Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Scott Nolan
[00:00:00] S0: Yeah. What's going on there? There's that famous quote of his, which is the steeper the up round, the greater the undervaluation. What is actually happening that makes that true? [00:00:00] S1: Yeah. People are just anchoring to the past, or they're like oh, last round was this. I guess it should be reasonable compared to last round price. And then in reality, like, okay, all that matters is next round price. How do we make sure the next round's an up round? What are the catalysts going to be for further increases? You don't get paid as an investor based on how close you were to last round's prices. It's ultimately against exit price. But the only thing you have to go off of that's actual data or empirical is the past. And so people are much more anchored on that. [00:00:00] S0: What have you learned about how much to be in love with the problem itself? This is a good excuse to talk about General Matter too. Are you inherently fascinated by and in love with uranium enrichment or is there some other big thing going on behind the scenes? And I'm curious if you think about all these founders you backed, my guess is most of them were deeply passionate about the domain because they had this thing where they could go down the rabbit hole or whatever. How much does passion matter in selection of founders?
· Scott Nolan
[00:00:00] S1: From the investor seat, I don't think you want to be in love with an idea. I think that's a risky thing, because then you're going to try and find a way to express that by investing and you're going to maybe make some compromises on the team because you know this idea is just so good, its time has come. But then if the team isn't there, 90% of the time it doesn't work. Then there's a whole thing of course in jockeying, can you swap out the team? But the whole Founders Fund thesis was always no, you need the founder to run the company, to have this vision and to see it through. From the investor side, I think being in love with an idea is really dangerous and it can cause you to make all sorts of compromises that come back to haunt you and it can cause you to put good money after bad, despite the writing on the wall. But I think on the company side, you have to be in love with the idea. It's not that rational to start a company. There's a lot easier, more comfortable ways to make money if that's the goal. So it's got to be about what the company is doing specifically. I think smart people who want to make money, there's so many good jobs in the finance world for that, or people who just want to build, there's lots of places you can build. But if you want to actually start a company, it better be something that you're really passionate about, or you think that the problem is really important. So for me no, enriching uranium never was something I was specifically excited about. I was always into nuclear energy. I always thought that this was a no brainer. Probably the two things from sci-fi from like the 60s, was always the two industries we were supposed to have – not just from sci-fi, but like what our country thought was, we're going to be going to space and we're going to be doing things in space, and we're obviously going to have nuclear energy. We went from burning wood to chemical bonds and now atomic energy was clearly so much more energy dense and powerful and should be lower cost. Those were always things I was excited about. Never had a specific interest in uranium enrichment, but then through the course of investing in Founders Fund, went from 2010 just looking at all sorts of different hardware companies.
· Scott Nolan
First investment I ever made was a satellite company, Planet Labs, then did a lot of different things that were outside of pure software. Last couple of years of Founders Fund, drifted back towards almost pure hardware by the end. And then really energy, where we invested in Crusoe Energy and understood the whole stranded supply side of things, and what could you do with that. And then investing in a company called Radiant, which was the inverse, stranded demand. How could you serve that demand? Maybe you could serve it with a small microreactor, even if that microreactor's output was expensive, the stranded demand had to pay crazy rates anyway, for diesel generators in a remote Alaskan village, for example, or an army base. And so that's a good starting point, fitting the whole Founders Fund thesis of start with a really small market and grow into a bigger market. Don't worry about your TAM, worry about owning that market and then grow from there. And so yeah, my path to understanding the bottlenecks in nuclear energy was having invested in Radiant, having met so many other advanced reactor companies along the way, and then all of them said the exact same thing. We're going to make nuclear affordable, we're going to make it scalable, we're going to take this from huge construction projects to factory built. And yet the one thing that's the hardest is not licensing – everyone thinks the NRC is impossible to get through, but no, it's not that. They told us it's actually – we cannot get the fuel. The fuel comes from Russia, only Russia makes it. We have to import it. That's quite challenging. And this was even pre-Russia ban. We just need some source of fuel. And so I spent all of 2023 looking into this, trying to understand, okay, of the five steps of making fuel, what's stopping it? Is it all of them? Is it there's not enough uranium? Is it something about the process? And it was the enrichment step. And so, looked at trying to find a company in the enrichment step to de-bottleneck nuclear and to actually get the nuclear future that we want. Could not find anything for an entire year. Finally decided if this is going to exist, it's got to be a new company. It's not an incumbent, it's not a government. It needs to be a new private company. And so this was the important company that nobody was building.
· Scott Nolan, Patrick O'Shaughnessy
This was the important problem nobody was solving that I could somehow actually contribute to. [00:00:00] S0: In all the work you did, what did you learn about the thing you alluded to earlier, which is the relationship between governments and technology? So much of the history of technology in the U.S. was actually military rooted. So much of what we developed was for a military purpose and then became commercial. So the two seem like there have always been deeply intertwined, technology and governments. Curious what you learned about that history. What surprised you? What interested you? Of course, it's relevant for what you're doing now. What have you learned about governments and tech?
· Scott Nolan, Patrick O'Shaughnessy
[00:00:00] S1: My experience through SpaceX was the government wants to work with private industry and wants to solve problems. At SpaceX, I worked on the engine systems under Tom Mueller and did a lot of the structural thermal work on those and helped make sure that they would stand up to the environments and everything and be low cost and high performance. That's ultimately what we were optimizing for. And then once those engine systems were working really well, I moved over to the Dragon capsule. And on Dragon, we were on the NASA COTS program, Commercial Orbital Transportation Services. And it was a multi-hundred million dollar program to bring back two things, capability of launch to space station, and then – first a cargo vehicle, and then ultimately a crewed vehicle that could dock with the space station. The last year or two I was there was really focused on Dragon and working very closely with NASA because we were going to go dock with, I guess, the most expensive asset mankind had ever developed. And so the last thing anybody wants is any sort of issue with a private company's cargo capsule docking with the space station, either… [00:00:00] S0: Smashing it or something.
· Patrick O'Shaughnessy, Scott Nolan
[00:00:00] S0: Smashing it or something. [00:00:00] S1: Yeah, like you would think collision, and yes, that's an issue. But the way orbits work, it's actually – there's some ability to avoid it even if things are off track. The harder thing to really get a handle on was things like thermal and pressure, and okay, you've got this vehicle and it has solar panels and what's the heating on the vehicle and what thermal load is that driving back to the space station and can that handle it? So all these interface requirements. And so we were working closely with NASA on those. And ultimately these were incredibly smart people who believed in space, who had been working at NASA for decades in cases, despite not a ton of growth in space activity. They were there because they believed it and they loved it. And the opportunity to work with a company to like – okay, we have the space station, we have this program, how do we get you guys to the next step in the milestones? How do we collaborate to make sure this is safe, but that it actually happens? Super collaborative, very positive. So I think my takeaway was in industries where you have true believers who are in the government agencies and who have been doing this for a long time – they're there because they want it to happen. And there's a lot of openness and excitement to working together. If the company is credible and cares as much about safety and performance as the agency does. [00:00:00] S0: In your operating time at SpaceX, what did you learn about making great things that work quickly?