Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: My guest today is Ric Elias. Ric is the CEO and Co-Founder of Red Ventures, which has a portfolio of fast-growing digital businesses like Lonely Planet, The Points Guy, Bankrate and large investments in a variety of other businesses across industries. He began Red Ventures in the year 2000 and has grown it to a global company with thousands of employees. Ric walks us through the early struggles that have led to a now flourishing investment platform. But mostly, this episode is a master class on cultural values and philosophies that transcend mere financial gain. We discussed the difference between living good and well, the power of forgiveness and compounding more than just your capital. Ric's story is one of resilience, humility and grace. His story about being in the front row of the plane that Captain Sully landed in the Hudson is singular and moving. Please enjoy this great conversation with Ric Elias. So just before we came in here, you and I did something together on stage. And then I was talking to Carlos on your team, and he asked me whether or not and how I prepare for these things. And I told him the truth, which is that in some literal sense, I don't prepare. I don't sit down and think about them right ahead of them. But in some other sense, I prepare all the time because I end up talking to people that I'm most interested by and curious about and have met before, usually, like you and I have met before. And that the only thing I prepare is the first question, and I usually do that about five minutes ahead of time. But I hadn't done that, and so I actually asked Carlos to give me the first question that I'll ask. This first one comes from Carlos, but I love it and...
· Ric Elias, Patrick O'Shaughnessy
[00:00:00] S1: You cheated. [00:00:00] S0: So I'm using it, and I cheated. [00:00:00] S1: I like it. [00:00:00] S0: Carlos' question and mine is what is the big dream? [00:00:00] S1: My big dream is to live in a state of well-being most of the time and to have a sense of lifelong satisfaction when the end comes. So it's really very internal versus something that gets accomplished or left behind. [00:00:00] S0: We're going to pick that apart in detail but go down one level. What is the Red Ventures' big dream? [00:00:00] S1: We've been on this journey for 24 years. And in one sense, it feels like we're about to go on another 10-year journey of reinventing ourselves. Red Ventures, over time, hopefully becomes a place where a lot of this, whatever success we've had gets put back into the system. So more of a full circle versus a full line to the right or to the left or down, but I still think that we're years or decades away from that. [00:00:00] S0: Can you tell us what it is? I ask that in the stupidest, simplest way I can for a reason because it's pretty hard to figure out what it is from the outside. [00:00:00] S1: On purpose. [00:00:00] S0: I know on purpose, but I have to ask. Maybe the best way to ask is, how did it begin?
· Patrick O'Shaughnessy, Ric Elias
[00:00:00] S0: I know on purpose, but I have to ask. Maybe the best way to ask is, how did it begin? [00:00:00] S1: The easiest way to understand it at a high level, you can think of ourselves as an operating private equity platform with permanent capital, hyperfocused on the digital world with different business models under the belief that culture really matters. And that if you use that as the connective tissue inside of the portfolio of companies, you can get some level of alpha vis-à-vis these companies being separate. And today, we, depends on how you want to count, have about 15 different companies inside of the portfolio all over the place between Europe, Brazil, Puerto Rico and then our core businesses here, inclusive of a big joint venture with UnitedHealthcare and so forth. [00:00:00] S0: So if we go back to the very beginning, something worked. You and your team were awesome investors or trendspotters or operators or some combination of those things, probably, maybe some luck sprinkled in, which is true for all of us. How did it start? What was the origin story?
· Ric Elias
[00:00:00] S1: Look, I think we're more lucky than sprinkled luck. I've always believed that. And if I look back in our journey, Dan and I started this company in January 2000. Dan and I worked together before this at a company called Cendant/CUC. And we really started with two principles in mind. One was let's build a company we would want to work for. And Dan and I are not typical. We're very different in, hopefully, good ways. But we both are of the same opinion that life is to be lived with enjoyment, and that we will want to work at a place or build a place that we will want to go work every day so we never have to work. True definition of being an entrepreneur. And then the second one, and I think we said it at the time without really understanding it, which was a company that would outlast us. And even though we would want to do this for a long time, Dan retired about a year ago, a company that would -- outlived us. What I have come to realize is it will outlive us through the people that get trained in our platform, not as a company itself. And then many of the businesses hopefully are here for decades to be, but that really were our basic principles. So when you start with that, the business plan was completely flawed. We raised $2 million from our friends. This is the frenzy of January 2000. This is before the first Internet bubble implosion. Raised money on three PowerPoint charts on the dumbest of ideas. Basically, a paper-based search engine, where we were going to help online companies use off-line media. And by November, we had $117,000 left, no revenue. And this crazy thought of like I will never attend my reunions because all the capital came out of my business school friends, and I'm a proud guy. I'm like, I can't. So we literally just hunkered down, hustled, sold marketing programs, sold anything to anybody who'd hire us to do consulting things. And we knew a lot about direct marketing at the time, and for a couple of years, just muscled our way through it. In 2004, we had enough money to pay our investors back. And we said, "Look, we made a commitment to you, here's your money back times 10%, but we're done. If you keep your money in here, it's at your own risk. And I hopefully hope you take the money back," because that burden of taking someone's money was a lot.
· Ric Elias, Patrick O'Shaughnessy
And in '04, '05 was when Google was becoming the de facto aggregator of intent. They had this rule where you could not double serve as a brand. And we started thinking, wow, brands are going to need somebody to kind of help them defend themselves in this environment that's aggregating intent. And customer acquisition is the life-vein of all budgets. And it's actually a line that is not in the operating budget, it's in the revenue budget, so there's a lot more leverage. And we literally said, "Let's go try to figure that out." Over the first couple of years, build a core tech where we can map a couple of million toll-free numbers to an online experience and give you a phone experience that was quasi-personalized by how you navigated online. So we could go to any brand and say, "We can outconvert whatever you're doing in this notion of take your agency, take your call center, take your internal operations, we can outconvert them by 30%. If that's not true, don't pay us. But if it's true, give us a piece of the upside, don't pay us as an agency or a service provider." And that became kind of the first unlock in, call it, 2006 to 2010. And from there, there's a cemetery full of skeletons of bad ideas, and we went our way through it. And lo and behold, come from 2010 to now, and this is where we are. [00:00:00] S0: What was the first thing you ever bought? What business was the first business you ever just bought outright?
· Patrick O'Shaughnessy, Ric Elias
[00:00:00] S0: What was the first thing you ever bought? What business was the first business you ever just bought outright? [00:00:00] S1: First meaningful thing we bought where we literally broke the bank, we had a pristine balance sheet, was Bankrate. Bankrate at the time was $1.4 billion, and it wasn't worth that. Before we bought Bankrate, we bought an asset in financial services. That it was a tiny asset where we said, "Let's go and prove that we can actually use that asset in Google and paid search and SEO and really start doing what we did in telecommunications using someone else's brand, using our own brand in financial services." We did really well. And we're like, "Okay, let's put all our chips in the middle of the table." And Bankrate was our first big acquisition at the time. We owned CreditCards.com, The Points Guy, Bankrate and a bunch of other miscellaneous assets. And it was our first, okay, we're in the big leagues now, and we have a lot of debt. [00:00:00] S0: There's quite a lot of glossing over, going from $2 million, paying back your investors to $1.5 billion acquisition. [00:00:00] S1: Yes. This is a decade...