Buyers and Builders
00:24:15 · Cyrus Hessabi
[00:24:15] S1: That for sure. So I looked at a few definitely, right? And I think some of the, I mean, of course, the companies that we backed, right, in various industries, think those were definitely kind of in that realm. I think there's other industries that I'm excited about from the AI perspective. You know, I think you can see online there's quite a few businesses that have raised in the insurance space, insurance TPAs and back office. I think that's very interesting. I think the main reason those businesses would be interesting is because of two things: high share of labor as a total cost, right, and repetitive, therefore automatable work, and work that also fits what AI can reliably do today. So processing documents, summarizing documents, being able to parse information, being able to synthesize and find gaps in information in long streams of data. So I think typically, those are jobs that I think also, I don't want speak on behalf of everyone, but I think these are maybe jobs that I think create burnout as well, right? Or work pieces where, I guess, people wish they didn't have to do that, previously. So I think these are also opportunities where you can say, I'm going to make my employee base way more fulfilled. I'm going to be able to keep them focused on things that matter the most. And then we can use AI to automate the pieces that are of low cognitive load perhaps for them or less less fulfilling. You know? I think I think that's kind of the main the main point here. I'm trying to find an example because I'm trying to find examples where, like, software changed the way that we work. You know, how how we as just everyone works, right? Like, with every kind of new productivity tool or software tool, you know, a whole piece of people's jobs changed, and then we focused on a higher value piece of that job, right? I think that applies to, you know, when you start using software in a company or when new technology comes for engineering design or whatever. Just think about how people used to do things forty years ago and what you do now for a given job. You know, it just let's say we're we're recording this this podcast. Right? It took a few messages and now a video call on on the laptop. Right? But the podcast is still happening. It's not being replaced by AI per se.
00:26:33 · Cyrus Hessabi, Mikk
I think it's a similar example where the core value of the workflow is being kept, but the menial work around it is being removed over time. [00:26:42] S0: And when you joined Shore Capital, did they give you their current portfolio companies? Hey, now we have this guy, Cyrus, joined us. He has this excellent background, as you have. And now please go through the portfolio companies and please find opportunities where we can implement AI. Like, did you did you have to do a work like this as well, or it was all about those new opportunities, new companies, new new searchers? [00:27:06] S1: I think new new for now. I think, like many fans, you know, we think a lot about AI and AI for the portfolio companies, right? If you see on Shore's website, and there's a lot said, and Shore is very famous, in fact, for having all these different centers of excellence and pods, right, that are kind of unique in bridging actually. Another theme for bridging between Fortune 500 and kind of accomplished large scale businesses and the management practices they're in, connecting those with emerging roll ups and roll up platforms of SME businesses in those industries. And I think in the same way, I think our approach with AI is going to be thinking deeply what is the bottoms up way to create operational value and improve companies, improve people's lives with that. Where can AI fit? Basically, much like we have these centers of excellence in other areas, other functional areas of the business. [00:28:01] S0: Was there anything you had to unlearn when joining Shore?
00:28:06 · Cyrus Hessabi
[00:28:06] S1: I mean, I'm still kind of transitioning. So the... I think, yes. But I kind of... I'm I'm gonna tell you what it is, but I think it it was also already in my mind as I made the transition. But I... I'd say, I think in VC, incentive structure is around optionality, around long term vision, around, you know, winning the deal right now and and, you know, kind of valuation is whatever. I don't want to be too simplistic in my view, but I think it's true, right? Typically, the amount of really, really good assets or high quality companies to buy isn't that high, especially vis a vis the volume of funds that exist in venture. So I think the unlearning bit is to go from that environment to an environment where there is almost the reverse. There aren't that many ETA investors. There's lots of high quality people to back, lots of high quality things. You have to kind of parse your time a little bit, be able to say yes, no kind of fairly fast. And I think keep yourself accountable also. I think it's very these are industries that are very bottoms up. Like when you buy a services business, when you're acquiring a kind of traditional economy business, it's real in a way from day one. It's not a J curve type of investing. It's not kind of vision driven as much. The value has to be delivered in very near term. You have to value the company properly. You have to be quite clear on exactly what is gonna be creating value for the business versus not. So I think there isn't that much room for narrative versus execution, and I think unlearning, the if I may say, is kind of that. Although what I was going to say earlier with my caveat was kind of with the AI enabled services thesis, it was already like that, because the last thing you want is to come in with a very top down simplistic view of the world. AI is going to do this, AI is going to do that. And then the day after you, you know, are invested in the business, you realize, wait a minute, there's structural barriers to actually implementing any AI into this business. And so now we're stuck with with a bad investment. So I think it was already kind of like that over the past year, but definitely if I had to give you a comparison, small cap PE to VCA is really around that dynamic.
00:30:25 · Cyrus Hessabi, Mikk
There also is a lot of hype around, you know, VC, you have so many funds, deal information flows fast, even people and perception are a huge deal, I think, in VC, less so on this side of investing. Not necessarily a better thing or a worse thing, it's just I think different. [00:30:42] S0: You can be sure that a lot of VCs will listen this episode because of you. So and thanks to the private equity guy account on X, I've had many people reaching out to me asking this question that how you go from VC to PE pretty much. Maybe you're in this exact position successfully just done it. So what would be some of the things which come to your mind when someone would ask this question for me for myself, like, oh, I'm in a VC, I made those investments. I really enjoy what I what I do. But to be honest, those traditional niche businesses in very specific industries, profitable, long history, more stable. That's what I would like to focus on the next phase on my career. What would you say to a person like this? So you maybe six months, a year ago?
00:31:34 · Cyrus Hessabi
[00:31:34] S1: I think I mean, also, by the way, I'm putting massive caveats on what I'm saying because, I mean, know, I'm a young man in my early career. Like, who am I to give lessons? I can I can just give kind of my one man's answer on on this topic? But I I think I think the biggest thing people are, you know, always about, like, oh, it's a financial engineering job, whatever. The think the by and large, the main thing is, in my view, operational understanding, like what drives a business, what makes a business, why is an industry structured the way it is? Why is the cost structure the way it is? How do I change it? And I think operational understanding also means people understanding. I think, actually, I mean, I don't wanna open digress too much. I wanna answer your question directly, but I would say many times people that I hear about, I think we we tend as people actually to put the people side of things to the side and focus on the rational, easy to framework things. AI as an engineering feat or value creation frameworks or like kind of top down views of how to change business. A lot of it comes out to people. Hiring right sales manager who attracts the right salespeople, creating the right incentives for the people you are hiring, putting in the right management team if the management team is leaving, making sure they work well with each other. Oh, damn it, the management who left, they had a really friendly relationship with their supplier. Now that they're gone, their supplier is gonna jack up the prices. Profitability went down. So I think the thing I said outside of the... That people might hear less of is that, I think, is I think in VC, you're very good at kind of understand them, say, okay, this is where tech is going. This is what tech is gonna change in the world. I think it's super exciting to think that way. I think, however, you might think of it less about the operational day to day per se for in my view, two reasons. One is many of the businesses in the end converge to the similar model. Right? You will see endless playbooks about how to build a SaaS business at every single stage. You know, I can be a SaaS founder, and I have, you know, lot of playbooks to go with. In PE, and I think in ETA, businesses span many different industries, most of which I've never even heard of, didn't even know this existed.
00:33:54 · Cyrus Hessabi, Mikk
And they're driven by their own sense of incentives, their own sense of people. You have to map out the people and, you know, who they rely upon. Sometimes they rely upon, you know, like local blue collar workers that are in high demand and have lots of bargaining power. So, yeah, I think my summary answer is, if you want to kind of go from VC to P, I think make a habit of thinking, building commercial acumen, I'd say, for how systems work, how businesses, like, operate and how to get to the answer of the key drivers quickly in that regard. The rest is, in my view, flows from that. [00:34:28] S0: Was there anything else you maybe misunderstood? One was the operational side. In the VC side, you look more about the vision and the J curve, as you mentioned. Now it's more about the operational side, people, cost, cash flow, things like this. Was there anything else? Overall economy, maybe? Overall economy?