Invest Like the Best with Patrick O'Shaughnessy
· Mitchell Green, Patrick O'Shaughnessy
[00:00:00] S1: Now again, that could be getting somebody to help a company though too, or coordinating with the team of people with us, like hey, let's figure out a way to get into Exxon. And then I would say 25, 30% of my time is investing related, which could be reading memos, helping people win deals. That's frankly how I want to help. I'm like, if we lose a deal because I didn't meet the company – I'm not saying I can help us win – but we gotta at least put our best foot forward. And then probably 15, 20% is operational. The operation stuff's come down because one of our partners, Susie, who lives in Greenwich, used to be an investment partner. A few years ago she became our COO. So that's my time. Nimay probably spends 90% of his time investing, 10% of his time on everything else, which is what he should do I think, running the IC, Our partner Brian probably spends 60% of his time investing and probably 20/20 on LPs and operations. It's very clear to people that spend time with Brian, Nimay and I that we play to our strengths and weaknesses. [00:00:00] S0: You mentioned Tom Barnes as someone that you've learned from. If you had to like create a Rushmore of other investment machines that you most respect, who is the Rushmore?
· Patrick O'Shaughnessy, Mitchell Green
[00:00:00] S0: You mentioned Tom Barnes as someone that you've learned from. If you had to like create a Rushmore of other investment machines that you most respect, who is the Rushmore? [00:00:00] S1: Insight, TA, and probably Accel-KKR. I think Deven, Jeff, Triplett, the guys, Lieberman, at Insight have just built a factory. You know how you know what a good software company is? First, look at 30,000 companies a year. It's an absolute factory. It's process. And so I think they’re amazing at it. TA is the one that pioneered cold calling. Insight's obviously stayed true to itself. I would guess Insight's growth rate in their portfolio between 2001 and today is actually pretty similar. TA's has definitely come down. They're more private equity-like, disciplined in process. I get the sense that TA is very good at selling too. And then Accel-KKR has built an incredible value creation team that I think actually has a lot of – I think there's a lot of people that talk about value creation, they don't do much – but I get the sense that these guys are just very good at actually helping companies and trying to bend the needle. [00:00:00] S0: What have we missed about what makes the machine tick that you think is really important?
· Patrick O'Shaughnessy, Mitchell Green
[00:00:00] S0: What have we missed about what makes the machine tick that you think is really important? [00:00:00] S1: I would've said that the 3 of us who run the machine are all very, very different and we play to our strengths, and I don't think that should be underestimated. And I think that's what makes the machine – we literally negotiate carry economics for the 3 of us in 10 minutes. There's firms you hear about that get into month-long fights over carry. We all highly respect each other and know what we're each really good at. Just a focus on intellectual honesty that I think a lot of firms just don't have. If you go to our investment committee meetings – our investment committee is the three of us. Everybody that's basically VP and up gets to come. But if you sit in the room and listen to Brian and Nimay and I talk about a deal, you would think the three of us hate each other, or you might think we're Israeli. Because it was just like a joke in Silicon Valley. If you listen to Israeli board meetings from the outside, you're like, these people hate each other. Like, how do they work? No, no, that's just how they talk. We have the IC, we're like good buddies. And so it's just like, no, let's debate the merits of this deal. And it can get like, "You people hate each other." [00:00:00] S0: Maybe riff a little bit more on all the ways that you're excited and fearful about AI, both in the investment process at Lead Edge, for running Lead Edge the business, and for the companies that you invest in.
· Mitchell Green
[00:00:00] S1: I'm the most fearful for what I don't know. AI is going to change the world and it's going to do it in ways that nobody can think about, just like the internet did. And in'99, 2000, we could have sat here, we wouldn't have mentioned social media. Today it's $3 trillion of value. Now I'm the most fearful whether it comes to companies and processes for that. It's like, what don't we know? What are we missing? What am I the most excited about? For us, AI in the long term will create the biggest productivity game of the last 7,500 years. I don't know if it'll be like electricity, but it'll be pretty damn close. That's really exciting. By the way, I think people get too excited about, "Oh, we're going to go like build the next piece of Workday or we're going to go build better call center software." You're going to see industries that we're not even thinking about. If they're thinking about what's going to be possible, it's going to happen. That's really exciting. It's going to be the age of entrepreneurism. People are going to be able to build awesome businesses. What I worry about, whether it's internally at Lead Edge or at our portfolio companies, is do we have the right people in place so that we don't get disrupted. Because you constantly want to be – I joked you want to hire a bunch of young people. The people who worry about young people aren't going to be able to find jobs. It's like, really young people are the ones who are going to figure out AI more than the 60-year-old or 55-year-old. And so we actually rank, we take all of our portfolio companies and we're saying, what's your AI readiness score? And then it's – okay, this company's really high, this company's pretty low. Huh. We should connect those entrepreneurs together to figure out what they're doing.
· Patrick O'Shaughnessy, Mitchell Green
[00:00:00] S0: What goes into that score? [00:00:00] S1: What's your data look like? Is it structured in a way that you're going to be able to leverage AI? Are you iterating? How many new AI products have you come out with? What's your AI revenue on new products? How much more product releases are you able to release? It's not did your engineering comp stay flat or go down? I for one strongly believe that if you think in 2020, if your budget in 2024 for 2026 was to have 150 software engineers, you should still have 150 software engineers. Because those software engineers can be exponentially more productive and they can then create more products that your sales team can then go sell. [00:00:00] S0: Who do you compete with? [00:00:00] S1: We would bid against Insight, FTV, JMI, Battery, Bessemer, where they do like bootstrap-ish type stuff. Sometimes we compete against Meritech and IVP, and rocket ship companies in Silicon Valley are freaking awesome. I just would not pay 100 times revenue for them. That's the problem right now, there's too much money. Matt Cohler said it best. It's like, they backed these giant internet companies when distribution was loose and capital was tight. It's like the reverse happened. So capital's everywhere, but like 4 companies control distribution. So good luck going to build a giant internet company. And right now there's just too much money chasing, at least in Silicon Valley, too few great things.
· Mitchell Green, Patrick O'Shaughnessy
[00:00:00] S1: We would bid against Insight, FTV, JMI, Battery, Bessemer, where they do like bootstrap-ish type stuff. Sometimes we compete against Meritech and IVP, and rocket ship companies in Silicon Valley are freaking awesome. I just would not pay 100 times revenue for them. That's the problem right now, there's too much money. Matt Cohler said it best. It's like, they backed these giant internet companies when distribution was loose and capital was tight. It's like the reverse happened. So capital's everywhere, but like 4 companies control distribution. So good luck going to build a giant internet company. And right now there's just too much money chasing, at least in Silicon Valley, too few great things. [00:00:00] S0: So decompose and expand on that a little bit. So I guess the question is your view on the state of markets and technology markets in general.