How To Build A Billion Dollar Hedge Fund From Scratch | Dan Rasmussen

Episode Summary

Executive Summary: Dan Rasmussen explains how Verdad Capital was built around a research-driven, history-based investing philosophy that seeks to replicate the key economic drivers of historical private equity returns—small size, leverage, and low valuations—using public markets. He also details Verdad’s lean, outsourced operating model, the firm’s publishing engine, and how authenticity and openness have helped attract investors, while acknowledging mistakes are inevitable and useful feedback improves both research and business development.

Main Topics: Origins of Verdad and the PE replication thesis (Priority: 5/5): Rasmussen describes founding Verdad after studying Bridgewater-style evidence-based investing and concluding that private equity returns historically came from buying small, cheap, levered companies; Verdad aimed to capture those same factors in public equities. Why public markets instead of private equity or venture (Priority: 5/5): He contrasts the appeal of SaaS/VC/Bitcoin in the early 2010s with his contrarian choice to pursue small-cap value and argues that public-market portfolios can mimic the return drivers of classic private equity more transparently and cheaply. Operational philosophy: outsourcing and capital efficiency (Priority: 4/5): Verdad emphasizes a lean structure, outsourcing compliance, middle/back office, and certain data functions, while spending on people and research rather than bureaucracy. Research production and publishing as a business engine (Priority: 5/5): The firm’s weekly research output comes from internal work, investor questions, and exploratory ideas; Rasmussen edits everything, with additional editing from N2 Communications and compliance review before publication. Authentic marketing and investor fit (Priority: 5/5): Rasmussen argues that research is both intellectually honest and a scalable form of relationship-building; rather than targeting everyone, he believes in being himself so the right investors self-select. Compliance, transparency, and regulatory boundaries (Priority: 4/5): He explains that publishing research is compatible with SEC rules when facts are cited and language is careful, and that transparency is generally helpful rather than risky when the intent is educational. Mistakes, persistence, and learning in investing/business building (Priority: 4/5): Rasmussen frames mistakes as inevitable experiments, stressing persistence, iterative learning, and using lower-stakes trials like internships to improve hiring and scaling decisions.

Key Arguments: Verdad’s strategy was built by identifying the historical drivers of private equity outperformance—small company size, leverage, and valuation discounts—and translating them into public-equity portfolios. Private equity’s operational-improvement edge is overstated; its real expertise is in capital-structure engineering, M&A, roll-ups, and leverage, not magic operational fixes. A hedge fund can be launched and scaled more efficiently than many assume by outsourcing non-core functions and prioritizing research and talent over bureaucracy. Publishing research is not just a marketing tactic; it is a credible way to show how a manager thinks, create trust, and attract investors who value empirical evidence. The best fundraising strategy is not broad persuasion but authentic differentiation: tell the truth about what you do, and the right investors will recognize the fit. Compliance concerns are manageable when research is factual, cited, and not deceptive; open discourse is usually beneficial and rarely a true regulatory problem. Mistakes are unavoidable in entrepreneurship and investing; persistence and repetition matter more than avoiding every error from the start.

Data Points: Initial launch capital: $8 million - Rasmussen says he cobbled together roughly this amount to launch Verdad from friends, former bosses, and personal network contacts. Founding period: 2013-2015 - The host references Rasmussen founding Verdad while at Stanford during this period. Private equity leverage: ~60% net debt to enterprise value - Rasmussen describes typical private equity capital structure as materially more levered than public markets. Public market leverage: ~10-15% - He contrasts this with lower leverage common in public equities. Historic PE purchase discount: ~40% discount to public markets - He says PE historically bought private companies at a large valuation discount versus public peers. Interns converted to full-time: 3 or 4 - Rasmussen says only a small number of interns have returned to work full-time at Verdad. Research pieces count: 200+ pieces (2016-2020 manually counted) - The host notes Verdad’s publishing cadence and cumulative volume of research. Annual research output early on: 30+ pieces in 2016 - The host estimates output exceeded 30 in 2016, not yet weekly but already frequent. Research authorship early on: 90% Dan Rasmussen - He says most research writing was initially done by him before broadening across the team. Investor rejection rate assumption: 99 out of 100 say no - Rasmussen frames fundraising as a volume and fit problem, not a precision-targeting problem.

Pivotal Quotes: "I was attracted sadly to small cap value investing, which if you look at the returns of small cap relative to Bitcoin... it was far from the right choice." — Dan Rasmussen: He jokes about the opportunity cost of choosing value investing over the high-flying themes of the early 2010s. "Let’s go buy small, cheap companies with debt in the public markets." — Dan Rasmussen: This is the core strategic insight behind Verdad’s founding and replication of classic private equity drivers. "Just tell people who you are and be conscious of how who you are is different than everybody else." — Dan Rasmussen: He explains his philosophy of authentic, differentiated marketing and investor attraction.

Implications: Listeners should see that strong investing businesses can be built through clear intellectual positioning, disciplined outsourcing, and consistent publishing. For the industry, the episode argues that transparency, empirical research, and authentic differentiation can be a durable edge.