Invest Like the Best with Patrick O'Shaughnessy
· 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.
· Patrick O'Shaughnessy, Ric Elias
[00:00:00] S0: In the first part of that equation, there's the motivation of the seller. What are some of the most common reasons that you would decide not to partner with someone? Let's say, even if you loved the thing, the business, what would be something that would scare you away? [00:00:00] S1: If I don't really think the person is generally a good human being, it doesn't have to be like me or whatever, I'm turned up because that will reflect on the things that I won't be able to see. So I'm trying to get a sense of is this a good human being. If the person on the other side, if I sense that they're running away from something versus running towards something, they know something I don't know. So I'm very beware of why is it? Why now? Why us? Why this price? I'd rather pay a little more on something that people want than steal something. And one of the things we do is once we lock in on something, Patrick, we've never retreated on anything. Our word really matters. And I think ultimately, I expect that to be the case on the other side. Once we lock in, we go for it. [00:00:00] S0: One of the most interesting set of things that you and I have talked about is the ways in which your attitudes towards certain things change between my age and your age. So it's 18 years between us. I'd love to kind of go category by category and have you reflect on how your views have changed from my age to your age on some topics everyone cares about. So the first one is money.
· Ric Elias
[00:00:00] S1: Money is a tricky thing because money corrupts society. And most people basically have set up that more is better, more is better, and we measure things in money and value and the value of your company and the value of your business. And in reality, if you focus exclusively on money, you miss the journey. You miss what this is all about. After a certain amount of money, and everybody is a little different, but it's a lot less than people think, it doesn't really affect your lifestyle. And at some point, it affects how people treat you, and it affects your kids. It affects what you're going to do with it, your responsibility with it. It affects all of it. I think money is one of those things that is a privilege to have. But if you're not careful, it can change you. Or more importantly, it can make you so addicted that you spend the rest of your life accumulating something that is worthless beyond a point. We trade all our time for money, that's what we're doing. We work our butts off for money. And at some point, if you keep doing that, you'll end up realizing that you completely missed the point. And that when you make enough money, you use that money to give you back your time. One of the things back to this point of 39 and 57, I was big into time and that's why we have all these principles around time and how do I think about compounding time and all these things that are kind of weird. But in the last couple of years, I realized that time is actually a subcomponent of something more interesting or more important, which is our energy. I only want to invest my energy in things that give me multiple currencies back. And I'm very aware of my energy. If I'm with somebody and I feel like it drains my energy, it's like, you know what, I'm not doing that again. Or wow, I love my energy with this person in this situation, then you lean into that energy, right? So I'm very thoughtful of today is like I just want good energy in my life.