Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Ric Elias
[00:00:00] S0: Have you found anything that does that effectively for the marginal person that shows up and has a much bigger foundation to build on top of what you did originally, whether it's an incentive structure or an attitude or a way of operating? Is there anything that works? [00:00:00] S1: There's no magic bullet. I think you got to find people that want it. And then I think typically, athletes or people that are musicians, people that have been coached heavily in their lives end up doing well in environments like this because coaching is not criticism. It's like you're making me better. People that are super curious. I think right now, to be successful in the next five years, you almost have to be willing to re-underwrite your skill set. You need people that really are in that mindset and mode. [00:00:00] S0: If I were to be annoyingly reductive about the Red Venture stories, would it come down to you were just earlier and better at understanding how marketing was changing in the Internet era than others?
· Patrick O'Shaughnessy, Ric Elias
[00:00:00] S0: If I were to be annoyingly reductive about the Red Venture stories, would it come down to you were just earlier and better at understanding how marketing was changing in the Internet era than others? [00:00:00] S1: That would not be accurate, and that would overinflate, really, what we did. We did not know we were earlier. Actually, I would argue that we were a little late. We were late to mobile. We're trying not to be late in AI, but we're also afraid to be too early. I think we bet on ourselves. We work collectively better than most, and we're hypercompetitive against ourselves. And in life, a lot has to do with picking the right competitors. And I always joke that if this building, this campus was in Silicon Valley, it will be irrelevant. This region is something. I love that saying that you can either be the tail of the lion or the head of the rat. And so we get great talent because all the schools around here, super talented kids that want to stay in this region and want to be in a place where they get trained, they get invested in, they are pushed on, they love coming here. We have insane talent coming here. [00:00:00] S0: My sense is, and I'd love to just like pick any example you want, that frequently you would buy a new company and the performance of that company would go up a lot after you owned it. [00:00:00] S1: Correct. [00:00:00] S0: Can you pick one story and, in some detail, describe what it was when you got it and what you did and how it changed?
· Ric Elias
[00:00:00] S1: You think about the core of what Red Ventures was and it still is, to some extent, it's a B2B platform on basically doing customer acquisition, performance marketing, growth. Like at the end of the day, when I sit down with the CEO, I said, "Look, I can help you grow, and you only pay me if that's true." It's not the hardest sell. Every CEO needs growth, especially. And we bring tech operators' data. We bring a bunch of tools that are really hard for you to replicate. And it's easy to measure that we provide incremental growth versus what you would do yourself, right? So it usually is the rejection of the organization that makes it hard. So the timing of this conversation has to be either a new CEO or a crisis or a situation. A business that is usually performing pretty well or feels like they're in a good spot will not want to engage with us in that sense. So by virtue of our value proposition, we have this ability to take anybody's customer flows, and using all our capabilities, make it better. So we haven't batted 1,000, but we have had more of a quarterback completion rate than a baseball player batting average at taking a company. And if we bought it at 10x within two years, it was 4x. And that gave us a lot of conviction to a point where probably we overplayed our hand on our last acquisition, right? So it's just one of those. But we can take any funnel where there's heavy data, heavy experiences and use our technology to basically yield a lot more out of the same flows. That has happened time and time again in every asset we bought.
· Patrick O'Shaughnessy, Ric Elias
[00:00:00] S0: This was the supposed promise of private equity, that you would buy stuff and make it better and then resell it. I think in many cases, if you're cynical about it, like that really doesn't happen. Like there's more financial engineering that goes on than actual operational improvement. And obviously, what you're describing is like unbelievably valuable if you can buy at 10 and pretty quickly, you effectively pay at four. So why aren't there 10 Red Ventures? Like why aren't there 10 firms that have this specific expertise that are just really good at this function that buy things and make them grow? It feels like I'm missing it because there aren't. I've looked. [00:00:00] S1: Tell me how someone gets paid and I'll tell you how they behave. And most people that are in this space are here to grow something to sell it to somebody else. And what we've been able to prove is we've been able to do this across seven or eight different industries. We've had lots of really good competitors show up in an industry or two. Some of them better than us at certain things. Some of them build a brand, "Okay, I'm going to build my own consumer brand," versus building a much better middleware. And others, I'm going to do it really deep here and then I'm going to sell it to somebody. So I think a little bit of this is incentive structures. [00:00:00] S0: If you had to describe how you got so good at this function, is it just iterative learning? Is it stacking lessons on lessons? Is it a heavy data focus? What is it that makes someone good at the thing you do so well?
· Patrick O'Shaughnessy, Ric Elias
[00:00:00] S0: If you had to describe how you got so good at this function, is it just iterative learning? Is it stacking lessons on lessons? Is it a heavy data focus? What is it that makes someone good at the thing you do so well? [00:00:00] S1: Compounding of a lot of things. A lot of 3% on each other quickly are 20%. But here's what's really interesting, Patrick, that you could argue is maybe 50% of our business. The business that we're super excited about in the U.K., we own a true software business that powers 80% of all the real estate agents. We own a data business that 9 out of 10 banks use to do all their valuations. In the U.S., we're really excited about the mortgage space and what we may do as a mortgage lender. We have taken these operational chops now and are doing lots of different things that are not performance marketing. So we took this B2B business, ended up saying, "Wow, we can do this and buy assets to do this ourselves." And the value is now we get all that richness of data to take to our B2B business. So I can go to somebody and say, "Look, I have a ton of consumer intent data." But then we're saying, "Look, these chops apply to anything." So using the private equity head, we're like, we think we can do this in other places. And with fairly good success, we've been able to prove that we're a good operator. [00:00:00] S0: When you see a new company or a new team or something, what gets you excited? Like what is your taste? [00:00:00] S1: To buy? [00:00:00] S0: Yes.
· Ric Elias
[00:00:00] S1: We really like the bets we're leaning into right now, so we're trying to figure out things that are going to be augmentative to the bets we have that are going to unlock something and are going to moat us in some ways, give us a capability, give us something that is unique and different. But when I sit down, a couple of the things that I think about without thinking about is I really try to understand what is this person's motivation. I bought enough things and been around enough things that ultimately, it's not what they're telling you, it's really what they want. If they're going to really sell you something and not really be committed to whatever the transition period is, multiple years and whatever else, that's really, really important, understand the motivation of the seller. And what we've done really well is when we've engaged with somebody that we really understand the why. The second thing is I like places where you can win in multiple ways. So when you make a single bet, it's like, okay, I'm betting this happens and we have to compound growth at 20%. But if we don't compound growth at 20%, but we also are able to use the data for this, and we can build a model for that, and we can connect that to everything, then you can say a bunch of 0.7s added up end up being 2.5x, 3x something. That's the value of the platform is that you can look at these things and sometimes these assets have a lot of insurance into the platform and other value that brings. And because of our cultural alignment, you can get that out. A lot of companies can't do this if it runs like a traditional portfolio or a private equity portfolio because the companies are not connected at the tech layer like we are or at the cultural layer like we are.