Buyers and Builders
00:04:25 · Cyrus Hessabi, Mikk
So yeah, that's kind of how it happened. And then the final thing I'd say is OpenOcean is a fund whose history is rooted in data infrastructure and data systems. The founders RevMySQL, which is a famous open source database business, and then MariaDB. And one thing that came to my mind as well is the biggest one of the biggest challenges with, you know, these AI roll ups and the case when they are roll ups. I mean, I guess the challenge with any sort of AI system is its underlying data infrastructure, you know, just speaking very high level and simple terms. I think it was a very good fit with OpenOcean because of that, you know, that kind of angle focused on businesses whose right to win is driven in part by their underlying data access and data infrastructure. [00:05:13] S0: Cyrus, explain me breaching. You mentioned that a few times, What it means how to Bridging.
00:05:20 · Cyrus Hessabi
[00:05:20] S1: Yeah. Think, I mean, we can go into personal philosophy as well, but I feel like I'm kind of a bridge because my background spans so many different kind of worlds. I feel like my role over time has been to bridge a little bit, you know, be the technical guy on the sales team or be someone with operating experience in investing, you know, VC first, and now I'm working with Shore, which is a private equity firm. So the... I think I think as a result, I've kind of ended up thinking in in ways that kind of involve taking, you know, various pieces of various worlds and try to find out the world in between that that can leverage the best of both. And I think the bridging here in this topic of AI enabled services is bridging the two key things I would say is, one is the kind of comfort with J curve returns profiles of VC. We're focused on tech and technological change and technological moats, right, at being on the beating edge of tech and how this can impact future dollar value of the business or the workflow. And on the other hand, looking at PE in two ways: one, in the sense of looking at industries that have hitherto been completely outside of the VC purview, like a call center, a plumbing business. Think about other labor intensive businesses that you'd never imagine a venture capital investment committee discussing per se, as well as the cash flow discipline. So making sure at the end you're delivering a service, the service has to be high quality. It can't just be an approach whereby you are hacking in a garage if I take a Silicon Valley stereotype. The business has to work and deliver outcomes from day one, and it has to deliver cash also from day one because you're going to borrow some money to fund your acquisitions and you will have debt, and therefore you will have to, you know, reimburse that debt over time. So I think mixing those two, execution discipline with technological optimism and was a way to produce, you know, not necessarily a new asset class, but a new way of thinking about the world and unlocking opportunities that were otherwise outside of both, you know, both of the previews across from one end to the other of private markets investing. Each could say to the other, oh, this is for you, not for me.
00:07:36 · Mikk
[00:07:36] S0: Hey, a quick pause from the podcast. If you love the kind of stories we talk about on Buyers and Builders, be it someone building AI enabled services, AI prolapse or just acquirers acquiring, operating companies, you will love today's sponsor, which is CapitalBad. And this is the place where you can participate. You will discover vetted searchers, real acquisition opportunities, and you can almost access deals you won't find anywhere else. And it's investing in the backbone of the economy pretty much. If you believe in backing builders instead of maybe betting on startups, go check out capitalbad.com, register, start looking at deals. The smallest investment is $25,000 So far they've done eight acquisitions, so you will like it. Again, capitalbat.com. I'll put the link in the description as well. And now back to the episode. Now, can you explain me the AI enabled services? Because we have here very simple people. The people buying and running manufacturing businesses, HVAC, home services, roofing. So AI enabled services, it could mean something which many people don't know, number one. And number two, like, what were you doing at OpenOcean, like on day to day basis? Were some specific investments or acquisitions? You mentioned ECA. Yeah, cover it all, please.
00:09:03 · Cyrus Hessabi
[00:09:03] S1: Absolutely. Absolutely. So let's start just with a simple definition of AI enabled services. The meaning there is basically to say, here's your services business, a call center, an accountant, a legal house. I'm providing property management services. Service economy is 60, 70% of GDV. It's basically all around us. Some services businesses are more desk based. Some services businesses are, of course, more manual. Some services are more, quote, quote, white color or, quote, blue color. You know, think about how you spend your day. Everyone's providing you a service on the on the high street, basically, unless they're selling, you know, a a tool or something physical, the rest is service. AI enabled services is to say, okay. Now if we make the base assumption that there is a potential evolution going on with the democratization of AI, the drop in the marginal cost of compute and so on, maybe there's a way to rethink the way that people do their jobs. Maybe if I'm a service provider, maybe if I'm an accountant, more of my time is gonna be spent on strategizing for my customer, less about, like, actually fighting the individual returns. What does that mean for the business? Maybe the business can now generate more money because the accountant can spend more time on value creating activities, reduce their burnout because there's burnout as huge issue in accounting, you know, focus on more like customer, like direct customer interfacing work, so therefore improve customer satisfaction. I think there's a ways, and this can be done through improving or changing the underlying cost structure, changing the underlying mode of operations of these types of businesses. And so the AI enabled services piece is less, I'm a services business, and I bought some software, or like some AI enabled software, and now I'm in an AI enabled service. It's more, I am starting the services business. If I just landed on Earth today, and I thought from first principles, how do I deliver this business? And in my toolbox are a whole set of kind of AI enabled tools that I can now use to deliver the service better, then this is an AI enabled service. And I think the final way I put it to make it simple is it's basically flipping on its head the idea that there there... There's two ways you can run this digital transformation process going on. Either you're... I'm at Salesforce.
00:11:22 · Cyrus Hessabi
I pick up the phone and I sell software to services businesses, I say, hey, I'm creating a million dollars of value for you per year. I'll charge you 100 k subscription fee and you know, that that... Now you use the software to improve your operations. That has been what's been going on for the past twenty, twenty five years. Or I can say that I'm not gonna go go to Salesforce or build a software company and sell the software. I'm gonna go to the... Reinvent the services business itself myself. I'll go and build the account. If I'm so passionate about transforming accounting, I'm just gonna go and build my own accounting services business, and I'll use AI to have much better output, much better service, both efficiency improvements and effectiveness improvements vis a vis my competition. And therefore, I will beat my... The suite of incumbents that exists because I will be enabled by a much better cost structure and a much better set of outcomes for my listeners. I think that's how I would define it. Then what I was doing at OpenOcean, I'll give you the kind of high level view, I don't want to make my answer too long either. I mean, I was in an investing job, and so it took some time at the beginning to get the thesis going as well. And think a team at OpenOcean is the most open minded, technical and deep that someone might ever come across in the venture landscape. So a very unique group of people. And I mean, what we're doing as a team, including myself, who was kind of leading the charge on this front, was thesis building, kind of understanding what is the realm of industries where we can spend time. What actually lends itself? And I think the way we thought about that was what can AI do today? You know, can it repair a HVAC unit? Maybe not, but it can definitely summarize documents, automate calls, manage the customer interface. So we're thinking, what does AI do? What are the jobs where the labor does things that AI can do? And what is the dollar impact that it can be in terms of gross margin expansion, improving productivity. And then you'd start from that and then go into finding founders who were looking to build businesses in those realms. Now, of them were roll ups, some of them were not roll ups. We can get into that too. But yeah, that was kind of the crux of it.
00:13:37 · Cyrus Hessabi, Mikk
I say 80% of my year, of time there was spent on either industry evaluation, DO evaluation, or of course supporting our portfolio of companies that we like to this space. [00:13:47] S0: And industry wise, which was the, if we can say the hottest, which was like, okay, you saw something, you saw some data, you were like, okay, this is very exciting because I guess there are still some industries which are not that maybe open about it.