Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Mitchell Green
[00:00:00] S0: If you think about this machine, so we've got this very unique LP base. We do 9,000 calls, 5 to 7 investments per year. [00:00:00] S1: We just raised our seventh fund. It was $3.5 billion. [00:00:00] S0: Okay, so $3.5 billion fund, 2 to 2.5% net MOICs to your investors. So that's the machine. Where do you feel the most tempted to go tinker on the machine for the next decade? How do you hope the machine improves? [00:00:00] S1: As the firm gets bigger, how do you build a culture of teaching people to still be creative, the scrappy hustlers? That's the most important thing. How do we get creative and do CVs? We were doing CVs when nobody wanted to do CVs. We didn't know they were called CVs. We just thought it was paying somebody a profit share. It's continuing to innovate on that. What's really interesting is the secondary markets now for some of these names are so liquid, so actually you almost don't even have to underwrite to this thing going public. It's like, can it just get big enough with enough escape velocity where I can then sell out? [00:00:00] S0: If you think about all the investments you've made in the last 5 years or something, how often are you personally excited about the company and its product?
· Patrick O'Shaughnessy, Mitchell Green
[00:00:00] S0: If you think about all the investments you've made in the last 5 years or something, how often are you personally excited about the company and its product? [00:00:00] S1: Frankly, this is what drives me nuts about a lot of people in the venture capital ecosystem, is they think they're actually changing the world. Which they are, but they think they should tell everybody about it, and they're like doing God's greatest gift to mankind. We don't think that. We love helping entrepreneurs. That is actually what gets me excited and gets us up in the morning. Helping an entrepreneur try to bend the curve and make that customer intro and help find that great CFO, the audit chair, or whatever. We love making customer intros. That's what gets us the most excited. And I think we are still actually just scratching the surface on how we can leverage our LPs. [00:00:00] S0: How often do you control the business? [00:00:00] S1: We are in a control position about a third of the time. [00:00:00] S0: When that's the case, how different is that?
· Patrick O'Shaughnessy, Mitchell Green
[00:00:00] S0: When that's the case, how different is that? [00:00:00] S1: It hopefully should be no different at all, but there's less knuckleheads around the table. There's less people around the table. And what's really interesting is, when you have a lot of different people around the table, you can have a lot of different competing interests. And so it's about building consensus. And you have people that are in one cost base – that's why there's all these 2020, 2021 companies that haven't sold. There's these late-stage guys that are like, "Oh, just get me out. I own the pref, I'll make a 1x today or I'll make a 1x in a decade." But we don't go into companies and say we're replacing the entire management. That's just not what we do. When we invest in a business and when we exit, it's something like 75% of the time, the person who was running the business when we invest is still involved in the company. They may not be running it, but it's like, back people who just want to build awesome businesses and great companies. And it's like, "Listen, if I'm not the right CEO, well then make me the chairman of the board or make me the chief customer officer or make me the chief product officer or whatever." That's what's really important. [00:00:00] S0: I want to go back to the culture thing, the Lead Edge culture I mean. What have you learned about culture in the many years now that you've been doing this, especially given this is the thing that you want to keep nurturing?
· Patrick O'Shaughnessy, Mitchell Green
[00:00:00] S0: I want to go back to the culture thing, the Lead Edge culture I mean. What have you learned about culture in the many years now that you've been doing this, especially given this is the thing that you want to keep nurturing? [00:00:00] S1: I didn't think I appreciated how much culture comes from the top. Follow-ups, send handwritten thank you notes. I've sent handwritten thank you notes to everybody I meet. Almost everybody, every entrepreneur, every company. Gusto also does now, to 22-year-old analysts. And by the way, we track it and report on it. If you just treat people the way you want to be treated, that just flows. We've built a culture of treat LPs like you yourself want to be treated. People appreciate that and it comes from the top. The intellectual honesty comes from my partner Nimay. A lot of the creativity comes from my partner Brian. Now, of course, as you get to be 85, 90 people at a firm, we've built a real training program, which is the result of a lot of work Nimay and Brian and our COO Susie's done and that team and the recruiting team. We didn't have weekly IC meetings before 3 or 4 years ago. Why? Because the IC was the 3 of us. We talk every day. And so it's just like building processes in place. [00:00:00] S0: Can you talk about this crazy one-on-one thing you do with every employee?
· Patrick O'Shaughnessy, Mitchell Green
[00:00:00] S0: Can you talk about this crazy one-on-one thing you do with every employee? [00:00:00] S1: I got the idea from Tom Barnes at Accel-KKR. He's built a true machine at Accel-KKR. I asked him, "What do you think is something you do that really helps the firm?" He's like, "Interview everybody once a year." So we start with a survey and then you sit down with every employee. [00:00:00] S0: You personally do? [00:00:00] S1: I personally do. Sit down with every other partner, every VP, every associate, the accounting person on the backend, every receptionist. And be like, what do you like about your job? First, give me everything you do. Green, red, yellow. Green you love, red you hate. Let's figure out what you hate and why. And if there's things you hate, well then let's figure out other people that may be able to do them, or how can we make your job easier? Okay, that's the first bucket. Second bucket, if you were me running Lead Edge, what would you change? Three, what's something we can do to make your job easier? What you learn is incredible. You get a bunch of really good ideas every year. It actually drives my two partners nuts because sometimes I'm like, that's amazing, do it. And then they're like, come on, we need to have built consensus. I'm like, no, we don't need to build consensus on some of these things. [00:00:00] S0: Is there anything else that you do in the culture that you feel carries that much freight?
· Patrick O'Shaughnessy, Mitchell Green
[00:00:00] S0: Is there anything else that you do in the culture that you feel carries that much freight? [00:00:00] S1: Being a good person is just not that hard, frankly. In a world that's insanely competitive, if being the nice guy gets you the callback and being the helpful person, then do it all day long. And then another really important thing about running this place is I can't be the bottle, I can't know every LP. And so if you're a 25-year-old or 23-year-old associate here and you have to go to Seattle next weekend for a wedding, I'll pay your trip if you stay on Monday and go meet a bunch of LPs. But you're 23 years old. 99% of firms on this planet wouldn't put 23-year-olds in front of LPs. I'm like, if you're smart enough to work here, you're smart enough to meet this LP. I don't care. And people love that. The 23-year-old associates love it, which helps us get great people, but then also the LP loves it too. Because they'll be like, "Oh, my son is your age. Would you mind talking to him?" Or, "Hey, you went to Notre Dame? Oh, my son plays lacrosse. He's thinking of going there. Would you talk to him?" But actually, talk to my partner Tim because he played Notre Dame lacrosse. You just build real relationships with people. [00:00:00] S0: If you think about the average month for you, and the major slices of the pie are time with LPs, time with companies. I'm so curious – it's actually kind of hard to guess – maybe there's different buckets than those 3. LPs, companies, investments, internal. What does yours look like?