Buyers and Builders
00:46:35 · Mikk
This went bankrupt and at one point Hellman asked whether they should put another 5,000,000 into mobile media and Matt Berger replied over my dead body, we will invest another 5,000,000. I wouldn't put 25 more cents into this investment. Eventually they realized the problem wasn't something they could fix and their competitor PageNet had collapsed too and the entire paging industry was dying. Hellman says nothing we could have done, changing the capital structure, consolidating the industry, changing the management team, back office improvements would have made a difference. We were in dying industry and our investment was not going to bring it back. That's one lesson. A great PE firm can improve a business, but it can save a dying industry. What I liked about the end of Warren Hellman's story is that his investing philosophy seems to mirror the way he lives his life, as I said earlier. Outside of business, he loved Blue Cross music so much that he personally funded the Hardly Strictly Bluegrass festival, a free San Francisco festival that attracts as many as 700,000 people. And another thing is running. Hellman ran every single day starting at 03:45 in the morning and even completed the Western States one hundred mile ultra marathon twice. And his wife had sang nothing exceeds like excess. Nothing exceeds like excess. Hellman's interruption was simple. We achieve our greatest success only when we push ourselves to an excessive degree. This is interesting because I was listening one interview with him as well. There is not much you can find, but there's one where he described why he decided to go after this ultra marathons and 100 mile marathons was because he wasn't very fast when it comes to sprints, but he knew that he can outwork the other guy by just lasting longer, and that's why he chose those marathons. Another thing he added, we need to be confident, but not overconfident. We need to be aggressive, but not foolhardy. On the final page here on this book again, there are those lessons from Warren Hellman. I would say this as well, like reducing decades of investing into into five simple rules. The first is probably the one that defines the his old process, guilty until proven innocent. Don't start by convincing yourself why an investment will work. Start skeptical and make the business prove itself.
00:49:21 · Mikk
Test the assumptions, the management strategy and what happens when things go wrong. Then comes always align interests. Hellman wanted everyone, investors, his own team and management to be trying to win the same game. That naturally leads to have skin in the game. His belief was that people behave differently when they actually own part of the outcome. As he puts it, nothing empowers and motivates people like a share in the outcome. The fourth lesson is one I really like. Avoid the good security policy. A clear deal structure or attractive return on paper can make almost anything look investable, but ultimately, the health and prospects of the underlying business count far more. A great structure cannot rescue a bad business. And finally, listen to a partners and associates. Hellman understood that good investing isn't about being the smartest person in the room. Surround yourself with talented people. Listen when they challenge you and reward them when they're right. I think the five lessons fit together nicely. Be skeptical before investing. Make sure everyone has the same incentives. Put real skin in the game. Focus on the business rather than the financial engineering, and never become too successful to listen to the people around you. The Masters of Private Equity. I really hope you enjoyed this episode. If you are here still listening, please go and subscribe. We have many more of those coming to you. I will talk to you soon.