Vasu Kulkarni): But we all have this thing in common and we're spending all day, all night talking on the Internet. And oh, by the way, these things that we used to collect that were worth nothing have suddenly gone up by 10x because everybody wants them and supply is down because they can't manufacture anything right now. And it was that, that was probably the moment for me that I, I think it all took on a life of its own. It sort of, certainly sort of crept up on me. And I think most collectors probably will feel the same way. Like you buy your first whatever, right? Whether it's a trading card, a wristwatch, and you, you probably never bought it, thinking, I'm going to be a collector. You buy it because something about it appealed to you. Maybe it was a flex, maybe it was to celebrate a big moment in your life.

0:06:09 - (Vasu Kulkarni): So you buy the first one. And similar to getting a tattoo, which I don't have any, but I've always wanted one and I feel like I'm worried that if I got one I will just be covered in tattoos. It's probably not good for business. You get the first one and then you slowly buy the second one and the third one and then before you know it, you're knee deep in this hobby and then you're neck deep in the hobby and then you're underwater, not realizing how much money you, you've spent.

0:06:36 - (Vasu Kulkarni): But as I say, there's worse hobbies in the world and worse things I could be spending my money on than this stuff.

0:06:42 - (Andrew Kazlow): So. Okay, so I gotta ask, what are your like top three categories? I understand watches are big thing. That's kind of where you got started, I think from, from your background. What are your tops at the moment?

0:06:52 - (Vasu Kulkarni): Wow. Watches, ticket stubs from historical moments, which is a, which again, like, I mean, you talk about niche hobbies like there's one for you and then, you know, third is probably just memorabilia in general. So whether that be game worn jerseys, game worn shoes, maybe autographs, what have you. But it, it probably almost all revolves around sports. For me. There's probably maybe a couple things that are non sports in there, but for me it's watches up here and then anything sports sort of comes under that. Love it.

0:07:26 - (Andrew Kazlow): What's so interesting to me about this category is it's entertainment. It's entertainment. And it's a totally different category than what we typically think of as an entertainment, which is this just watch TV or going to a show or whatever. It's a form of entertainment that has a really unique community around it. And what I've read from your content so far is that you've actually seen a really unique moment in time that's kind of accelerating this transition and the growth in this market. So I'd love if you could just walk me through Vasu's thesis on what's happening in the collectible space more widely.

0:08:04 - (Vasu Kulkarni): Yeah, I think if we go back into this Stone age of mankind to go back that far. We were hunters and gatherers. And this has been my thesis for a long time, is because there's been this innate desire in humans because of what we had to do as cavemen to hunt and gather. But we had to do it at that point to survive and to eat. Now I doordash my food in and I don't quite need to forage for my vegetables, but that desire to hunt has never gone away.

0:08:42 - (Vasu Kulkarni): And so some people, I guess, in America shoot each other, which I don't recommend that the alternative to shooting people is to go and collect fun things. And I always tell people the hunt is 99% of the fun. In fact, the least joy that I get out of any of my collectibles is soon after I receive them. It comes, the dopamine hit is gone, and all of a sudden all your brain wants is to find the next one.

0:09:17 - (Vasu Kulkarni): And in many ways, that's what collecting is. It is a disease that those of us who've been afflicted by it in the worst possible way can never stop thinking about what is the next one that I want.

0:09:29 - (Andrew Kazlow): It's like treasure hunting.

0:09:31 - (Vasu Kulkarni): That's all. That's all it is. Right. So. So if you, if you want to go back to sort of, you know, what is it about collecting that that makes humans want to do it? I point you back to the Stone Ages from there. I think what happened is, you know, as industrialization occurred and, you know, we didn't need to again, as said, forage for food or draw things on the side of a cave. We, you know, we started to create art. Art's probably like the earliest form of a collectible that there is. It's been, you know, we've been drawing and painting things for.

0:10:02 - (Vasu Kulkarni): For many, many, many centuries. And it has sort of withstood the test of time, if you will now, you know, several hundreds, if not thousands of years later. Any art that exists from that era is probably worth millions and millions of dollars and, and is a trued. And test, you know, tried and tested asset class. But when you look at everything else after art that's come along. Right. So we could talk about the wristwatch. The wristwatch was created almost 200 years ago. For the first time, it served a purpose. It had utility.

0:10:33 - (Vasu Kulkarni): You needed to tell time. And there was no other way to do it other than a mechanical device. You first had sundials, and then we went from sundials into pocket watches and then something that you could wear on your wrist. And, you know, this mechanical device that did not use a battery, did not use quartz, but literally had to use a mechanical movement to power itself, was the only way that you could have a device that you could take with you anywhere and that it could keep time accurately and tell you what time it was.

0:11:04 - (Vasu Kulkarni): Well, 1970s hits, and quartz is invented as a. As a form of timekeeping. And so you had what was called the quartz crisis in the 1970s, where Chinese made watches through quartz. And a battery could essentially tell time better than any mechanical device more accurately, because it had a microcontroller in it. And you basically had the digital watch that was created. And so everyone in Switzerland freaked out, and they were like, oh, my God, the watch industry is dead. Because, well, the Chinese can make watches for $5 now. Who's going to pay $1,000 for a watch?

0:11:38 - (Vasu Kulkarni): And the smartest. And many brands died during this time, but the smartest brands realized, well, if we no longer need this as a utility, well, why don't we turn it into a luxury item? Why don't we turn it into something that is a flex? And so you actually saw Audemars Piguet create a sport watch made out of steel that was sold for $5,000 at the time, was a lot of money. And people said, these guys are crazy.

0:12:04 - (Vasu Kulkarni): But the Royal Oak Today, even now, 60 years later, is seen as one of the most iconic watches in the world. And I can go down the list of every single item that today we consider collectible. A ticket stub was. It had utility. It was used to gain entry into an event. Well, no one thought they would be collectible. So I have a ticket stub from Michael Jordan's first ever game in 1984 for the Bulls. Now, there were probably 5,000 people who attended that game. No one ever thought anything of it. Took the ticket stub, threw it in the garbage can.

0:12:41 - (Vasu Kulkarni): The five that exist today are worth probably, you know, if not hundreds of thousands of dollars, millions of dollars, because no one thought it was going to be worth anything. Sneakers, the utility was, they cover your feet. Today, people will spend thousands, if not tens of thousands of dollars on a pair of rare Air Jordans. And so over time, you see the same path, follow, followed over and over again, which is things start off having utility.

0:13:11 - (Vasu Kulkarni): They then turn into perhaps a little bit of a hobby. They then become an asset class. And what Covid did, I think, was accelerate all of that, the last part of that, which was the asset class part, because everyone sitting at home, everyone's got a pile of money, no one knows what to spend it on. And they started to put money into these fun little things that they had perhaps collected as a child or had seen their friends doing. And now they're like, well, let me get into that.

0:13:39 - (Vasu Kulkarni): And now what I'm seeing in probably this year and into the next four or five years is the wealth transfer that is happening between sort of the boomer population to sort of the next generation that are kids my age as well as all of the centimillionaires, billionaires, I guess, in one case a trillionaire. Now, that is being created by the AI boom. The amount of wealth that we are going to have. And if AI does all of the things that it promises to do, which would mean, well, you don't really have to spend nearly as much time working, well, what are we going to do with our time and money?

0:14:19 - (Vasu Kulkarni): I think people are going to buy collectibles. So, you know, and that's not to say that the graph is only going to go this way. Nothing ever goes that way. Everything is like this. But I do believe, in general, that the collectibles graph is going to look like this going up and to the right over time. And so whether you're in it because you see this as an asset class, whether you're in it because it's a hobby and it's fun, whether you're in it for the community and most people, I will tell you, are in it for all of those things, I would be lying if I told you, oh, the monetary value doesn't mean anything to me. Bullshit.

0:14:52 - (Vasu Kulkarni): Anyone who says that, I'm like, bullshit. There's no way anyone is putting millions of dollars into anything and saying, I don't care about the value now. It's not my Primary source of income. It's not a source of income at all to me. And for most people in these hobbies, it is not a source of income. But it is in many way an asset class which they see as perhaps a hedge against inflation, an appreciating asset, something that you can make money on hypothetically in paper gains, at least while doing something you love.

0:15:21 - (Vasu Kulkarni): Not unlike venture and angel investing, mind you. There's not a lot of liquidity in this. Most of them go to zero. Maybe one of them pans out 15 years from now and thank God somebody calls you and says, send me your wire instructions, you got an exit. But I feel like people who do venture and who do angel investing do it because they love it. They love the hunt to find the company, to convince the founder to take their 25k check, to hope that it one day is going to turn into a unicorn.

0:15:50 - (Vasu Kulkarni): It's no different than collecting, in my opinion.

0:15:54 - (Andrew Kazlow): Well, I think this. One of the things you talk about is the story that's attached to the thing and how that story is actually more important than the thing itself. Can you say more about that concept? Because I think it's really interesting. Yeah.

0:16:08 - (Vasu Kulkarni): These things have no intrinsic value for the most part. Like, look, art. Art is paint on acrylic or a canvas. Literally the raw. The raw cost of goods for a piece of art is literally nothing. Right. A jersey that Michael Jordan wore in a finals game, $10 made in China. Best case, no intrinsic value. With a watch. Fine. We could argue that perhaps there's some gold or platinum in there, which if you melt it down at today's prices of gold, maybe you're. You've got a couple thousand dollars there, but nowhere close to the hundreds of thousands or millions of dollars you're paying for a watch.

0:16:45 - (Vasu Kulkarni): And so the reality is that what you are buying with all Veblen goods, luxury goods, collectibles, is the story. How that story resonates and how it makes you feel. And it might make you feel special because you have something that is one of one and even the richest billionaire in the world cannot buy because there's only one of them in the world and you happen to have it. It might make you feel like you've accomplished something that you can afford to buy this.

0:17:13 - (Vasu Kulkarni): It might make you feel part of a very small group of community that, that you have in common with someone else, and that's why you're doing it. But there is a feeling that collectibles give you, and it's all based on the story that is being told about them. It could be the story of the watchmaker who made the watch and how much he struggled to get to that point. And it could be the story of Michael Jordan and how he's the greatest athlete of all time and how there will never be anyone else that will. That will ever be as great as the goat.

0:17:40 - (Vasu Kulkarni): And so owning anything that he has touched is like, it was touched by the hand of God himself. Right? Art, it's very much the same thing. There's peace behind me. Like, you know, I'm not a big art guy, but there's a few pieces that I saw to get it made me feel something. I'm like, I want to own that. I put it on my wall. So to me, ultimately, the entire value of all of these items lives completely in the story.

0:18:07 - (Vasu Kulkarni): And the object itself sort of doesn't matter. Like, yeah, you want it to look good and you want it to be in good condition, all that. But, like, you're really just buying a story because if you were to try and take away the story and just look at the object objectively, none of them are worth anywhere close to what anyone is paying for any of them. Every trading card, for the most part, is worth less than the cardboard it was printed on.

0:18:34 - (Vasu Kulkarni): Yet if it's a one of one, people are paying 20 million, $30 million for this stuff. So what are you buying other than the story? And that's always been my thesis around it. And so when I try to buy things, I look for the story. When I got into ticket stubs, it became about. I made a list during COVID of the hundred greatest moments in sports that I could remember growing up as a child, as a young adult.

0:19:00 - (Vasu Kulkarni): And then I went and I hunted for all of the ticket stubs from those moments. And so. And all I was buying was a story of what I remembered from. From having watched that game as a child. What do you think?

0:19:14 - (Andrew Kazlow): So let's say your. Your broad sort of hypothesis here is that the world is going to move towards more appetite for collectibles, broadly, because humans are going to have more time on our hands. And being humans, we're not just going to hang out, do nothing. We're going to do something with that. What are some of the next categories that you would expect to move from utility focus to more collectible?

0:19:40 - (Vasu Kulkarni): It's funny because almost everything out there has a subsection of it that is today collectible, right? So iPhones, if you have a sealed iPhone one, probably worth 100 grand today. This show is what, 800 bucks when it came out, which is considered crazy. It's probably $100,000 if you have a sealed one today. IPod, early Macs, first edition books. There is literally nothing that is not collectible if, if you have the first version of it and it's sealed and in mint condition and all of that, right? So.

0:20:22 - (Vasu Kulkarni): So there's nothing that I can point to today and tell you, well, that's going to be the next one because it already is today. There's just a very small group of people that are probably sitting on those things. And at some point, depending on how the supply of those things either goes up or goes down and how much people want them, and they may eventually turn into an asset class or they may just sort of hover around being, you know, this, this niche little collectible.

0:20:52 - (Vasu Kulkarni): But it's just, it's so fascinating to see how every single object that has ever been created, there's a group that somehow turns that thing into a collectible. And they're like, well, no, this was a misprint, right? Like, because it was a misprint, it's one of one. And now it's become a collectible. And, you know, you just go on ebay and search, you see how many things are truly considered collectible.

0:21:16 - (Vasu Kulkarni): And so, like, you know, when I think about watches, for me, you know, for the longest time, everyone's like Patek, Rolex, ap, like the big brands, right? Over the last couple of years, it's become a push towards independent watchmaking because this is true. Artisanal handmade watches where the guy can only make 30 watches, 50 watch, 100 watches a year. In a world of, you know, how many we have probably at this point, four or five thousand billionaires. And in America alone, I think we have what, maybe 4, 30 or 40 million millionaire households today and growing very quickly.

0:21:47 - (Vasu Kulkarni): So when you think about it from that lens, even if every rich person in the world wanted to buy one new Rolex a year, they couldn't. Because Rolex only makes a million and a half watches a year. Let's call it. So when you. And that's Rolex at a million and a half. I'm talking about guys who are making 40 watches a year, right? You, there's just no way every billionaire couldn't get one if they wanted one.

0:22:11 - (Vasu Kulkarni): And so when you, when you start to look at sort of things that are that niche, I think, you know, that's why I'm so bullish on the category in general is just, just pure supply and demand, nothing else. Forget story Just supply and demand. You cannot meet the. The demand that there is in the market today. And I. I believe that. That, you know, like, watches in particular, are becoming a bigger part of popular culture now than ever before.

0:22:38 - (Vasu Kulkarni): You see celebrities wearing them, and then when you're on a red carpet, they're like, hey, what are you wearing? That's important. Not to me as somebody who's been in it for 15 years, but to the new collector who always thought I was the weird dude. When they see Timothee Chalamet wearing an independent watch, they're like, oh, that's a cool guy. He's sitting courtside of the Knicks, and he's wearing a different independent watch every game.

0:23:00 - (Vasu Kulkarni): They start to do the research, then they go down the rabbit hole and they start to read about it. And then they call me and they go, yo, how do I get. And I'm like, remember I told you about that three years ago when you could have gotten it? Now you can't. Now you have to pay four times that to buy it on the secondary market. And they're like, yeah, cool, just let me know how to do it. Because again, the wealth transfer is happening, and they have the money and they're okay spending, you know, $500,000 for $100,000 watch.

0:23:25 - (Andrew Kazlow): Well, we're still only 30 years into the Internet being a thing. I feel like there's this slow burn of these communities finding each other and the distribution that's available now with just how globally connected everything is, that makes these very microscopic, niche, collectible spaces possible. Whereas 100 years ago, there was just no way for that to be realistic. But it is now in large part because of just the Internet, which has been around, feels like forever now. But it's only been a few decades that we've had that kind of global ecosystem.

0:23:56 - (Vasu Kulkarni): Absolutely. I mean, I think that's changed commerce. Right. First and foremost, in a massive way. It used to be if you bought something, you'd have to buy it from a local dealer. And if you wanted to sell it, you better know somebody else in your city that either is a collector, or you're going to have to go back to the same dealer. But today, with one click, you can list that on the Internet. And a collector from Dubai who has more money than God, is willing to buy your item.

0:24:19 - (Vasu Kulkarni): And so both the. The ability to find things globally and then to connect with people again from a community standpoint, you know, living in New York City is very different. Like, we've got 7 million people, and most of them have money. So, like, it's very easy to find a community in New York City for any hobby on earth, but if you live in the middle of America and you're an independent watch collector, who are you talking to? You're the only weird dude in your town that's buying this stuff.

0:24:49 - (Vasu Kulkarni): But today you can go on Instagram and there's a massive community of collectors, and then you start DMing each other. And then, you know, we meet up in Geneva, we meet up in Dubai, and there's now collector groups that go on vacation together. I mean, it's unbelievable what this little hobby is able to do for your. For your social life. And I tell people all the time. That's why I still buy. I have enough watches for several lifetimes and I don't have enough money to pay for all of them.

0:25:17 - (Vasu Kulkarni): It's the. It's the community that keeps me coming back because I now have a friend circle and we all encourage each other and sometimes we'll like. I've done limited edition designs that my friends, 10 of my friends buy with me, and then we go and commission the watch. It's like, it's fun stuff like that that you can do with your friends that, you know, there's very few things in the world. I feel like once you grow up and you have kids and you've got your own life, very few things brings those people back together again. And collecting is one of those few things that's left in the world.

0:25:48 - (Andrew Kazlow): A quick note before we continue the conversation. Alongside the Diligent observer podcast and newsletter, I also run an outsourced operations service specifically built to serve Angel Networks. My team handles things like initial screening, social media, newsletter prep, platform management, and a whole lot more. The kinds of things that either aren't getting done or shouldn't be done by busy community leaders.

0:26:09 - (Andrew Kazlow): If that sounds interesting to you, send me a note. Now back to it. Okay, so one more question on this thread and then I want to. I want. I want to walk through the business of investing in all of this. Yeah, the Kidalt market. This is a term that's become more well known over the last couple of years. How would you define or react to the concept of the kidalt market?

0:26:35 - (Vasu Kulkarni): I mean, clearly I am one, I guess, at this point, and maybe it's keeping me young. I don't know. It's either all the working out or it's literally being an idiot when it comes to this stuff. But it's funny, I was just with two friends last night at dinner and one had flown in from Toronto. One was from the Bay Area, but he's German. And I've met both of these people because of collecting. We have nothing in common outside of the fact that all three of us are watch collectors.

0:27:06 - (Vasu Kulkarni): And they were both in town. And so we got dinner, and those two had never met each other. And so one of them asked. He's like, how old are you? And. And the guy goes, dude, I have three kids. One's 25, 22, and, like, 18 or whatever. And so he's like, I'm 50. And he was like, you're 50 years old? He's like, there's nothing about you that would have ever suggested that you were 50 years old. And I looked again. I'm like, yeah, like, you, all of us, like, I just turned 40.

0:27:33 - (Vasu Kulkarni): Most people would not think I'm 40, both based on the way I look or the way I act. Right? They're like, you're an adolescent. Like, you're an idiot. And I think it's because of all of these toys that we keep buying that we don't get old. Like, we're Peter Pan, you know, we're trying to stay young. And so, yeah, I have a feeling that these types of hobbies, When I look at where my parents were when they were my age, 40, like, they had two kids, they had a mortgage.

0:28:03 - (Vasu Kulkarni): They were, like, in the thick of life. I'm 40. I got no kids. I'm buying watches and buying trading cards like I'm five years old. And. And I think there's something to that that, you know, again, we'll see where society ends up 20 years from now, and whether this is a good thing or a bad thing. But my hunch is that for a lot of people, it's these sorts of communities and hobbies that. That does keep them young.

0:28:30 - (Vasu Kulkarni): And as a result, they're willing to spend more and more money on it because it makes them feel like they're still a kid.

0:28:35 - (Andrew Kazlow): Yep. Yep. Okay, so let's talk about investing in this. Obviously, you built Courtside over the last decade into something that is extremely well known in the space. I'd love maybe a quick flyby of the courtside journey to this point, and then where you see some of the biggest opportunities looking forward in terms of, like, financing the next generation of collectibles.

0:29:00 - (Vasu Kulkarni): So, yeah, courtside's exactly 10 years old now. We started in 2016. I was a founder before this, running a sports analytics software company. I built that business over eight years, sold it in 2017, and about a year before we exited the business was when we launched Courtside. Primarily because we saw a complete lack of, of capital flowing into this area. And not collectibles in particular, but sports and entertainment more broadly was where our thesis was. You know, we felt like everybody in the world on a daily basis, no matter how rich or how poor, needs some form of entertainment.

0:29:39 - (Vasu Kulkarni): And in many cases that entertainment needs to be cheap. So watching sports doesn't cost too much money. I mean, depending on how many bundles you have to buy these days. But for the most part, you know, watching sports is one of the cheapest forms of entertainment. Mobile gaming is another really cheap form of entertainment. Collectibles on the other hand, is probably one of the more expensive forms of entertainment that's out there, right. So looking at all sides of the spectrum, but when we started it was really a sports focused fund first and foremost.

0:30:07 - (Andrew Kazlow): Before you move on, why was that weird at the time? Because you're describing this to me and I'm like, yeah, obviously sports and entertainment, it's a universal need. Why was that different and why were less people focus that in 2016?

0:30:20 - (Vasu Kulkarni): I think the way generalist VCs thought about sports was that, well, sports was things that you sold to teams and athletes and they don't like to spend a lot of money there. And they're not wrong. In the history of the world there's maybe $1 billion company that's been built selling product to teams. Right. And so again when you think about venture returns and the step function you need there to get to, you know, where you need to generate returns, it's rare that you're going to get those types of returns from a pure play sports company.

0:30:53 - (Vasu Kulkarni): So I think sports had just gotten a bad name and a bad rep as a result of that. It's like not like there's anything wrong with sports, it's just it's not a venture returnable game. So let maybe the late stage private equity guys play there where they need a 3x return or it's a sort of lifestyle business for founders. It's not venture backable. And we came in with a much broader view of the market and said look, sports isn't just stuff that you sell to teams and athletes.

0:31:19 - (Vasu Kulkarni): It's a world of fantasy and sports betting. It's all live events, it's mobile gaming, it's collectibles, it's fitness and wellness and longevity and health. And like when we looked at sports through that lens, it became clear to us that there had already been many billion Dollar companies built and there would be many more in the future. But no one had decided to build an institutional fund focused on it. And we were the first ones to do it in 2016.

0:31:45 - (Vasu Kulkarni): So when we got started, you know, we were the first money in a company called the Athletic which was a subscription new site for sports. Back then no one said anyone would pay for written content in sports. They said there's too much free content out there, no one will do it. And yet these guys in five years built you know, a company that got bought for a little over half a billion dollars by the New York Times.

0:32:05 - (Vasu Kulkarni): We were also lucky enough to be the first money in StockX which was sort of where our collectibles thesis grew from because we saw ebay for the first 20 years had been sort of the catch all marketplace on the Internet. But as these items were becoming more and more valuable, ebay was no longer the right place because it was filled with fraudulent items. It's just not a great overall experience from a UI UX perspective.

0:32:32 - (Vasu Kulkarni): And even as a seller like if a consumer complains about anything, they basically just side with the consumer and it's game over. And you as a seller shit out of luck. And so we said, you know what, this doesn't make any sense. Vertically focused marketplaces are where things are going to go as the items become more and more expensive. And so StockX was the first one to do that for sneakers. And you know, they went from 20 million in their first round of funding to 7 billion in five years time.

0:32:58 - (Vasu Kulkarni): It was an unbelievable story. And so from there we've then attempted to do the StockX for multiple other categories. So we've done something in sort of Pokemon cards and that whole magic the gathering category. We've done something in art, we've done something in watches, in a company called Bezel. And then now I think where the world is going is more sort of the gamification of collectibles where the idea of ripping open a pack, well that's what you would do in person. You would go to Target, buy a pack of cards and rip it open. Well that's a lot of friction for people. So how can you just do that on the Internet and so you have businesses like whatnot.

0:33:38 - (Vasu Kulkarni): We just backed a company that, that is similar in Latin America called Onda that's going after the latam market for breakers to be able to build businesses opening packs online. And then you've got sort of the next version of that which is repacking. So this is digital pack opening so you've got a vault sitting with tens of thousands of graded cards, and there's an algorithm. And so you come in and you put 20 bucks into the vending machine on the app, and the system is going to pick one of those thousand cards that are in that vault, and that's what you've just got.

0:34:10 - (Vasu Kulkarni): Now, that card could be worth $2. It could be worth $2,000. There's an odds distribution that is shown to you. And as soon as you get your card, you can do one of three things. You can either say, well, send me that card, and they will ship you the card. You can say, well, just store the card for me. I don't know what I want to do with it yet. They will just continue vaulting the card, but it's under your account.

0:34:31 - (Vasu Kulkarni): Or three, the system will buy that card back from you for, call it 80% of what the fair market value is right now. You can sell it back to the card, to the system, and then you can play the game again and rip open another package. Right? And there are now multiple businesses. We've backed one, and there's other businesses out there all that are doing hundreds of millions of dollars of revenue of people just trying to open up and win a card that, you know, they want to keep.

0:35:02 - (Vasu Kulkarni): So we've gone from sort of the analog let me go to a flea market and find something to 24 by 7, 365, I can click a button on my browser and try to find a super cool collect, which is like that.

0:35:17 - (Andrew Kazlow): That experience you just described is the hunt, so to speak. It's.

0:35:20 - (Vasu Kulkarni): That's the hunt.

0:35:21 - (Andrew Kazlow): The piece is 99% of the reward, as you described earlier, from the comfort

0:35:27 - (Vasu Kulkarni): of your couch, not having to get up, not having to go out in the sun and, you know, rummage through a flea market to find something that's crazy.

0:35:37 - (Andrew Kazlow): So as I think forward then, the future here is continuing to reduce the friction, to access this experience from a human standpoint.

0:35:47 - (Vasu Kulkarni): Yes. And I think the ecosystem to support all of this. So as items have gotten more and more expensive and now riskier to own, insurance becomes important, right? So in a company called Wax Insurance, which is sort of the market leader in luxury insurance now in the US Whether it started with watches, but they do watches, handbags, sneakers, art, everything, whole nine yards. If you even want to do your home in auto, you could, but their specialty is collectibles financing.

0:36:19 - (Vasu Kulkarni): So art financing has been done for decades by the big private wealth firms. So if you're a client at Goldman Sachs, Morgan Stanley, J.P. morgan. And you've got, you know, several hundred million or a billion dollars of assets with them. And you've got, say, $1 billion of, of blue chip art. They've historically been happy to lend you 30, 40, 50% even against the value of your art at very low rates. Like you're talking 3%, 4% money.

0:36:48 - (Vasu Kulkarni): Now, there's very few people who qualify to be private wealth at Goldman with $1 billion of art. But I say, why is it that somebody with a $10 million watch collection or a $5 billion one of one trading card collection should not be able to access the same kind of leverage? It makes them believe, if you're willing to lend against my home, you should be willing to lend against my watches. My watches are way more liquid than my home is. You have to go through a hell of a problem to come and foreclose on my home and go and sell that.

0:37:23 - (Vasu Kulkarni): You take my watch and sell them tomorrow and you'll have all your money back. Right. But why isn't anyone doing this? It's because the big banks are always concerned about not understanding the asset and the volatility. But if you're doing it for art, all of these other collectible categories are soon behind. And so I've been working with some banks over the past year to get them comfortable with the idea of lending against other collectible assets beyond art.

0:37:50 - (Vasu Kulkarni): And so I think that that's going to be a big opportunity here in the next few years to unlock shipping and logistics. Another problem, like when you're shipping fragile items, things that need insurance, things that need to be packed in a certain way, it's not as easy. You know, when you, when you sell a watch, you can't just walk down to FedEx, pop it into a box and ship it to somebody because FedEx only insures your stuff for 100 bucks. You can't even buy additional insurance at FedEx, so you got a whole separate company that you have to go through to ship something fully insured.

0:38:22 - (Vasu Kulkarni): So there's all of this stuff that is the ecosystem in and around the commerce aspect of collectibles that I believe will continue to be large businesses and so spending a lot of time on them as well.

0:38:35 - (Andrew Kazlow): So talk about like regulatory and, you know, care in all of this because there's, there's some gambling esque elements to this. And so talk about like the human element and where you see that space evolving alongside this.

0:38:49 - (Vasu Kulkarni): I mean, the amazing part from a regulatory perspective is there is none, right? This is a Completely unregulated market. And in many ways that's been the allure to a lot of people about it. You know, outside of the U.S. frankly, if you sell in, in almost every country that I know of, if you sell a collectible, it's not taxable at all.

0:39:11 - (Andrew Kazlow): Really.

0:39:13 - (Vasu Kulkarni): Yeah, it's not because it's considered, it's considered personal property. And in, in most of the world, personal property is not taxable. So. So you know, my friends outside of the US who are selling, you know, Million Dollar Wagon, they're collecting a million dollars straight to their bottom line. It's incredible. America, of course, Uncle Sam's always got his, his hand out. So you gotta, you know, you gotta declare all of this stuff. Unfortunately, if and when you sell them, which is why again, you know, a lot of people don't wanna sell, people will trade instead of sell. So they don't actually receive any proceeds.

0:39:45 - (Vasu Kulkarni): So there's, you know, there's things that people do, but eventually whenever you finally sell the item and collect the cash, you will end up with taxable income, which sucks. Which is another reason why being able to borrow against this stuff makes so much sense. The same way people don't want to sell their public equities and will just borrow against their portfolio. That is what I believe in a few years time we will be able to do against our collectibles portfolio because all it is is another alternative asset class.

0:40:12 - (Vasu Kulkarni): But yeah, from a regulatory perspective, zero regulation around collectibles. It is all considered whatever. You know, it's just a, it's an item you're buying and it's no different than anything else that you buy at a store. The gambling aspect, so far there has been no regulation. We obviously as a fund because we do a lot of real money gaming in the regulated space, we have a very, very close pulse on what's going on from a regulatory perspective both in the US and overseas with this sort of stuff. So we're always waiting to see what plays out. But so far for collectibles, if there is a physical item that is involved in the transaction is not considered gambling.

0:40:54 - (Vasu Kulkarni): It's, it's, it's free for all.

0:40:56 - (Andrew Kazlow): Well plus all the regulators are trying to figure out what to do with AI right now anyway.

0:41:00 - (Vasu Kulkarni): Well, and prediction and prediction markets and actual gambling and they've got their hands full. So I, I don't think coming after who's like much lower on the list makes sense.

0:41:11 - (Andrew Kazlow): So I gotta ask like, let's take this to brass tack. So I'm an Investor, I'm an angel. I'm listening to Vasu talk about the collectibles market. I'm like, okay, I'm in. I see this, this is a theme I'm interested in. Couple of deals hit my desk that are sort of in this space. What are the like one to three top questions that you would push on that immediately surface if this thing might have legs or if this is a no go separate from just the standard. Like, okay, it's a great team, let's assume it's a good team, it's a good market. I believe in all that. Like what are the top questions that are unique to the collectible space that you would press on?

0:41:51 - (Vasu Kulkarni): I think you want to really look at what is the average order value going to be of these things. Whether again, whether it's a pure play marketplace, whether it's an auction house, whether it's sort of these pack breaks and sort of pseudo gamified layers, whatever it is you want to try to figure out what is the average order value that someone's buying? How long are they going to play this game for?

0:42:16 - (Vasu Kulkarni): It's a basic LTV versus the cac, right. Which again, it's not that unique. But I think in collectible in particular, it's very easy to get enamored with. Oh yeah, of course these things are going to be worth X and then it's just going to keep going up and up and up and so the LTV will just keep rising and so the CAC will eventually be fine. But that's not always the case because you could end up in a situation where the market turns and it doesn't mean people won't buy, but it means they're going to be buying something that's worth a lot less money. And if you're taking 8%, 5%, 10% of that, you're going to end up taking a very small fraction of a much smaller number. But meanwhile, you've been spending money to acquire that customer the way you were when the same thing was trading for four times the price.

0:43:00 - (Vasu Kulkarni): Right. And I think that's what's happened a little bit with the sneaker market over the past couple of years. Is that market slowed down dramatically. And so now, you know, with StockX, they're a household name. Like people don't need to wait to see an ad from StockX. They know StockX is the place to go for sneakers, so they have the benefit of that. But not every sneaker marketplace has the benefit of being a household name. And I think everyone Else has struggled quite a bit because they have to keep retargeting and re advertising to keep those customers coming back.

0:43:30 - (Vasu Kulkarni): Meanwhile, the price of those Jordans is now most of those Jordans trade for under what the retail price was because Nike made too many of them. So what was thought of as easily 200, 300, $400 AOV is maybe now like $85. AOV completely changes the, the, the math on how much you can pay to acquire that customer. And I think that that's the number one thing that I'd be focused on in the collectibles market when you're thinking about it.

0:43:58 - (Andrew Kazlow): And how much would you focus on, like the producer or the source? I imagine a lot. But like you just described Nike, like Nike could produce. They could just decide, hey, next year we're going to make way more of this particular thing. And that just crushes the value and destroys, you know, some of the collectible element. Like how do you, how do you diligence the supplier of the thing?

0:44:21 - (Vasu Kulkarni): The, the hope is that most companies today have learned from their mistakes of the past, which again, history repeats itself. So there's no guarantee that they have. But I think, you know what happened with trading cards in the 80s and 90s when they just overproduced like crazy. Well, it was really the end of the 80s, so 90s and 2000s, all of those trading cards are worthless, right? Because they just got so greedy that they were printing and printing and printing and so most cards from that era, useless.

0:44:52 - (Vasu Kulkarni): The hope it has been that almost everyone has understood and learned from that moment in time and said, look, with collectibles, less is more. The supply constraint is not sort of the bottleneck. It is the product itself that you are selling, right? And so the people who understand that are the ones who are going to win. And so my hope and Nike, I think, I don't think Nike overproduce of any particular model. Their problem was they produced too many models. They, every week they're like, here's new pair of Jordan ones, Air Jordan ones.

0:45:29 - (Vasu Kulkarni): And like they put out thousands of variants of these shoes and people finally got, you know, they just got disinterested with. They're like, how many of these things can I buy? So it's always a fine line between trying to maximize profit and, and Nike has to do that. Public company, the trading card companies have to do that. Your paninis, your tops. And again, I think Michael Rubin owning most of the trading card market now, he's a very smart man.

0:45:52 - (Vasu Kulkarni): I don't Think he's going to allow them to overproduce stuff? The game worn market is great because it's already supply constrained. You can't have more than whatever jersey the player wore that day on that game. So you already know for any particular year there's not going to be more than 82 game worn jerseys for Steph Curry because that's as many games he's going to play and he's going to keep some of them. And Sotheby's has a deal for some of them.

0:46:14 - (Vasu Kulkarni): And like the NBA is getting. So like in the end there will only be maybe 30 or 40 of those that will ever hit the market with watchmaking. There is a massive lack of watchmaking talent in Switzerland. Like you can't just ramp up watchmaking if you wanted to. You need very specific skill set and there's very few of those skilled watchmakers. So I feel pretty safe knowing that with the watch industry there will only be so many that will ever be produced. So my worry is more around sort of these, you know, up and coming. Like somebody just says, well, I'm going to start making my own trading cards out of my, you know, which they could, they could just go print trading cards and cut a deal with a few people to autograph them. And we've seen that happen.

0:46:54 - (Vasu Kulkarni): I'd be more concerned about those guys because I'm like, I could see them raising venture capital money and going, well, now we got to start making a lot of money really quickly. And do they lose sight of the fact that again, less is more. So you got to figure out a way to make more off of each individual piece, not make more pieces and make less money off of every one of them. That's where you'll die.

0:47:14 - (Andrew Kazlow): You know, it's interesting as you're talking, it feels like this category is uniquely insulated from the aiification of the world because it's all Venn Blend product. Veblen product can never say that word.

0:47:27 - (Vasu Kulkarni): Yeah.

0:47:28 - (Andrew Kazlow): It's specifically about the story which you can never automate away or put onto a microchip.

0:47:36 - (Vasu Kulkarni): I think that as the world has gone more digital, that is the thing that is bringing us back to the analog, handmade, custom made one of one. Because yes, AI and just digitization in general. And this was the problem with NFTs, right? 21, 22, the NFT boom. The premise and the promise of NFTs was, hey, we're going to take everything about physical collectibles, but we're going to make them better because they can't get lost, they can't get damaged.

0:48:11 - (Vasu Kulkarni): They're on chain so you can borrow against them immediately because you could basically be locked in a wallet if you borrow against them and then when you pay the loan back, they'll be out. Yes, all of that was true. You, they took all of the best parts of collectibles and made it better. They forgot about one thing, which is that what makes something collectible is all of the bad parts, the damage, the loss, the stuff that it was never meant to be collectible in the first place. And so people threw out most of them.

0:48:41 - (Vasu Kulkarni): That's what makes them collectible. If you have 10,000 of every single NFT project and they're never going to get lost or damaged or in any way, there's nothing, there's nothing fancy about them at all. Like it's. We ended up with thousands of NFT projects and 10,000 of each were minted and they basically just ended up all being worthless. Right. And so I do think in many ways I look at physical collectibles as, yes, the hedge against AI, the hedge against digitization, the hedge against inflation in something that is truly a global product. You can take a Patek from New York to Dubai and it is worth the same amount of money there than it is here. And they will give you cash money for it immediately for whatever market value is there.

0:49:30 - (Vasu Kulkarni): I can't say the same for the US Dollar today with where we've been going for the past couple of years. Right. So in many ways, even as a hedge against currency, I think many of these items play a role in that for people who are savvy and sophisticated about them.

0:49:49 - (Andrew Kazlow): Basu, final thoughts for our angel investor audience.

0:49:55 - (Vasu Kulkarni): Well, listen, we have this saying in the collectible world, which is buy what you love. And in many ways I say the same thing about angel investing. I probably been an Angel Investor in 70 to 80 companies at this point, outside of our existing portfolio that we have venture investments in. And my entire life, I've always said I only do things I love. There's many, many ways to make money in this world.

0:50:22 - (Vasu Kulkarni): But doing what you love will allow you to do so without feeling like you've worked a single day in your life. And so I've only had two jobs, which has been running a sports startup and then running a sports and entertainment fund. I only invest in things I love the same way I only buy collectibles that I love. And both of those things have done pretty well for me. So hopefully that that works out for other people as well.

0:50:44 - (Andrew Kazlow): Well, Vasi, thank you for taking the time to share with us today. I look forward very much to our next conversation.

0:50:50 - (Vasu Kulkarni): Absolutely. Thanks for having me. Me.

0:50:54 - (Andrew Kazlow): Thanks for listening to this episode of the Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals and more straight to your inbox. So you never miss a thing. Subscribe today atthe diligent observer dot com.