Invest Like the Best with Patrick O'Shaughnessy
· 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.
· Patrick O'Shaughnessy, Mitchell Green
[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. [00:00:00] S1: Overhyped, overfrothed, and I believe this AI CapEx bubble will end badly. It's like the telecom bubble all over again. It'll be very interesting if Apple may look like the really smart one in all this at the end of the day. We’ll see, but I think people are just going to overspend. I'm convinced that people investing in all these AI companies, all these VCs, have to portray the view that software is going to be dead because they have to justify how much money they're going to spend. If you start to run these assumptions on how much money is going into these companies and what that means for how much earnings you have to drive, and what that means for how much power you need to generate, it just doesn't work. Where are the nuclear power plants coming up? It just doesn't work. That presents the opportunity. That's when you're going to buy it. That's when you're going to buy these companies. [00:00:00] S0: The counterargument would be in telecom, it was all dark fiber. In AI, it's all burning GPUs. And yes, the CapEx is crazy, but everything still feels mega undersupplied. I'm just curious how you think about when the opportunities will present itself for an investor.
· Patrick O'Shaughnessy, Mitchell Green
[00:00:00] S0: The counterargument would be in telecom, it was all dark fiber. In AI, it's all burning GPUs. And yes, the CapEx is crazy, but everything still feels mega undersupplied. I'm just curious how you think about when the opportunities will present itself for an investor. [00:00:00] S1: My fundamental belief is that the models will commoditize, and that companies like Google and Facebook and Amazon and Apple have a competitive cost advantage. Companies like Amazon and Microsoft and Google have more data to train a model than these new model companies will ever have. And then oh, by the way, if you were all these Chinese models or European models, a bunch of these things cost a fraction of the cost to run and you can run them locally. Especially companies outside the US. Like, why would you pay that amount for OpenAI tokens or for Anthropic tokens when you can just run DeepSeek or one of these other 10 models? I think we worry the most about model commoditization. I have no clue when this will stop. It will probably go longer than people think. In '99 and 2000, people also thought we were in a bubble. People think we're in a bubble now, and it will just stop. Is it one of these monster IPOs happening and it just doesn't go like people think it does? I think this Anthropic round was kind of like an IPO. We're trying to hit doubles and triples. A lot of these companies we struggle with, they're either going to be 200x's or 100x's or zeros. That's the struggle for us.
· Mitchell Green, Patrick O'Shaughnessy
[00:00:00] S1: My fundamental belief is that the models will commoditize, and that companies like Google and Facebook and Amazon and Apple have a competitive cost advantage. Companies like Amazon and Microsoft and Google have more data to train a model than these new model companies will ever have. And then oh, by the way, if you were all these Chinese models or European models, a bunch of these things cost a fraction of the cost to run and you can run them locally. Especially companies outside the US. Like, why would you pay that amount for OpenAI tokens or for Anthropic tokens when you can just run DeepSeek or one of these other 10 models? I think we worry the most about model commoditization. I have no clue when this will stop. It will probably go longer than people think. In '99 and 2000, people also thought we were in a bubble. People think we're in a bubble now, and it will just stop. Is it one of these monster IPOs happening and it just doesn't go like people think it does? I think this Anthropic round was kind of like an IPO. We're trying to hit doubles and triples. A lot of these companies we struggle with, they're either going to be 200x's or 100x's or zeros. That's the struggle for us. [00:00:00] S0: What kind of company in the AI center of the heat map – I know you're probably not investing in any of them because of multiples or whatever. What kinds of companies are the most interesting to you just as an enthusiast?