Marty Chavez, Part 2
Investor, Entrepreneur, & Technologist
I would think of that time being CEO as the time when I lost or gave up all the illusions I had about myself, about why customers buy the things they buy, about why companies build the products they build, and how they build the products.
Summary
On this episode of “Leadership Matters,” Marty Chavez follows on his previous conversation with Alan and expands upon some other key themes of his career, including his time as CEO of Kiodex, the advice he has to offer to entrepreneurs, and why he thoroughly enjoys his work at Sixth Street Partners. While Marty is through making predictions about the future — he’s often struggled with nailing the right timing — his discussion with Alan includes some insightful thoughts about the current trajectory of AI, digital assets like cryptocurrencies, and the consequences of not understanding what customers actually need. Most of today’s tech founders have never weathered a contractionary market, Marty shares, and should be sanguine about the possibility their products and team end up in a new corporate structure. An idea that truly meet the moment will ultimately find a home, but that home might differ from the one in which it currently sits.
Mentions & Resources in this Episode
The Hard Thing About Hard Things: Building a Business When There are No Easy Answers, by Ben Horowitz
Guest Bio
R. Martin (“Marty”) Chavez, Ph.D. is widely renowned as a trailblazer and leader who turned the Wall Street trading business into a software business, revolutionizing the way that capital moves and works. He is a partner and vice chairman of Sixth Street Partners, where he works on research and development; diversity, equity, and inclusion; the sourcing engine; and the More Than Capital business, driving deeper engagement with the portfolio companies. Before joining Sixth Street, Marty served in a variety of senior roles at Goldman Sachs, including Chief Information Officer, where he oversaw the firm’s 9,000 engineers; Chief Financial Officer; and global co-head of the firm’s Securities (now Global Markets) Division. Marty was also a partner and member of the Goldman Sachs management committee.
Marty has achieved singular acclaim in the financial-services industry for his work on SecDB, an early platform that transformed the trading business into a software business. He is also known for bringing the front and back offices together. By training, he is a computer scientist who successfully advocated for the elevation of engineers. Yet Marty is also a highly regarded investor in his own right, leveraging his background in machine learning to push the industry forward.
Far from the stereotype of a banker, Marty is a disrupter at heart. He was among the most senior Latinos on Wall Street, as well as the most senior openly gay executive at Goldman Sachs. In 2016, a New York Times profile described Marty as “a departure in sensibility from the buttoned-down partners of Goldman lore.”
Adept in both Wall Street and Silicon Valley, Marty co-founded San Francisco start-up, Quorum Software Systems. Later, he was CEO of Kiodex, a New York risk management systems company that SunGard Data Systems acquired in 2004.
Beyond finance, Marty has long held a passion for converging the life sciences and software, and has an eye for new applications of AI and technology that will transform industries. Since retiring from Goldman Sachs, Marty serves as an advisor and board member to multiple startups and projects that are accelerating breakthroughs in their fields.
Marty serves on the Board of Directors of Alphabet Inc. (NASDAQ:GOOG). In addition, he chairs the Board of Directors of Recursion Pharmaceuticals Inc (NASDAQ:RXRX), a digital biology company industrializing drug discovery by harnessing the power of cloud-based machine learning models. He advises numerous other companies, including Abacus.AI, an AI startup developing new approaches to deep learning; Cambrian Biopharma, a distributed drug discovery company developing medicines to extend healthy lifespans; Earli, which delivers new technologies for identifying and localizing early-stage cancers; and Ketch, which delivers responsive infrastructure for compliance and data security.
Marty serves on the Board of Directors of the Broad Institute of MIT and Harvard, the Stanford Medicine Board of Fellows, and the Board of Directors of the Los Angeles Philharmonic. Previously, he served on the Board of Overseers of Harvard University (and as President for the 2020-2021 academic year). He also served on the board of directors of Grupo Santander; the Institute for Advanced Study, the International Swaps and Derivatives Association (ISDA), Paige.AI, PNM Resources, Inc., and Sema4. A passionate patron of the arts, he has served on the boards of the Friends of the High Line, amFAR (the Foundation for AIDS Research), and the Santa Fe Opera. Marty resides in the Berkshires, and is the proud father of two.
He holds an A.B. (1985) magna cum laude in Biochemical Sciences and an S.M. (1985) in Computer Science from Harvard, and a Ph.D. (1990) in Medical Information Sciences from Stanford (Architectures and Algorithms for Probabilistic Expert Systems).
Clips from this Episode
Episode Transcription
Alan Fleischmann
This week on “Leadership Matters,” I'm thrilled to welcome back to the show an amazing investor, pioneering technologist, inspirational leader, and a dear friend. Partner and vice chairman at Sixth Street Partners. Marty Chavez is a Wall Street veteran who revolutionized the role of computer science and engineering in finance. Marty has had a fascinating varied career, including more than two decades of work in the leadership of Goldman Sachs, where he held a variety of key positions across many titles and job descriptions. Marty has blazed the trail for gay and Latino executives on Wall Street and helped to reinvent the role of data science in finance.
During his last appearance on “Leadership Matters,” Marty and I did a full, deep dive into his family background, his remarkable educational journey, and the revolutionary work he did bringing computer driven quantitative analysis to Wall Street. On this second appearance today, I look forward to building on these themes and also discussing Marty's time as an entrepreneur, his work at Sixth Street, and his leadership as a DEI pioneer.
Marty, welcome back to “Leadership Matters.” It is such a pleasure to have you join us today. It will be part two of our interview with you.
Marty Chavez
Thank you for that extremely gracious and kind introduction. I'm very happy to be here and be back.
Alan Fleischmann
We are so excited to have you. Last episode, we left off with your impressive early career at Goldman. I'd like to spend a couple of minutes talking about your startup, Kiodex.
Marty Chavez
It was actually “Kai-o-dex.” That was always a problem with the name.
Alan Fleischmann
It was launched in difficult circumstances, right as the dotcom bubble was bursting. What was your time at the company like? Tell us a little bit about that period.
Marty Chavez
Well, timing is everything, right? So it was launched at an incredibly easy time, except the easy time ended two weeks after the launch. So I think the best way to explain it was, it was full-on dotcom boom at the time that I raised the seed financing for Kiodex. And really, it seemed like just days after the round closed when one started to hear about valuations crashing back to Earth. These things happen pretty fast, and certainly earlier this year, there's been echoes. I've got nothing but flashbacks to 20-plus years ago when I started Kiodex, as we see what's happened to startup valuations and startup financing right now.
So, incredible boom, ended rapidly. And I would say, everything after that was a long slog. It started off with a lot of excitement, and “Oh, this is going to be fun.” Maybe with a little voice in my head telling me this isn't going to be that hard. Well, that all stopped. The music stopped almost immediately, and then we just had the work of every company, which is building a real product that real customers willingly pay cash money for when all the hype and all the mania has gone away,
I learned something really, really important, which is, to a first approximation, customers will pay for your product only when they have urgent pain, unbearable pain, and you have convinced them that only your product can stop the pain. If that is the case, you've got to sale. Everything else is just getting lucky. Sometimes, animal spirits are such that everybody's buying this product because everybody else is buying the product, and it's all circular. But when all that goes away, you have to build something not just that people want, but suddenly, that people have to have. It was an incredible learning experience.
So I'd say, really, almost all the important, hard things I learned, I learned in that time. It was really the first time in my life when I didn't get what I wanted. Didn't get it at all. Really, got the opposite of what I wanted. It's a cliche I suppose, right? You don't actually learn that much from your successes; they just tend to reinforce the little voice in your head that tells you that you're awesome. But when things don't go well, there's an opportunity for change, an opportunity for growth, an opportunity for learning.
Alan Fleischmann
How long were you CEO of Kiodex?
Marty Chavez
I was CEO for four years, which I still view as the longest four years of my life. There's a friend that I really admire, Marc Andreessen, whose colleague wrote a wonderful book called The Hard Thing About Hard Things, and it's about building a company. So it's hard being an entrepreneur. There are times when it can feel easy and the world's just rushing to give you money, the world's just rushing to buy your product. But those times are generally an illusion. When those illusions go away, you've just got the hard work of building a company. Marc Andreessen famously said, “Being an entrepreneurs is like chewing glass, and being a successful entrepreneur means that you enjoy the taste of your own blood as you chew your glass.” When I think back to my Kiodex experience, that's exactly how I think about it. It was it was chewing glass, and a lot of blood.
Alan Fleischmann
That's a wonderful analogy, actually.
You had served in senior positions at that point that when you joined and became CEO of Kiodex. You had been at Goldman, you had been at Credit Suisse. What was it like to be CEO? Obviously, it sounds like a lot of that journey must have been a little lonely at times.
Marty Chavez
To put it to put it in perspective, Alan, I didn't really have a senior position at Goldman Sachs or Credit Suisse. I had a senior-sounding title, that's a Wall Street thing. I was a vice president, right. And for people who aren't in Wall Street, they often assume that I must be hanging out with my boss, the president, but actually, there are thousands and thousands of vice presidents at Goldman Sachs at Credit Suisse. It is, as I understand it, because the titles have been around from way before I got to Wall Street. It's a legacy from the early days of investment banking, when the partner in the investment bank would be talking with the CEO of a company — that was part of M&A. The people who worked for the partners would be talking with the vice presidents of those companies that were doing M&A, so to command respect, they needed to have a vice president title too — vice presidents talking to vice presidents. So that's how you ended up with, with so many of them.
The transition to CEO of a very small company, that was… I don't know if seniority is maybe the right term, maybe but accountability. I was the central point of accountability. Is this company going to do something valuable with the investors’ money? Is this company going to build a product or service that the clients really want? If that happens, the CEO has done a great job. Otherwise, the CEO has done a terrible job.
I would think of that time being CEO as the time when I lost and/or gave up all the illusions I had about myself, about why customers buy the things they buy, about why companies build the products they build, and how they build the products. I learned, for instance, that I had a bunch of ideas about how the product should be built and I was really passionate about some of those ideas. They made it into the product, because I was the CEO, and then the customer said, “Oh, well, that's really lovely and interesting that you built that feature. That's not what I want. I want this other thing.” I would think, “Well, this other thing doesn't sound right at all. It actually sounds kind of broken, like the wrong way to do things.” It's what the customers want, and that's what customers pay for. So in that very particular sense, the customer is always right. I learned that too.
I learned, I think most importantly, something that our lead financial sponsor, Warburg Pincus, taught me, which that discipline… They introduced it, and in retrospect it is such an obvious discipline, but it's so important. I always share this with entrepreneurs, especially people who are entrepreneurs for the first time: every company needs an execution plan, not a strategy document. Not lots of words, but a simple spreadsheet that has your bank account balance at different points in time. And, sadly, there's only a couple of ways for your company's bank account balance to increase. One of them is because you sold little pieces of imaginary paper called stock in your company, and investors, for some reason, sent you cash in return for these pieces of paper — that now are not even pieces of paper, they're all just booked on Carta. So that's one way to get money into your bank account. Another way is through partnerships, potentially. And the best way by far is because a customer paid you money for your product or service.
So those are the ways money causes your bank account to go up. And there's about a million ways for your bank account balance to go down. You’re paying salaries, being bonuses, paying rent, paying all of these things. So, what is your bank account balance today? What's it going to be next month, and the month after that, off into the future? What's the day that your bank account balance goes negative? Because that's not allowed. The day your bank account goes negative is the day all of your employees quit because you didn't meet payroll. And that's the end of the company, right? And people will say, “Well, I don't know if my balance is gonna go up or down.” Of course you don't. But you can build a model. There are assumptions. When does your first customer arrive? How fast after that do new customers arrive? What's the price point for your product? Based on that, you can start to find the drivers, and usually, the drivers are pretty obvious. If your company’s product takes a year later to make than you thought, and the first cash from customers arrives a year later than you thought, that's gonna be really hard on your bank account. If you thought they'd pay $10,000 per seat per year, and they only pay $1,000, that's also going to be really hard on your bank account. So then, you and your investors can turn the knobs on this spreadsheet. What's the price point? When do I get my first paying customer? How many new paying customers per month? It's usually just that, and you can start to see, well, if this these things all go to these extreme values, I'm gonna run out of cash in six months. Well, now would be the time to start raising more cash.
That that very basic discipline, a lot of companies didn't have during the dotcom bust. You read constantly about companies that just went out of existence and one day their employees just didn't get their paychecks. I thought that was really unfortunate, that's really unnecessary. If you have some minimal understanding of your company, you can see your bankruptcy date approaching. It's not like you just wake up one day and find the money isn’t there. Well, that's what happened to a lot of people because nobody was actually steering the ship.
Alan Fleischmann
A lot of people, also, were hoping that ship will come in tomorrow. They were constantly going after people who were going to say “I'm interested.” They were raising money, or trying to, and they just assumed that they would. They lived this overly optimistic bubble in their head.
Marty Chavez
The worst mistake, Alan, that I saw again and again and I've seen it during this recent cycle… This one really gets me going. It’s where entrepreneurs will say, “Well, I don't want to raise money at that price because of dilution.” Dilution. Everybody talks about dilution. Dilution is just a high-class problem compared to the very immediate problem of your bank balance going negative. Dilution is really, really abstract, and the answer to dilution is, well, would you rather have a small percentage of something worth an awful lot, or would you rather have 100% of zero? And people will make some very bad decisions.
So I always tell everybody, raise all the money you can, when you can. Raise as much as you can when you can. “Well, but I want to wait and raise more money later at a higher price, so that I'll have less dilution.” Okay. You may never get to that imaginary day, because the investment climate, when it turns — we see this again and again — it turns on a dime. As Warren Buffett famously said, “When the tide goes out, you can see who is swimming naked.”
Alan Fleischmann
So that must have been an amazing experience. Obviously, that’s why you're such a great adviser to the entrepreneurs that come to you and want you to be on their boards and stuff. You share these real-life experiences of the wisdom that came from watching yourself and your journey, but also others.
Marty Chavez
Absolutely. I'm glad I had that brutal experience, at least I have been there. I haven't been down all the paths that entrepreneurs can go down, but I have seen the investment climate turn in a really radical way, do so really suddenly, and stay dark for a long time. Like for years, right? That's something that this generation of entrepreneurs mostly hasn't seen until right now.
Alan Fleischmann
Because you've been through it and you've seen it, for those who haven't seen it, are you giving advice like, this too shall pass? Buckle down and hold on? In some cases, if you have a worthwhile business with a worthwhile mission and there's demand for it, you will get through it? How do you keep people feeling optimistic and pragmatic?
Marty Chavez
So, nothing goes on forever. The good times don't go on forever, and the bad times don't go on forever. I do not give timeframes. I have noticed that my track record on predictions is excellent if you leave out the timing element; My track record on timing is absolutely abysmal. I might have an amazing prediction of the future, but be off by 10 or 20 years, so the predictions are not that useful. I've learned not to say this investment climate will last for a year or two. You will never hear me say that. I might say it could last for a year, or two, or 10 years, or a week. We really just don't know anything about timing.
The other thing that I encourage entrepreneurs to do in this very hard time is to see the company they're building as a game. It's a really exciting game, it's a high stakes game. There are lots of people who care passionately about the outcome of this game. There are many, many stakeholders. But in the end, it is a game of capitalism. And I don't mean to make light, by any means, of the seriousness of the careers of your employees and the capital of your investors. But you have to detach from the particular outcome, because maybe what happens — this I think is particularly relevant for biotech these days — is that your people, your products, your services, and the intellectual property you're building find a home in a different company. It might need to be restructured and take on a form that's very different from today's form, with you as the CEO and these people in these particular jobs in this particular corporate structure. I think you have to get ready for that, particularly in this time. There's a lot of companies, and they're not are all going to make it. But, maybe the products, the software, and the people will all kind of land in a different configuration that is ultimately where it's where it's supposed to unfold. It just looks a little bit different.
Certainly, if you get very attached to your capitalization table, your share, and your dilution or your lack of dilution, all this stuff can be really, really painful. But if you see it as, “Well, we're just building products that customers want and we might be doing it in this corporate vehicle or a different corporate vehicle,” you're going to you're going to be a lot lighter, and you're going to make better decisions.
Alan Fleischmann
It sounds like, as sophisticated as you are about the most complex things — I've heard you talk about things that blows me away — It sounds like there's a fundamental principle in everything you do: supply and demand. I’ve heard you say it, you say it now. Ultimately, if there is demand for what you're trying to create, then you do all you can to stay alive. But if there's no demand, it kind of goes to that Warren Buffett quote, you can't fake it, you can't hide it. You might be able to hide it during the best of times where money is flowing and everyone's flushed and all that, but during the times when people can get a lot more choosy, a lot more discriminating about the use of capital and the deployment of capital, you can't fake it.
Marty Chavez
Yes, and this is something that we think of all the time at Sixth Street. And I think I'd like to think all investors, at least most investors, think this way, which is: anybody, absolutely anybody, can stand out on a street corner and sell dollar bills for 90 cents on the dollar. You will have unbelievable revenues selling those dollar bills for 90 cents on the dollar. You won't need a lot of marketing: people will hear, “Hey, there's someone standing on the street corner selling actual dollar bills for 90 cents.” But that's not a business. You’ve got to sell something that's worth the dollar for more than a dollar, and that's your profit.
That's really basic. Are the unit economics positive? You can't have a business plan that says, “Well, maybe the unit economics will magically become positive. When I sell enough of them, I'll make it up in volume,” as the old joke goes. No, you don't make up unit economics in volume. That’s the basic principle of the market, and yet, amazingly, there are always ideas that this time, it's different. We’ll sell magic beans, for lots of dollars. I might be talking about crypto there. And, for a while, amazingly, people will give you actual dollars for magic beans. They'll do that right up until the moment that they don't.
Alan Fleischmann
And then you need magic beans to get your magic beans to grow.
Marty Chavez
You find out that your magic beans are worth zero.
Alan Fleischmann
Back to your like your career a little bit too — you've retired a few times, and I laugh at that. It’s almost like when you declare your retirement, the definition of retirement for Marty Chavez is “I'm taking a moment to recalibrate and move on to the next thing.” Your retirement from Kiodex led to your return to Goldman, which you did very successfully and held significant positions. Then your retirement from Goldman led to Sixth Street, which you just mentioned a moment ago. Obviously, they're all different positions and different lines of work. But what draws you to this? Because obviously, you don't do anything you're not passionate about.
Marty Chavez
So, there isn't a standard theme across all these moments of retirement, other than they last about three or four months. Sometimes less. And also, sometimes life gets in the way, right? So when I look at the two most recent retirements, I was, after the Kiodex experience, so fried, frankly. By that by the time I was ready to sell Kiodex, I really wanted to make sure that I had set it up so that it had leaders who would take it to its next level without needing or wanting me in the picture. So it was really important to me to have a closing dinner, say my farewells, and bow out. I remember at that closing dinner, as I heard people talk about the company and about what was next, I had this powerful feeling that I had done my job. That I had shared a way of thinking about the product and the company that was deeply embedded in all the people and truly didn't need me at all. I had made myself redundant.
I did a bunch of things that I'd always wanted to do. It sounds silly now, but I went through all of my compact discs and finally put them in order — labeled and categorized them so I could find them. In the age of Spotify, that all seems kind of pointless, but I did that, and that was important to me. I went to Berlin for a week and I listened to the Berlin Philharmonic every night that they were performing that week, something I'd always wanted to do. I went to Istanbul, where I'd never been. I went to Japan, which I love. I went back to Japan a second time just a few weeks later, just for fun.
I was actually in Tokyo when I got a message from the gentleman who had been my boss at Goldman Sachs, Gary Cohn. He said, “Congratulations, I heard you sold your company. I also heard you retired, which is nonsense. I'm connecting with you to share with you that you're coming back to Goldman Sachs.” So that put a pretty quick end to my retirement. I remember I fell for a standard argument on Wall Street: “Well, you’ve really got to start right now.” Because I said, “I really want to wait a year.” “Oh, no, no, no. We can't wait a year. The opportunity won't be here in a year, we need you to start in January.” This is October. “Otherwise, no.” So that was the end of my first retirement.
My second retirement, I really had, Alan, and you'll know this, every intention of sailing off into the sunset. Being an advisor, a mentor, an investor, being on a couple of boards. That was absolutely the plan, I was 100% sure that was going to happen. Except, you'll also remember the other thing that happens two months after I retired and was, really, already starting to happen just as I was approaching my last day at Goldman — December 31 2019 — was a pandemic. A little pandemic. And the pandemic changed things for a lot of people. It changed things for me. I thought, “So it's a pandemic. I've got two small children. What am I going to do in quarantine, here in a pandemic?” Suddenly, the idea of just being retired with the fun part taken away — I was going to travel the world, take the kids and travel all over the world — well, that was definitely not happening, and it was not happening in any foreseeable timeframe.
So you could say the pandemic put an end to my retirement. The pandemic, plus a phone call from one of my favorite Goldman colleagues in my partner class, Alan Waxman. We were both partners in the 2006 class, and he was someone I always admired. He had a superpower that just wasn't in my skill set at all, which was, as an investor. It turns out that he always admired what he saw as some skills that I had that were very different from his. He called and suggested that I could advise Sixth Street after taking a little noncompete time off away from Goldman Sachs. He said, “But I think you're going to really going to really enjoy the advising. And I think you're going to really want to go all in. “So” — Alan is such a smart guy — “Let's just have one discussion, and it's got two parts. The first part, you advise, and the second part, if we’re both excited about working together, you go all in.”
You know how that ended up, Alan. So I advised Sixth Street for about a minute and enjoyed it so much that I went all in right after that.
Alan Fleischmann
As you describe Sixth Street in your journey, what is it bringing you that you hadn't done before? And what is it allowing you to do that you had done successfully before?
Marty Chavez
So, when I retired from Goldman Sachs in 2019, I went out to dinner with Armen Avanessians. I was an early strat, he's the original, primordial, first strat at Goldman. He invented the term, he invented the concept, he invented all of it, and he hired me. I think I was number twelve, something like that — certainly in the first 20 or so strategists. Data scientists, as the rest of the world would call them. We went out to dinner to just talk about twenty-some years of the software that he really caused to bring into existence and I was one of the early contributors to. All the changes it had created at Goldman and in the industry. I will often tell people, that software is very successful, and that success of that software propelled my success. So I'm just incredibly grateful to have been a part of that project from early on.
Then at dinner, we said, “But, there is one area in Wall Street, one area of white space, which is, private capital — private equity, private credit — where we acknowledged that we had actually done very little, for a variety of reasons. I would say two reasons were… Well, one, we started off in the trading business, kind of the polar extreme of Goldman Sachs, not the investing business. But it wasn't a coincidence that we started in the trading business. One way to think about the difference between trading and investing is, when trading, you're entering into a very large number of relatively simple agreements to buy or sell. Whereas in the investing business, you're typically entering into a relatively smaller number of extremely complicated agreements to buy or sell. So we might have millions, billions of trades in the trading business. And the trades can get complicated, with derivatives and mortgage-backed securities. But many of the trades, such as foreign exchange spot and forward trades, are really conceptually, very simple. Party A pays this many yen to party B, who pays this many dollars to party A on this date at this exchange rate. You’ve just fully described an FX forward trade. Whereas in the investing business, even a scaled investing business such as Sixth Street, you might have hundreds of investments on the books right now, not millions or billions. But each of those investments will be really complicated. Modeling those investments, and then modeling how they behave when you've combined them into funds that are distributing cash flows to all the investors, is a really, very hard problem, completely different from the problem that Armen and I had worked on along with thousands of others in the trading business.
We agreed that it was really exciting. We had this conviction with the software at Goldman Sachs that, if we can build this piece of software, dot dot dot, amazing things will happen. So Arman and I at this dinner said, “If you could build that software for private capital, private equity, and private credit, dot dot dot, amazing things will happen.” Then Alan Waxman came along and said, “I would really, really love to work with you and cause that kind of software to exist in our industry. Really build it the right way here at Sixth Street to help take us to the next level.” It was almost like we talked about it and then manifested it through Alan, who had built a business to a scale… Really Alan, it created, I would say, a unique opportunity in all the planet. Sixth Street was unique in so many ways, because it was like a very big startup. Already, it was a serious business, and therefore had a serious need for software. Whereas a startup private equity business might have a serious need for software, but no real ability to design it or to pay for it. So Sixth Street was in this kind of unbelievable position where also — and this reminds me of the early days of Goldman — some visionary — in the case of Goldman, Lloyd Blankfein, Mark Winckelman, Armen Avanessians, and Mike Dubno — saw the opportunity that software could bring to their business. They weren't sure exactly how it was going to work, but they saw it and they believed it.
Alan Waxman, similarly, wasn't sure exactly what the software was going to do and how it was going to work. But he had absolute conviction that if we built the right software, amazing things would happen. You don't find that kind of conviction very often. Also, Alan and I had this background of relatedness and connectedness from being in the last batch of partners right before the financial crisis. You kind of marched through time with those partners of yours in that partner class. You really keep track of each other, we had an intense shared experience. So finding all of that at Sixth Street was amazing. There was nowhere else where I was going to find somebody that I'd already known for decades and trusted completely who had the same vision that I had about what software could do for the business.
And that, as it turns out, was just for openers at Sixth Street. Because Six Street was a thematic investor, it had already identified and built out some themes, such as data in healthcare, that I had been passionate about since I went to Stanford Medical School a million years ago. Then to discover that Sixth Street had already developed those themes, identified all the companies in the space, developed connections with them, had some convictions about what was going to work and what was not going to work, and I could participate in all of that… That was an exciting opportunity as well.
One of my most trusted lieutenants at Goldman Sachs had also joined Sixth Street — that's Adam Corn as chief information officer. That was also exciting and not something that could be replicated anywhere else. So it was really just the universe saying, “This is this is obviously what you need to do next.” It brings together, for me, everything that I'm excited about and I'm good at, which is life sciences, finance, and software. So in the end, it was one of the easiest decisions I ever made.
Alan Fleischmann
I hear loud and clear that it's the ‘what,’ but it's really also the ‘who.’ Finding the right place where you can really find complexity and the challenges that you look for in your professional life, but also, it sounds like there's no room for it not to be the right ‘who.’
Marty Chavez
I am sure Alan would blush and not approve of my saying it, but really is my intense affinity for, care for, and love for Wax and what he's doing that makes it obviously the right place for me to be. And yeah, you’re right. You could have had all of the same things, but without Alan Waxman and Adam Corn… Yeah. They all go together.
Alan Fleischmann
They all go together, Yeah. You may not have done it.
Marty Chavez
But it's also not a coincidence. Alan Waxman is the kind of man who would create all of these conditions, all of these things that are attractive to me. It's kind of inextricable from him being who he is.
Alan Fleischmann
That's pretty amazing.
So there's a lot of uncertainty out there, obviously, on the financial landscape over the last year. As we entered 2023, what should investors and business leaders be keeping in the front of their minds for this year?
Marty Chavez
Huh. So you know this, Alan: I've been, for some years, been playing a game with Will Frost on CNBC. Whenever I talk with him, he always asks me to make a stock market prediction.
Alan Fleischmann
And you’re like, “No.”
Marty Chavez
Well, I always end with, “Yeah, here we go Will, you’re gonna make me say it yet again. 50% chance it goes up, 50% chance it goes down.” So that's my official stock market prediction for 2023.
At the same time, here are a couple of things on my mind. The central case for 2023 — and the near- to medium-term, let's call it — is a long, slow, hard grind. Hard to raise money and keep building products. Companies are gonna have to combine and reorganize. Not every corporate vehicle is going to make it in its current form. And it's going to take a while. I don't know, that's the more-than-50% forecast for the next period of time, certainly the next year.
There are some smaller probability outcomes on either side of that central case. One of them is, things get really gnarly. Could be Ukraine, it could be really tough winter in Europe. There could be continuing supply chain shortages. Inflation could continue to be the untamable beast. There's stagflation. You can imagine and scare yourself with some of those. Those possibilities are certainly out there in the tail. They're not my central case, but they're there and we're staring at them.
There's also a scenario, maybe a little less probable than the two that I just described, that I'll call peace and love. Everything suddenly gets better. The Ukraine war ends, inflation subsides dramatically, and the boom keeps going. That is a possibility out there.
So let's say those are the macro-economic forecasts, and it's a view that makes sense to me. But I am not a macro economist. So let's talk about some things that are that are a bit closer to my wheelhouse. I'll talk about two things, and you and I have been talking about them for a while. One of them is digital assets. I find it very painful to say the term ‘crypto.’ I love cryptography, it's amazing, but that shorthand is just not the one that I would use. Let's call it digital assets.
I've been saying for a while — a while when it was contrarian and made me really unpopular with a certain crowd — that all of these explorations in the digital asset ecosystem, call it ‘crypto’ if you want to, are super interesting explorations, research projects. There's a lot of learning in there. There's mostly learning about things not to do, there's a little bit of learning about things to do. There is an awful lot of recapitulation of things that people in the traditional financial system have already been learning over the last hundred years. And this is something that I find very troubling about the digital assets world: there is a component of, “We digital literates are going to build something amazing, and you poor, benighted people on Wall Street, you've been doing it all wrong. You don't know how to make software, but we do, and we're gonna do it right.” And they go out and repeat all of the mistakes in finance: on concentration of risk, on segregation of customer assets, you name it. Or just old-school frauds and Ponzi schemes. So there's been all of this exploration, and none of it is investable. Just like many industries, from the meatpacking industry 100 years ago, to commercial aviation, to pharmaceuticals, the right amount of regulation is going to make all the difference.
Alan Fleischmann
You’ve been saying it, by the way… You were among the only ones that was saying it for a while.
Marty Chavez
I mean, you can look at that class I taught at Stanford, “How software ate finance.” I taught it during the pandemic, April of 2020 was the start date. All the lectures are out there, they're on Coursera, they're on my website. So yes, I was saying all this stuff back in 2020.
I think another thing I've said is that ‘stable’ is to ‘stablecoin’ as ‘democratic’ is to ‘Democratic Republic of the Congo.’ The word is there to distract you from the inherent lack of democracy or the lack of stability. Stablecoins are currency pegs, and most currency pegs fail, especially a currency peg where we don't know what's on the other side of the currency peg and we don't know anything about the mechanism to maintain parity, or something close to parity. It's just a confidence game, it’s a game of belief. It's the emperor's new clothes: Until somebody points out that there are no clothes, everybody thinks the clothes are beautiful.
I have been predicting stablecoin collapses. And certainly, a couple of them collapsed in an epic way. Others are still around. But I think all that dust needs to settle and there's going to be some regulation. I don't know that Congress can pass legislation. I do think that the current regulators with the current legislation they have could do a lot more, and I would encourage them to do a lot more. So that's a prediction, but it's not contrarian anymore. There was a time when the crypto bros would say, “Don't regulate us because we're innovating, and you don't want to kill American innovation.” It’s funny but sad seeing those same people saying, “There should have been regulation. If only the regulators hadn't been asleep at the wheel, we wouldn't have had these disasters.” It's crazy to me to hear the same people saying the opposite thing. But anyway, that's going to become the consensus view: please, please, please give us some regulation, because that's the only way that this industry is going to have a future. So that's one prediction.
The other prediction for next year… And this is something I'm very excited about. I've been working on AI for a long time. Like a lot of people, I've had the AI dream, or the AI fever dream, since I was a kid. You live to be old enough, you get to see a few ups and downs. You get to see everything if you're lucky. I remember, about the time I was finishing my PhD in AI at Stanford, we had stopped saying AI. We had stopped using the term because we were embarrassed. You couldn't call what we were actually doing anything close to artificial intelligence. So I remember I retrained myself to say machine learning, which sounded much closer — Like, “Well, they're learning something! They may not be learning much, but they're learning something.”
So having worked in AI, followed it, and invested in it for a very long time, in the last year, I have seen things that have blown me away. I have seen a lot of things in AI that have blown me away. Whether it's AlphaFold, or DALL-E, or ChatGPT, all of these things are incredible. But what's more incredible, Alan, is that every time this year I've seen something incredible, a couple of months later, I've seen something twice as amazing. Then a couple months after that, twice as amazing again. We're in some kind of crazy, super-exponential singularity. A few years ago, you can never have gotten me to talk about artificial general intelligence, so-called AGI. But now I'm thinking about it.
Last night, I did something interesting with the kids’ bedtime stories. We asked the kids to describe a bedtime story that they wanted to read. So we typed into ChatGPT, “Please write a bedtime story suitable for an eight-year-old boy about pterodactyls who swoop up caveman and take them and time travel to Times Square in New York City.” That was exactly what we put into ChatGPT and waited a few seconds. It came up with this beautiful, fascinating five-paragraph story, where the characters had some names and there was some character development and plot development, exactly matching that description. Beautifully written, in perfect English prose. And you know what? If I had said, “and please do it in sonnet form,” it would have done that too. Or, “give me a haiku version of that.” It would do that. This stuff is amazing.
So here is another prediction, which is: the exponential advances in AI will be so remarkable and so deflationary that they materially help the Fed reduce inflation, and at the same time, trigger the next tech boom. So that's my optimistic and just slightly scary prediction for 2023.
Alan Fleischmann
I love that.
In our last moments: you have been a real trailblazer, and you’ve been embracing the fact that you represent diversity and inclusion in many ways. There are a lot of people we know from all sectors who follow your career because they see you as a trailblazer. Certainly, as a Hispanic-American and Latino, as a gay American and someone who is open, you've opened up a lot of doors. As an engineer, I would argue, you’ve opened a bit of the door for engineers with your complex background. How hard has that been, and is that something that you take very much as a priority, personally?
Marty Chavez
I do take it as a as a priority. There's something contrarian about my approach to it. We talked about this, which again, like so many things, goes back to my mother. Which is the view that, as diverse people, we’re diverse but we're not victims. I think that has been really important. I’ve never blamed the majority for any problems or any challenges that I might have. Being gay, being Hispanic, being a computer scientist, software engineer. I always thought, “Okay, so on Wall Street traders rule the roost. Well, I'm just gonna do my thing. I have some conviction about what its value is, and I'm just gonna keep doing it. If I keep doing it for long enough, some cool things will happen. I don't know what those cool things will be. The way I'm going to do it is just by continuous learning, I'm always going to be learning about absolutely everything.” So, that strategy has worked incredibly well. I just have no time at all, nor interest in, what I would call the woke discussion about race, power, and persecution. I’m just not going to debate that, it's not my thing. I am just going to learn, build software, and repeat. And believe what my mom told me, which was that my best way of contributing to other diverse people would be to set a really good example that a lot of people can look at and find some inspiration in. That's going to be much more scalable and much more powerful than anything else that I could say or do. In fact, the words are cheap, it's just much more interesting to say, “Here's what I'm doing. You find it interesting, you can do it too.”
There's a couple other things I'd like to add, maybe a little bit darker — that might or might not be the right term for it. But when it comes to being gay on Wall Street, or in tech or in any other place, people say, “You're such a trailblazer, you're such a pioneer.” I'm always thinking, “Who are they talking about? They must be talking about somebody else, because that's just not the internal experience I have.” The internal experience I have is that, the generation of gay men in big cities who would be a little bit older than me — sort of 60 to 75 — that generation entirely disappeared because of HIV/AIDS. They're just gone. There's just a big gap. Yes, there are some gay men in that age group, but it's a tiny fraction of how many there ought to be, and it's because of HIV/AIDS, this terrible, terrible scourge. So I see myself almost as being an LGBT leader almost by default, right? There just wasn't the generation ahead of me that would have been paving the way. And so, well, there I am. I happen to be gay, I happen to be the particular age I am doing the things that I'm doing.
I mentioned that because, it's wonderful if people see me as a trailblazer and they're inspired by that, but that's not how I see myself. Sometimes, when I think, “Well, maybe I have been effective as a leader when it comes to diversity, equity, and inclusion”… I remember at Goldman Sachs when I retired, the firmwide Hispanic and Latin network and the firmwide LGBTQ network joined up and they had a party. They had a ceremony, a few people said things, it was beautiful and moving. A bunch of people came, and then afterwards, someone came up to me — I don't know that this person, I don't know him — and he said, “Marty, I used to think of you as a trailblazer and as an inspiration. But now, I've decided that you were only a mutation.” He turned around and walked away. I'm just left with that with that cliffhanger.
It's one person's point of view, right? So I don't want to make too much of it. But obviously, it really stuck with me. I hope he's out there hearing this podcast, because I get a little emotional when I think about it. Because it is possible that I just showed up at the right place, at the right time, with the right preparation. I do think about it. I showed up on Wall Street at a time when the AI dream was dying.But finance had a different dream, of building a digital twin of the financial business, that it could afford to pay for, had a need for, and had awareness of its need for. And Armen Avanessians told the headhunter to make a list of entrepreneurs in Silicon Valley with PhDs in computer science from Stanford. I was just on that list, and I was just at the time when a Latino gay guy could actually show up on Wall Street — maybe as long as he was a computer geek, that would be okay — and build some software that actually was useful for the trading business. Got paid and promoted, and joined an incredible, legendary crowd of people — Goldman leaders like, Lloyd Blankfein, Gary Cohn, Harvey Schwartz, Armen Avanessians, and others. And yeah, was just a mutation.
Alan Fleischmann
Not a mutation. With you, as we know from the first time we had the interview, there's someone who shined through at a very, very early age and did things differently, originally. Someone who ambitiously took on things when no young person would have done it, and used the magic of their gifts to actually make things happen. The fact that you do it with such humility is all the more reason why people follow you, like you, and want to hear from you. I think that's really important.
This has been such a pleasure. It's funny, we're ending now at an hour. We had another one, but I could do a third. I bet you that there'll be a demand for third hour, so we're gonna have you back and keep having this conversation. Because you represent so much societally. You think about the complex and try to make it understandable. You do understand that, as with everything when you're given a gift — and you've been given so many guests — there's responsibility. You shine through with new ideas and originality. So I am grateful for this time today.
You've been listening to “Leadership Matters” on SiriusXM and at leadershipmattersshow.com. I'm your host, Alan Fleischman. We've been with Marty Chavez, who's not only investor, an entrepreneur, a technologist, and a senior executive, partner, vice chairman at Sixth Street. He's also a wonderful humanitarian and mentor to so many. We're grateful for the time you spent with us today.
Marty Chavez
It's such a pleasure, Alan. Be well and have a wonderful holiday.