At The Cash: At The Cash: Investing in Founder-Led Firms Michael Monahan (September 16, 2026)
How can unusual buyers entry funds of corporations led by founders? Enter the Founders 100 ETF (FFF).
Full transcript under.
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About this week’s visitor:
Michael Monahan is a associate and portfolio supervisor of the Founders 100 ETF (FFF). He’s been a Wall Avenue analyst, a non-public market investor, a tech startup CEO, and a public fairness portfolio supervisor.
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Transcript: On the Cash: Michael Monaghan
BARRY RITHOLTZ: Must you spend money on corporations led by founders? Peter Thiel’s VC Founders Fund has over $20 billion and produced glorious returns. How can unusual buyers get entry to funds of corporations headed by founders? To assist us unpack all of this and what it’d imply on your portfolio, let’s usher in Michael Monaghan. He’s a associate and portfolio supervisor of the Founders 100 ETF, inventory image FFF. He’s additionally been a Wall Avenue analyst, a non-public market investor, a tech startup CEO, and a public fairness portfolio supervisor in his profession. So, Michael, let’s simply begin with the fundamentals. What’s the central thesis behind the Founders 100 ETF? Why ought to founder-led corporations outperform even after they’ve change into giant public corporations?
MICHAEL MONAGHAN: Barry, thanks for having me. The information exhibits that founders outperform by about 3X. We checked out 11,000 shares over 30 years, and on common, founder-led corporations develop 4% higher than the S&P.
BARRY RITHOLTZ: Wow. So let’s keep targeted on that 3X. I consider that was Bain analysis, that founder-led corporations are likely to outperform different corporations. What’s it that drives that 3 times outperformance? Is it that founder-led corporations are typically closely represented within the expertise sector? Is it a perform of age or dimension, or is that this simply survivorship bias?
MICHAEL MONAGHAN: We’ve received corporations led by founders all throughout the economic system, so it’s not only a focus in expertise, though there are a number of expertise corporations which are led by founders. We don’t assume it’s survivorship bias. We expect that founders convey one thing actually distinctive. They’ve the imaginative and prescient to see the place to go. They’ve the execution to execute that plan they’ve envisioned. They’ve the charisma to construct an enormous workforce round them, and so they’ve received the grit to get by means of the arduous instances, mixed with the truth that they assume in many years, the place a board-hired CEO is simply attempting to make the following quarter and the following PowerPoint presentation for the board.
BARRY RITHOLTZ: How a lot of this is because of the truth that, hey, in case you’re going to start out a brand new firm from scratch, by definition you’re a risk-taker. How a lot of the outperformance of founder-led corporations is solely simply embracing that greater tolerance for threat?
MICHAEL MONAGHAN: I don’t know if that’s the issue that’s exhibiting it. I feel in case you dig in, a number of these guys are profitable as a result of they de-risk all alongside the trail, proper? So in case you hearken to, say, a Marc Andreessen, he talks about on the zero stage and the one stage and the 2 stage, it’s all about de-risking the issue as you progress alongside. So I might gently say that I feel founders de-risk their enterprise much more than non-founders.
BARRY RITHOLTZ: Actually attention-grabbing. And also you your self are a founder. Your startup was Beartooth Radio. It didn’t essentially discover an exit, however I’m curious, how did that have of standing up an organization from scratch have an effect on your view of founder-led companies?
MICHAEL MONAGHAN: I feel it fully reframed how I take into consideration constructing an organization. I had spent the primary 15 years of my life working for nice corporations. I labored at Goldman Sachs, I labored at Sanford Bernstein. However there’s an enormous distinction between working at a world-class group the place you match into their system, and constructing your individual system from zero to at least one. I used to be lucky sufficient to get publicity to a few of these actually good expertise founders, and simply noticed how in a different way they thought, how passionate they have been, how they introduced imaginative and prescient that company managers didn’t have.
BARRY RITHOLTZ: So let’s zoom in on that. How do you outline a founder? Should the person have truly began the unique enterprise, or do you embody anybody who maybe acquired or reinvented or merged with or successfully refounded an already present firm?
MICHAEL MONAGHAN: So we outline founder-led as the unique founder — that’s the one that began the corporate — nonetheless operating it, most frequently because the chief government officer. Sometimes it’ll be the chief expertise officer, or within the case of a medical or scientific firm, it might be the chief medical or chief scientific officer. So it’s the chief officer operating the corporate day-to-day. We appeared on the information. Board member doesn’t have the efficacy we would like. Chairman doesn’t have the efficacy. It’s provided that the founder’s sitting within the seat day by day operating the corporate.
BARRY RITHOLTZ: And a few classifications are actually simple. Clearly Michael Dell based Dell Computer systems, Zuckerberg at Fb. What do you do with the extra ambiguous circumstances? And I feel in all probability the most important one is Elon Musk, who was an investor, not an unique founding father of Tesla. There are debates in regards to the merger with PayPal. We may speak about SpaceX. How do you draw the traces there? You’re actually much less within the technical founding subject than the driving animus of the corporate. Is that a great way to differentiate it?
MICHAEL MONAGHAN: I feel that’s honest. Now we have a rigorous course of to determine, and also you and I can hit a few edge circumstances. However we glance to see who the unique founder is. More often than not it’s clear-cut. Typically it’s not, after which we’ve got to dig in. Now we have to say, who does the corporate outline because the founder? Elon’s an excellent one to look at, as a result of for some purpose there’s controversy as as to if he’s the precise founder. We dug in and did the arduous work. The corporate defines him because the founder, and actually it was both 2012 or 2014, there was a court docket case the place this was truly settled, and Elon Musk is among the 5 unique founders of the Tesla Motor Firm.
BARRY RITHOLTZ: I might modify that to say Elon wasn’t the unique founder, however as soon as he took over, he so completely revamped the corporate that it seems nothing just like the prior enterprise. So is there any purpose to separate hairs with that? However identical type of factor with PayPal or SpaceX. How do you concentrate on these two?
MICHAEL MONAGHAN: So I feel SpaceX, he clearly was the founder. I don’t assume anybody else lays declare to it, proper? PayPal was the merger of a few entities. It was the unique X entity that Elon was constructing merged into Peter Thiel’s firm. However there are edge circumstances. Berkshire Hathaway is a superb instance. I don’t assume anybody would doubt that Mr. Buffett was the founding father of Berkshire, however he purchased a failing textile firm as a part of a large acquisition, and that firm that acquired that and lots of different issues — he’s the founding father of. And Monster Beverage is form of the identical method. They acquired a juice firm, but it surely was actually the power drink firm and the opposite acquisitions they made that’s the founding of the Monster Beverage firm.
BARRY RITHOLTZ: Yeah, that makes an entire lot of sense. So amongst your present holdings, you’ve founders like Alex Karp of Palantir, Larry Fink at BlackRock, Marc Rowan at Apollo. Every of these corporations had a number of co-founders. How related should the person who stays be to the corporate, to its strategic imaginative and prescient — to essentially be its dominant pressure?
MICHAEL MONAGHAN: You realize, our check is: have been they an unique co-founder? And we regularly look to the corporate to outline it. A lot of the corporations of their origin story or their historical past will listing who the unique co-founders are. So long as at the very least one stays as an government, that meets our check.
BARRY RITHOLTZ: So now we take the listing of nonetheless many founder-led corporations there are — I feel it was 11,000. You’re going to interrupt that all the way down to a listing of 100. What are the underlying standards that decide which of these hundreds and hundreds of founder-led corporations find yourself within the 100 which are in FFF?
MICHAEL MONAGHAN: Actually nice query. So we checked out 11,000 shares over 30 years, and through that 30-year time interval, there are about 800 founder-led shares at anyone time. So within the present market, there are about 800 founder-led shares. From there, we have a look at the 200 largest by market capitalization. After which my co-founder and I come from a basic background, particularly her. She’s a classically educated Columbia Enterprise College worth investor. We construct a valuation mannequin, utilizing some components, to choose what we then consider are the 100 finest out of the 200 largest.
BARRY RITHOLTZ: Attention-grabbing. And I’m your largest holdings: Meta, Nvidia, Oracle, Palantir, Dell, Arista, and CrowdStrike. A whole lot of it is a heavy overlap with expertise, AI, excessive development, large cap corporations. Why go along with a founders fund as a substitute of only a easy Nasdaq 100?
MICHAEL MONAGHAN: Now we have very totally different exposures than the Nasdaq 100. We’ve received about 80% lively share versus the Nasdaq 100. We’ve received a lot greater publicity to founders — 100% founders versus about 20% of the Nasdaq 100 — and it’s a unique portfolio development. The Nasdaq 100 is restricted to solely Nasdaq shares, and there’s clearly extremely excessive development in tech and out-of-tech shares on the NYSE. And we really feel like we’ve received just a little higher unfold throughout the economic system. Proper now, the Nasdaq 100 is 30% uncovered to semiconductors, the S&P at 20, and we’re solely at 10. So we do have publicity to expertise, however we actually are bent throughout all the curve. We’re not considerably obese versus, say, the S&P. We’re barely obese, however I don’t assume we’re massively obese versus the S&P.
BARRY RITHOLTZ: Yeah, I used to be wanting by means of your holdings and I noticed a number of industrials and power and financials, which you don’t essentially see within the Nasdaq 100. However I’m glad you talked about the 80% lively share. So many ETFs I have a look at find yourself being closet indexers. That is actually a really concentrated portfolio, with the highest 10 holdings actually accounting for an enormous chunk of your publicity. How a lot of what drives the efficiency of that is actually only a conviction technique — a concentrated portfolio with an extended tail of sub-1% holdings? Inform us in regards to the focus, and in addition inform us, why do you’ve the remainder of these small holdings? They’re virtually like placekeepers to keep watch over.
MICHAEL MONAGHAN: So we run a modified market cap weighting. That’s, we take the market cap and we enable that to outline how a lot place dimension we’re going to take for every place. The explanation we modify it’s we put a tough cap of seven.5%. So we rebalance quarterly — each quarter we reset the portfolio. We don’t take any single place greater than 7.5%, as a result of we need to have some diversification within the portfolio. That’s the place we provide you with the weightings. And the explanation we find yourself with a few of these smaller weights on the backside, it’s simply outlined by the place they’re on a free float market cap.
What I might let you know, Barry, it’s actually attention-grabbing. There’ll be days I get up, I have a look at our portfolio, our prime holdings are down, and the portfolio’s truly up, as a result of these different 75 to 80 shares that make up the steadiness — 50% — they drive generally when the large guys aren’t working. So it’s type of simply — we enable the market capitalization to set our place sizes.
BARRY RITHOLTZ: All proper, so now we all know the factors for choice, the factors for weighting. Let’s speak about probably the most difficult side of managing a portfolio: the promote self-discipline. What leads you to taking an organization out of the portfolio? Is it simply one thing so simple as the founder leaving, or do you additionally run by means of working parameters and different fundamentals? And when instantly you’re beginning to assume, “Hey, this firm doesn’t have the expansion prospects we have been hoping for,” is {that a} foundation for ejecting them, or is it quite a lot of issues?
MICHAEL MONAGHAN: The primary purpose we’d promote a inventory is that if the founder leaves. So within the prospectus, we state that if a founder pronounces their resignation, we are going to promote inside 90 days of that announcement. So we don’t watch for them to really depart — we’d promote on the announcement. The second method a inventory would get bought is that if the basic overlay flags a situation that claims to promote the inventory. One of many methods we like to explain the basic overlay — it was constructed by my associate — it’s actually searching for what she calls burnt pizza crust. We expect all of our founders could make nice pizza. We don’t need to inform them whether or not to make pepperoni or margherita. The issue seems and it says, are one in every of these crusts getting burnt? And in that case, we’ll slide it out and convey within the subsequent finest firm.
BARRY RITHOLTZ: Actually attention-grabbing. So to wrap up: in case you’re keen on a enterprise fund like Peter Thiel’s Founders Fund, however you don’t have 1 / 4 billion {dollars} to achieve entry to it, think about the Founders 100 ETF, inventory image FFF. Pay attention to the truth that it is a concentrated portfolio with a excessive lively share, and it might not carry out equally to the S&P 500 or the Nasdaq, however it’s concentrated, and it focuses on corporations being led by the unique founders.
I’m Barry Ritholtz. You’re listening to Bloomberg’s On the Cash.
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