Re-Founding Incumbents for the AI Era: Michael Lee on Sequence Holdings

Every company on the planet has a celebrated persona. In a world where you believe that alpha comes from engineering and AI, you need to create a culture whereby the celebrated persona is the engineer. And that's what's required. If you think about your typical investment in a fund, you're typically trying to figure out how do we start to package to sell this thing in 3 years. That is just a very different framing for how we think about technological transformation and what what are the investments you're willing to bring to bear here. What we do is scarce. We're trying to do one deal per year. That's it. Our job is to do one.

>> Hi listeners. Welcome back to No Priors. Today, I'm here with Michael Lee, co-founder and CEO of Sequence Holdings. They just announced [music] the largest AI take private to date with the Dell family office of Baldwin for $7.7 billion. We talk about this, the Sequence story, how AI transformation is actually going [music] to permeate the economy, and what transfers from public investing to private equity to operating. Welcome, Michael. Michael, thanks for doing this.

>> Thanks for having me.

>> So, you started Sequence Holdings, which is a permanent holding company that works with management teams to buy and refund their businesses to be market leaders with AI. Uh we should talk about that. It's a very exciting model, but you also announced this big transaction with Baldwin. Tell us about it.

>> Yeah, you know, we started the company 20 months ago really with an eye towards can we partner with world-class businesses and management teams working closely with our frontier engineering team to forge market leaders. Um the brokerage space is an area that we've been spending a lot of time on since the founding of the business. We've met dozens of insurance brokers, and Baldwin was truly an of one of all the insurance brokers that we've met. Um it was it's been a privilege for the last few months to spend a lot of time with Trevor Baldwin and the management team, and we could not be more excited about the journey that lies ahead between us, the Baldwin team, and the Dell family office that supported us in this transaction.

>> I want to zoom all the way out to a little bit about, like, you know, your background, you and your co-founder Alex, how this idea for Sequence came about because you've been, you know, an investor, now, you know, a hybrid investor operator. Like, tell me about how you arrived at the idea to begin with.

>> You know, when I first joined Lone Pine in 2017, one of the first areas that I was I was asked to cover was AI.

>> That's actually quite early.

>> Yeah.

>> It was, you know, as I'm sure you recall, it's kind of when AlphaGo came out. Um, it's actually when the first Transformer paper came out, and there was a lot of excitement at the time around what would be commercially viable if you scale these architectures. And at the time, these were convolutional neural nets, GANs, LSTMs, and the like. And, you know, I think we all know how the story ends, which is we obviously saw a lot of exciting things come out of it. But, as you scale these architectures, they're degrading effects over time to scale. You know, I share that context because, you know, when the models came out or ChatGPT came out at the end of '22, you know, what became obvious to me, at least, is that the world had forever changed.

You know, we finally had an architecture that we knew could scale infinitely. Now, whether or not that was possible, what would come from that was not clear, but we do we did know that we could scale with compute, that these the architecture would improve. And, you know, like an investor, I started to think about what were the impacts to the world. And, I kind of felt strongly that AI would have an uneven impact on the economy. There are certain parts of the economy that I felt that AI just wouldn't impact at all. Right, take restaurants, golf courses, things like that. There are certain industries that I just felt like a startup would win. Right, take coding, for example. Like, Conviction and Sequence going to go buy an outsourced coding services business feels like a terrible idea, which you would give money to Cognition or Anthropic.

But, there as a student of business, there have always been certain industries where I felt like the incumbent had all the advantages. And that could be brand, that could be scale, network effects, regulatory. And, in light of what is going to be the biggest technological shift of our lifetime, I felt very strongly that if you could acquire the right incumbent, inherit the advantages of being that incumbent, could you forge the market leader? And the kernel of that idea is the one that really is upon which Sequence is founded upon. Came up with the idea in early '23, had a handful of people try to get me to leave Lone Pine and go do it then. Just wasn't the right time for me. And then I remember going for a walk with my wife in '24, letting her know that, "Hey, it's pretty rare in life to be in the middle of the most important technological change of our lifetime."

Having the kernel of that idea, I felt very strongly about. And I feel very strongly that you know, I could pull together the team to go and pull it off. And so, that's why we we started Sequence. And couldn't be more excited about kind of what we've been able to achieve to date and kind of what we see ahead of us.

>> It's a super first principles approach to, you know, what is the macro change that is happening technology, how's it going to impact the economy. Um, but, you know, many investors, at least venture investors, would be like, "Oh, no. Incumbents have a bunch of advantages. I guess it's just not for us." How did you think about, you know, scale and the idea of being able to engage with or even um own incumbents? That's a I guess you could just do things, but since that's a ambitious um premise.

>> I I think it's more just it's the business model that meets the opportunity today. So, like if you take a giant step back, you know, and at least at Sequence when we think about what's happening with AI today, we think we're living through the equivalent of the next industrial revolution. revolution. revolution. And you know, what we generally see in most enterprises, what I typically see from a lot of the software companies that are producing AI agents today, is this giant push to give small machines to every human in the human assembly line.

>> Mhm.

>> And to speed up work. And like there's nothing wrong with that. That's great. It's better than nothing. But as you know, when you have machines that can work 24/7, that can scale with electricity, that can accomplish what no individual human or group of humans can do, the right answer is to think about how do you start to reorganize what an organization should be to meet the opportunity with of what's available to you with technology. And that's the context upon which we're sitting in. And I think for the really in the first time it we have a real opportunity here to partner with amazing companies with great leadership teams, partnering that with our platform and our engineering team, and really thinking critically around how do we reorganize the organization, how do we lean into what's best in terms of what these the technology can do, what can humans do, and rethink how we can compete in these various industries.

And I think it's just really more of an opportunity piece more so than an ambition piece in that like I just think this has to happen and I don't see a natural way for it to happen unless you do it through our approach.

>> Can you talk a little bit about the structure of the company? Like why a permanent holding company, you know, what does ownership enable you to do that being a, you know, a vendor or partner doesn't?

>> Yeah, I think there's two parts to that question. So in terms of like the holding company structure itself, you know, when I thought about what is required to accomplish what Sequence Holdings wants to do, which is how do we partner with world-class organizations, how do we bring frontier engineering to bear, how do we build a platform that we can share across all of our portfolio companies? The only natural way to do this was through a holding company. How do we build a business whereby we can forge market leaders? How do we align the duration of capital with the sustained investment and operational commitments that are going to be required to drive the transformation end to end. How do we create an organization that culturally is oriented around forging market leaders, not deploying capital? Um and lastly like how do you create the right structure upon which you can take the retained earnings in your business to rethink about how do you support your existing companies and net new investments? And so when I think about the opportunities in front of us, the only natural way to go do this was through a holding company.

In terms of your second question around like ownership, you know, let's maybe just play this out through an example. Let's say that you're an incredible business, you know, I won't pick on one, let's say we're a Fortune 500 company, you have unlimited resources. resources. resources. The if I challenge you to say, "Hey, you're the CEO of this Fortune 500 company today and your job is to refound yourself," you're stuck with three options. options. options. One is I'm going to go do it myself. The structural challenge with that, and it's not a bad one, is just it's impossible to recruit and retain the talent required to go and do this refounding. And the obvious The answer to that is actually much more obvious than people think, which is every company on the planet has a celebrated persona.

So, let's take Blackstone for example, an incredible organization, one that I admire a lot, and in fact I make every person sequence read as King of Capital. But the celebrated persona at Blackstone is the investor.

>> Mhm.

>> And that's why they're able to aggregate the greatest investors in the world. In a world where you believe that alpha comes from engineering and AI, you need to create a culture whereby the celebrated persona is the engineer. And that's that's what's required. It's the reason why Why does Palantir exist? You know, I'm sure Alex Karp would hate how I would describe this, but it is foundationally an organization that has aggregated world-class engineers that celebrates the engineer and and foundationally what they do is it's a wrapper to sell it to other organizations that are not able to get that talent. So, that leads me to my second point. So, if you can't get the talent to do it yourself, then there's this huge multi-trillion dollar industry that got formed called the services industry. And these are great companies, Accenture, McKinsey, Palantir, that have do celebrate the engineer, that do celebrate changing technology.

But the challenge that you have when you partner with a services provider in terms of rethinking and refounding your business is an incentives problem. Services companies optimize for kind of three things. Getting in your wallet, staying in your wallet, growing the share of your wallet. It is a path towards incrementalism. To compound that, services providers can't actually change the things that you really need to really kind of meet the moment. How do you change how the people are organized, who's working in these organizations, and the incentives? And so, if you can't do yourself, you can't use vendors, and you have the third option, which is what a lot of people do, which is they go buy software. The challenge with buying software is twofold. The obvious one is that it's beta. If it's available to everybody that you it's available to everybody. I think the part that's more nuanced that I think people often miss is that if you and I were starting a software company, the thing we would optimize for is what is a workflow that's reasonably homogeneous that exists in a lot of places.

And then, how do we install it fast enough but deeply enough such that we can sell a lot but it's sticky. That those are the genetics of

>> Structurally, yes, that sounds very attractive.

>> That would be the genetics of what we'd look for. What that means though is that you're always going to sell to a workflow as it's designed today. As a humans are set up in that human assembly line today. It's the only way you can sell a product. You can't sell a product around a new human assembly line that doesn't exist today because that's how you think it is. And so, when we think about why does our motion work, it's how do you have ownership so therefore you're aligned. How do you bring uh create an organization like Sequence Holdings that celebrates the engineer and bring frontier engineering to bear. And then three, how do you drive a long-term horizon and economic models such that we're aligned with management around how do we think about how do we forge the best version of this company possible based on the technology that's available today. And so, that's how we think about our business model. It's why we think it works. Um and the early evidence from kind of Bank South and kind of what we've observed in the field today um have proved proven that out today.

>> I want to talk a little bit about Bank South as well, but in in you know, you have a team that includes a bunch of like scale and Palantir DNA. Uh you are trying to keep the um quality bar really high. What is compelling to the team, the engineers that work at Sequence?

>> I think it's a bunch of things. I think the first is really it's an opportunity to kind of work on the companies that actually are the capillaries or upon which people interact with. You know, the AI model companies are phenomenal. We would not be here today if it weren't for Anthropic, OpenAI, xAI and the like. But the reality is is like the impact to everybody's day-to-day lives really are going to be impacted by the companies that serve them today. And so for us it's the opportunity to partner with really important companies that play an important role in the economy and really thinking about how do we bring world-class technology to bear to deliver differentiated experiences for their customers. And I think that mission is like quite powerful. I think, you know, when I think broadly about the two engineering personas that we typically hire from, I think, you know, call it the forward-deployed engineers, the I think that the thing that appeals to them is the opportunity to be really aligned with the value that they create.

And I think that's an extremely experience and I think the ability to drive the type of change that would not be possible if you were a service provider is quite appealing. I think the other hand, which is probably not as fun for venture capitalists to think about is like, you know, when when I talk to application software engineers, it's, "Hey, we're one of the few business models in the world that's completely immune to what the model's going to do."

>> Mhm.

>> As the model performances improve, we celebrate here at Sequence and that like that gives us more tools to bring to bear in the companies that we partner with. And like there's no real existential risk to whether or not our business will be around. And I think those are kind of things that have appealed. I think the mission is probably the thing that drives it at the end of the day, but I do think there are tangibles when we talk with candidates that have been quite appealing for kind of what we're trying to build.

>> I remember when you first told me, "Hey, we think we're going to go buy a piece of a bank and partner with with the BankSouth team." I might have reacted with some mild horror about the difficulty and regulatory concerns around that. And I was like, "Michael, you must know that there's a reason that banking is not a popular private equity sector traditionally. Um tell us a little bit about how you, you know, chose financial services and then what you've learned in the BankSouth partnership so far.

>> Yeah, so, you know, I think it's worthwhile to take a step back and thinking about how did this investment come to be and then kind of maybe that tackle kind of how and why it's been kind of the perfect place for us to start our business. So, you know, when we started this business call it March of last year when you first kind of wrote the first investment sequence. You know, we had a cold start problem, right? So, it's the holding company model is a weird business. Like without money you can't do deal. If you don't have a deal, you can't hire engineers. If you can't hire engineers, then no one else will give you money. Thankfully, you know, you were willing to support us. Um you know, we were able to get a handful of engineers to come work with us. But yet we were stuck with kind of the cold start problem of nothing to really to do.

And one of the things that we were debating at the time was do we just go buy something to prove to the world that we can buy something and change it or do we wait for the right asset? And as it I think you know, we've always had a bias towards scale and enterprise. Unfortunately, there are not a lot of investors in the world that want to give you hundreds of millions of dollars to go buy an enterprise to see whether or not your technology works. So, what we decided to do is to go and take on a customer. And, you know, we called a dear friend, Jamie Reynolds. He's one of the co-founders of Avenir. And basically framed for him, hey, like here's the problem that I've run into. And very fortunately, he his family happens to own a bank down in Georgia.

Um and that's how it became our first customer. And that started off August last year. In fact, it was August 4th. It was my anniversary. I remember skipping it. Um and it was an incredible experience. And so, from August to about November, like kind of late November last year, basically operated in a services motion and like really started to tackle kind of with the key workflows that existed at the bank. Um fortunate to us, you know, the family asked us at that point in time whether or not we'd become a permanent partner. And that's how it became our first investment. We ended up closing the investment in March. Took us a little while to kind of negotiate everything as well as get Fed and OCC approval. Um but I think it's I I I share all that context to say that like operating in a services motion and then being an investor, we saw a night and day difference.

Right? It's a lot of things. One is from an engineering perspective, you know you're going to be here for a long time. So, the level of complexity and depth that you're willing to take on versus being a service provider knowing that you'll eventually leave and have to leave behind applications that other people have to maintain is demonstrably different. The second thing is is just a lot of excitement from the employee base around hey, these people are here to support us for a long time. So, how do we push the most ambitious version of this? And then three is like really we can take a long-term orientation around like what do we want this bank to look like 3 years, 5 years, 10 years from now and how do we lay the technological foundation such that we're always benefiting from model performance? And that's what we've been able to do. In a weird way, the bank was the perfect pilot for what we needed to do to validate our business model. It was an ability to buy a minority stake, so a venture scale type check, to operate in a real enterprise-like environment. And in a weird way, the regulated nature of the bank was a feature not a bug.

One of the nice things about a regulated institution is that um how it operates is well-defined. The data hygiene is excellent. Um there are well-defined rules around how your business is supposed to operate. And so, if you think about that context, it actually works extremely well for agents. That's one piece. The other piece that's really important for banking, which has been a quite a quite a learning for us in terms of how we think about investing is a centralized nature of it. So, when we think talk at Sequence about companies we're looking for, we talk a lot about organizational physics. We like organizations that are quite dense and their operations are centralized. So, anything you build can be amortized over a large base. So, like take a bank for example, a bank may have a bunch of different branches, but all the underwriting happens centrally. So, everything we build at at headquarters can just get amortized over all the branches that they're working with.

>> Mhm.

>> You contrast that with, you know, I think, you know, a lot of the roll-ups that we see out in the marketplace today, which I think is an awesome strategy, but there's a lot of complexity with it. You have to integrate different systems, you have to send engineers to number different places, you have to standardize operating procedures, you have to standardize cultures. And for us, the nice thing about the bank is that while it's a large organization with, you know, $100 million plus of sales, like the physics of the business are quite dense, and therefore we've been able to make a lot of progress in a short period of time.

>> There's a central nervous system, there's a ledger, there's some key processes, there are levers you can pull economically.

>> Exactly right.

>> Why insurance brokerage?

>> So, the brokerage space has been an area that we've been spending a lot of time in since the founding of Sequence. Um it fits a lot of the things that we look for. And so, what do we look for broadly when we're as an organization? We think about one is scale the market. You know, what we do here at Sequence doesn't scale. So, if we're going to make a an investment, we need it to count. We want to work on companies that we think we can build into $100 million plus companies.

>> Like you're not going to do this 10 times a year.

>> No. We're not We're not investment shop. We partner with great companies to forge leaders. The second thing that we cared a lot about is is it an industry where the incumbent has all the advantages, and I'm happy to go into that in greater detail. And then three is, if we think about what the organization does and what AI is good at today, we think about the overlap, can we build something special? And the brokers industry in a lot of ways fits all of that. It's a $2 trillion plus of premiums per year going to carriers, the brokers take a a vig on that, and it's been an industry that has minted dozens of very skilled company large companies over time. In addition to that, it's just been a wonderful industry that's been really hard for startups to compete in.

And it's for reasons that are less obvious to people than people think. Um if you think about the uh the insurance value chain, there's three parts to it. You have the carriers, you have the distribution partners, and then you have the customer. The carrier has makes money two ways. You have underwriting, which is I price risk, I hope to pay out less claims than what I receive. And then the other part of the business is investing. The insurance industry since the beginning of time has almost made no money underwriting and has made the principal amount of their money through investing. So, what that incentivizes is asset gathering. So, getting high-quality growth written premium is the name of the game. And so, that's why the brokerage industry is so powerful. Another industry interesting feature about the brokerage industry is that your customer doesn't actually pay you. The carrier does.

So, if you think about the nature of the business, which is a very relationship-centric business, gross retention rates are 90%, and you think about the fact that a broker doesn't can't doesn't really compete on price, it's a very difficult industry for for startups to get into. So, if you think about what's perfect for Sequence is is a huge market, you have companies that are largely immune to startup risk. But, what if we could partner with the right one? And that's what the opportunity at Baldwin presented, which is a scale that a scaled asset with a centralized technological foundation and a world-class team that is both ambitious, but also extremely excited about what's possible today with frontier technology.

>> What can you say about what is uh generalizable or shared from a like a platform technology perspective across um the different companies?

>> Yeah, so I think if you take a step back, you know, we think about our shared cap shared platform capabilities as two broad broad and two broad areas, right? One is Atlas, which is our platform, which I'll tell you about here in more in a second, and then kind of our engineers and kind of you know, we have a playbook for how we work with companies. Like, this is an art, not a science. You know, I often joke internally that we have two problems here at Sequence. We have an engineering problem and a human engineering problem. And the human engineering problem is much more difficult than the engineering problem. But, if we think about the engineering problem, we think about Atlas. So, what is Atlas today? Atlas is our platform that we have built at the bank that we think that we expect to generalize over industries over time.

And part of that is an observation that a number of our engineers have had from their prior lives both at Scale, Palantir, and others, which is if you break down the business to its atomic units, 80% of it largely homogeneous, and 20% of it is vertically specific. And so, if you think about what is Atlas, Atlas is basically our platform that both does a number of things. One, it helps improve improve improve um the speed to which we can deploy, improves agent performance, improves our build rates for our own engineers, and ultimately it's a builder platform that allows the operating company engineers to build upon. There's four layers to it. So, that what we The first layer is the data ontology. So, think about that is just simply how do we define the organization, the motion of that business in code.

And that's extremely important. The way that we talk about internally is how do we make the business legible to models? Right? How does a business How does an agent know that this customer is the same as this the customer in this system here? And how properties of that customer um interrelate with the claims or the loan the the the loan policies that that that that are associated with it. The layer on top of that is our agent builder, which is basically how do we build high-performance agents grounded in ground truth, kind of kind of the the things that we I think we we hear and read a lot about. The third component to it is what we call Lattice, which it which is our orchestration engine, which is like how do we actually instrument workflows using the agents that we've built? And on top of that at the top is what we call artifacts, which is basically our application builder that sits on top of everything that we've built.

And so, if you think about what we've built in terms of Atlas and what we've built here at the bank, foundationally all the core infrastructure we've built is reusable at Baldwin and any future company that we do. And so, that's like a core component of what we've built to date. On the playbook side from an engineering perspective, yeah, like I think this part is is an art, not a science. You know, I think one of the nice things about having great talented engineers from places like Scale AI and Palantir they that they have developed the playbook. But, you know, what we do is different. You know, I would say that, you know, one of the learnings that we've had with the bank post the investment is how much more hyper-attuned we need to be and sensitive to how employees feel.

Which is like there's, you know, as exciting as it is, it does draw a lot of anxiety around like what does this mean for us as an organization? And the key thing for us at Sequence is how do we make people feel like what we do and we bring to bear here is how do we make elevate what you do here at the job? How do we exercise what are the best parts of being a human? How do we think about making your job more fun, taking away really the rote kind of repetitive work out of your work workflow? And how do we make feel make you feel like your organization is winning? And like that playbook is something that we're going to continue to refine. I think we've learned a lot here at the bank. We expect to learn a lot here at Baldwin and like that's going to be a key component of what compounds over time for us at Sequence.

>> What do you think is going to be special for you guys over time here that's very hard for, let's say, more traditional large buyout shops to replicate? Right? Because I I don't know a single one that doesn't I I think at least think about AI transformation today and like much of what they do from a returns perspective is probably dominated by, you know, underwriting, consolidation to platforms, multiple expansion, some financial engineering, but I I do think, you know, people have like, let's say, portfolio value teams. So, how do you how do you draw the distinction more strongly between we're not investing shop and like here's what we think it's still hard for other people to do without us.

>> So, I have a lot of admiration for all the big private equity firms.

>> And you used to work at Apollo.

>> I used to work at Apollo. I have a lot of friends who still work at all these various firms. Um, I think they will continue to do great, but I deeply believe that we have a very different business.

>> Mhm.

>> Right? If you think about your typical private equity firm, they are sitting in a fund structure. The fund structure economics are such that it incentivizes you to deploy capital. They're in the business of finding great assets, pricing them attractively, putting the right capital structure in place, doing sufficient amount of value creation to generate the the required rate of return to satisfy their LP base. Our business is very different. Our business is around how do we find world-class organizations run by exceptional people and taking an extremely long-term horizon around how do you forge the market leader. And what we do is is different by virtue of that. Now, I think there's a the pointed question I think you're getting to is can private equity firms over time do radical AI transformation through their motions. And I think many will definitely make a lot of progress on this front. Like I certainly think private equity firms are incentivized, they have the resources, they have the capabilities to start to go and make meaningful progress on this front. I do however think that there are a number of limitations that they do run into and I think many will find ways to solve parts of these. You know, one is like how do you recruit world-class engineers to

come work at your firm? Really difficult to do. Your typical PE firm has designed itself to celebrate the investor. And when I look at my great engineers, they want to be in the room when decisions are made. They want to have a say in terms of like, "Hey, like whether or not this is a good or a bad business." My guess is that if you go to your typical large-cap buyout firm, it'd be highly unusual to find a 25-year-old engineer have any say on in terms of that investment profile. Um so I think that will be challenging. I think the second part that's challenging is just the time horizon. Right? The reality is is if you think about your typical investment at a fund, it's you know, you they'll tell you it's a long time horizon. You're typically trying to figure out how do we start to package to sell this thing in 3 years.

>> Mhm.

>> That is just a very different framing for how we think about technological transformation and what what are the investments that you're willing to bring to bear here. And I really think the last thing is it's just, you know, for us, we just have a extreme extreme focus on like quality of business and team. And it's not to say that other private equity firms do not, but like we what we do is scarce. We're trying to do one deal per year. That's it. We don't have a deployment cadence. I don't have a group of investors and LPs are telling us, "Hey, like you guys are under invested in the year." Our job is to do one. And if that means that we don't do any this year, that's fantastic. And like it's just like a very, I think a very focused and deliberate approach that's just very different. We're going to touch a very small surface area of the world, and I expect all these other private equity firms to continue to do great. But I do think there are core differences in terms of the genetics of the companies that we've built.

>> I hope to hold Sequence Equity for, you know, the rest of my life. So, you know, go forth. Um what a uh just just one more one more question on uh your own underwriting and and the scarcity. It must be true that every CEO in their earnings calls of the last few years has talked about AI. Um I think people recognize the change. I think um people genuinely want to invest in these capabilities for their companies. Um what are you looking for in management teams where you say like we can help you become a leader? Or even a more um uh dominant leader.

>> Yeah, I think you know, you can learn a lot about a management team just in terms of like how how do they play the game in the industry upon which they grew up in? And like that's a just a core part of what we look for, which is at the end of the day Sequence has wonderful engineers. We have a very talented investing team. But at the end of the day, like I have no expertise running a broker. I have no expertise running a bank. We're heavily reliant on the management team to be the best at their craft and competing in their respective industries. And like that's a core component of like how we evaluate management teams. The second piece, which is kind of more kind of central native to what we do, is what we do is difficult. Like change and transformation is hard.

Um and as I alluded to earlier, like the human engineering piece is like the hardest problem that we're going to work on. And so when we think about the management teams that we want to work with, are management teams that have been excited about technology that have already to start to put the groundwork on the lay the foundation around driving change. These are going to be small things around being in the cloud like centralizing your data infrastructure. It probably means that you've already started to install Open AI or and or Anthropic across your organization. You're making those efforts. And it tells you a lot about the individual who is willing to go ahead and do that at a point in time where it's still like not obvious to go do.

>> There's a lot of noise about like is there any real ROI on AI today?

>> Yeah, and then also there's a lot of angst and anxiety and understanding, you know, how do you how do you get your employee base excited about the fact that this is where the world is going and we're going to be at the forefront of it. And so, you know, I think Baldwin is a perfect example of that. You have, you know, Trev in Trevor Baldwin an exceptional CEO. Um he was early in terms of driving Anthropic end to end within Baldwin. Um they are on a single instance of um Applied Epic which is your AMS uh which is functionally called the core operating system in the insurance broker. And these are not easy things to do. It takes a lot of intent kind of investments and change to go and do that. And so, when we think about what is it that we look for in management teams, it's exactly that. Are you great at what you do on the field?

And then two, have you already been driving the change in terms of adopting technology and and leaning into what's possible today?

>> I remember when we first uh started talking about the sequence thesis, I um I was actually like a little mixed on the idea of roll-ups. So, I I just said like, "Hey, you know, there's the technology piece. There is change management. There is operating the actual company, and then there's underwriting. Um and then there's deal making, right? There's like there's a lot of pieces go I I believe that this is the this is a way that enormous businesses can change and go win industries. And then I think it's much much harder than people think, and I think it's better at scale. And I I remember you describe you and Alex describe that to me much more clearly where they're like, "Actually, we think change management and operating the business is going to be the hardest part and we have to assemble the team to go attack it, but we're also going to partner with people." And as a as a zero-to-one venture person, I'm like, "Ah, with incumbents?" But I I uh I now believe that is the correct path.

With the right management teams, of course. What have you actually already accomplished at the bank, if anything, and then what is giving you confidence on um doing this at more scale?

>> Yeah, as I mentioned earlier, you know, you know, post investing in March, um we took a giant step back and we thought about, as we look forward over the next decade, what is like the leading community bank look like? And so, if you break down a community bank into its simplest parts, it has three parts of the business. You have a part of the organization that hunts for deposits, you have a part of the organization that hunts for loans, and then you have the core apparatus in the middle today that works very closely around how do we underwrite deep underwrite loans, and then and ensure that, you know, we're giving loans to the right people in the community such that we're servicing the community in the right way, but we're also creating kind of the right economic model for banks out. Um if you think about what we have done today, is if you think about your average bank, historically speaking, loan volumes grow linearly with call it middle and back office head count for no other reason than the fact that like processing a loan is a complex endeavor and it does require a lot of individuals to be involved as a part of that process.

What we have spent a lot of time on since we've gotten involved with the bank is how do we not only improve underwriting, but how how do we ensure that all the people at the organization are focused on the things that they're best at. And so, how do we get the underwriting team to stop spending time in terms of inputting numbers, but spending much more time on loans that have exceptions? What we've done since we got involved with the bank from since March, and so it's been call it roughly 6 months since we first invested, what we've done now today is we've built the system that can take take on all consumer loans within the organization. So, the average consumer underwriting today has decreased by 94% since we got started in March. Um another good example of kind of what we've done

>> Sorry, the timeline.

>> The timeline. So, that's really a powerful. We've started to roll out commercial loans underwriting over the last few months and we functionally have taken the average loan at the bank, which used to take 30 days to go go end-to-end to 11 days. Um I share that to say that why is that powerful and why does it matter? Is that fun fundamentally what we've done with the tools is that we've allowed the organization to be able to take on a significantly more loan volume than it was ever possible before with the same amount of headcount. This is purely luck. I'm not going to say Sequence had anything to do with this, but in Q2 of this year relative to Q1, loan volumes doubled at the bank. Historically, the bank would actually turn away business and that like the middle and back office, you know, while the everyone is working really hard has limits to how much bandwidth that they can take on.

Um given the systems that we've built, actually the bank was actually able to handle all the loan volume, not change their underwriting standards at all. In fact, where it was able to do this with a significantly smaller underwriting team than what had existed prior to our investment. And reason why the underwriting team is smaller is one person retired and one person out moved into the front office. And I think that's just exemplary of kind of what is it that we do, which is like how do we ensure that the right people are in the right places? How do we get them to work on the things that they enjoy working on? And how do we allow the organization to do more with less? And what that has resulted in is that every individual at the at the bank today gets to spend time on what they do best. Loan officers are spending more time in the field versus writing credit memos. The credit underwriters are working on the hardest and most complex loans versus thinking about how do I figure out whether or not we should issue a loan for a boat when the person already clearly has enough money.

And that's what we've achieved at the bank so far. And as we look forward, we think we've laid the foundation for what should be a really exciting road map ahead around spinning up new products and new businesses, um giving new tools to the loan officers and relationship managers such that they can sell more products. And then how do we start to think about delivering a differentiated customer experience that no one else in the industry can do?

>> So, when we met, you were leaving the privates business at Lone Pine, uh career investor. Uh what is the biggest surprise or realization having started a company?

>> You know, I get asked this question from friends of mine in the investing business and you know, maybe like if you had to take a giant step back, the level of empathy I have for founders today versus even when I was running the privates business at Lone Pine is like just night and day. It is it is remarkable to see people take an idea and build it from nothing to something. Um it is not easy to attract people to come join you on your journey. It's not easy to attract capital to join join you on this journey. Um but it's exceptionally fun and rewarding. And I have an an immense amount of gratitude to the people who supported us at the beginning like yourself, like Joe and Dru at DTVC, um and to all of our early employees. And you know, what I'd say is that it's a it's a it's the highs are highs, the lows are low. There are days where it's extremely exceptionally lonely, but I could not be having more fun. And all I have to say is that everything that Elon and Jensen talk about in terms of being exceptionally painful is exceptionally true.

But, um it's been a lot of fun.

>> I love this partnership of equals, Sequence Holdings and the Dell family office. Tell me about how this happened.

>> It's a great story. Um you know, as you can imagine in a take private scenario, um you do need to have certainty of capital. And as ambitious as we are and as amazing our partners are, um most people don't have billions of dollars around to support an equity commitment letter for a take private. And so, you know, we started spending time with a number of partners in the market to think about approaching Baldwin together around kind of exploring the thesis that we brought to bear. We got introduced to the Dell family office. Um and, you know, I have to give Michael Dell, Dan Betar, who's the head of global direct investing, a tremendous amount of credit for working closely with us to underwrite the deal. Um underwrite our technology platform, our technology transformation motion, and supporting us in this transaction.

Um they've been wonderful partners to us. Uh we are going to be co-controlling this Baldwin together, and we expect to be partners for a long time.

>> So, you have been a private markets investor, a publics investor, um an operator, you know, I guess you know what you're doing take private. How do you [clears throat] think your career uh has affected like the way you predict markets, the way you look at markets, and and um the unrolling of this technology?

>> You know, I think I've been very fortunate in my career to have the opportunity to wear a lot of different hats and learn the different, call it, crafts of investing. You know, so I worked at Goldman coming out of college. I went to go work at Apollo, which was just like an awesome experience learning how do you structure a deal, how do you think rigorously around capital structures, how do you understand credit agreements and documents, how do you design management incentive plans, and like really learn the blocking and tackling of like private equity. Um the opportunity to go to Lone Pine was really an opportunity to start to study the best companies in the world. You know, what's amazing about Lone Pine and working in an organization that gets to look at the full public company universe and have the difficult challenge of figuring out what are the best companies in the world is just an amazing aperture to learn.

Right? Like why what makes Nvidia great? What makes Microsoft great? What makes Visa great? And I think you learn you know, this may be an overused term today, like a real taste for like what is a great business. And then you also learn to appreciate the benefits of long-term compounding. And that was a really, really powerful kind of 5 years that I did at Lone Pine around studying the greatest companies in the world and like really deeply internalizing that the greatest companies in the world compound at rates that no one ever thinks that they can. The opportunity to kind of go and build out the private investing business at Lone Pine was really an opportunity to start to spend time at the frontier of technology. Spending time with founders, working on really hard problems that like other people didn't really see.

Um seeing what it takes for someone to will something to not from nothing to something. And then really getting really, really deep in terms of understanding where technology is taking the world. And so if I were to reflect on like how and why I think about the world that I do, it's it's kind of the amalgamation of these experiences which was like, how do I think about kind of an ownership the benefits of ownership. How do I think about that with the taste of what is a great business and having a real appreciation for the benefits of long-term compounding with like man, like here's what's possible if you marry that with world-class engineering and frontier technology. And like I think that's, you know, the that experience that is really what colors how we think about investing here at Sequence Holdings which is like, how do we marry kind of all the skill sets in the best of what I think are kind of the key domains for my invest investing career.

>> You've never um been officially an early-stage venture capitalist. What do you think that this class of asset managers misses?

>> If I were to take a giant step back and if I were to like rethink like how I would have approach private investing today if if I were ever to go back into it, which I I but is just finding exceptional people working on hard problems in big markets. If I've learned anything in terms of my experience at Sequoia, spending time with other founders today, is that like ideas are cheap and execution is really hard. And like truly exceptional people will always figure out to make something work. And that maybe because they bring someone on board that highlights a weakness that they have. Um it may be that they're able to with enough persistence get the right people to come support them on something that everyone else thinks is crazy. And so if I were to go back and do it again, I think betting on exceptional people is the kind of the only thing that matters. Like I just think that the vast majority of other things, whether it's the greatest idea I've ever seen, like the greatest hot hottest traction you have seen in a little short period of time, like I think are important signals. But at the end of the day, this is a people business, particularly early on, and people working on who are highly

ambitious on really hard problems that are in very large markets, you should back them all the time, even if it seems crazy. Cuz I think the, you know, the upside convexity of backing those people largely offset kind of the rest.

>> That's a very Isn't that the most purest venture attitude?

>> I think that's exactly right.

>> Mr. Michael Lee, private equity and public markets guy, is saying back great people in huge markets.

>> That's exactly right. I think that's the name of the game. I think that's also true in public markets as well. Like if I think back and I reflect on like the best investments that we've made at Lone Pine, if I think about the the best companies I've been in the market today, it's been like go find exceptional people. Like I think the best example of that is like I remember meeting Jensen Huang in 2017. It's kind of crazy to think at the time, like today, that like it wasn't what it is today. And he has been remarkably consistent. Clarity of thought, incredible execution, been able to surround himself with the smartest people in the world who are extremely loyal, and has constantly figured out ways to kind of refound his business to compete in a ever-changing market.

And find exceptional people working in big markets and I think whether it's early stage or late stage, I think most people will be surprised to the upside in terms of how that always plays out.

>> That's a great note to end on. Thanks so much, Michael.

>> Thanks for having me.

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