Invest Like the Best with Patrick O'Shaughnessy
00:41:04 · Martin Casado, Patrick O'Shaughnessy
[00:41:04] S1: Well let's put NeoLabs aside because I [00:41:06] S0: think that's the least well defined of all of them. I included them to be clear because so many of them seem to be building their own [00:41:12] S1: They're becoming neoclass. Like every pitch, [00:41:16] S0: so many pitches turn into some version of like, we're building a token factory with some degree of vertical integration. And some neo labs are going all the way down to like buying land and power and all the way up through the token, you know what I mean? So there's this Yeah. [00:41:28] S1: I think so in my world that wouldn't be considered a neo lab, that would be it. Like all neo clouds wanna be token factories so I would view if your output is like a token of an existing model architecture. [00:41:38] S0: Or something.
00:41:39 · Martin Casado
[00:41:39] S1: Yeah. Neo cloud. Like all of them want to do that and they will all verticalize. The actual real limitation right now is harbor supply. That's it. It's not capital. It's not debt. That's the actual real limitation and power. So Neo Cloud to me is one that actually provides the physical infrastructure that ends at tokens. And so they can provide GPUs, they can provide fine tuning services or they can provide tokens. But it's like... Think of like a data center that actually has the GPUs in it. That's what Neo Cloud is to me. A Neo Lab to me is, give me a billion dollars, we're gonna come up with a new model architecture. Fair enough. I love a lot of these business plans are like, if we solve ASI, that's our business model. Like literally like that. And by the way, to be fair, that's what OpenAI's original thesis was and to some extent Anthropic, which is like, if you solve the intelligence problem, the business model part is easy. So that's to me a Neolab. It's new architecture, model training, and sometimes they'll buy their own infrastructure and buy their own GPUs, but, like, that's not what they're building towards or selling. The real constraint right now is power. It is chips. It is materials. With that sort of a limitation, 80% of these things are gonna go to the scale providers. 20% are just gonna be kinda hard to reach places, nichey type places. Like I have the relationship with a random government that has the power. You know, it's kind of funny. I met this company, a GPU marketplace, that's what it does. But it's like the most low level version of it and like many of their GPUs converted chicken sheds, you know, like like like chicken coops where like people in farms are like finding ways to provide it. So the market is so large, there will always be a significant portion that just doesn't make sense for the SpaceXs to do. Like SpaceX is not gonna go and find out how to create a marketplace of chicken coop GPUs. I think this is what end up happening is the 20% is large enough to have a very wide fragmented array of folks, but then the 80% of the market are gonna be these homogenous things like SpaceX.
00:43:28 · Patrick O'Shaughnessy, Martin Casado
[00:43:28] S0: I heard this story recently that someone asked Larry Page how much of compute will be orbital and he said five nines and the reason was it's just physics. Eventually it's all gonna be in space. [00:43:38] S1: The actual space thing actually pencils out but the reason it makes the most sense is just regulatory. [00:43:43] S0: Just because it skirts it? [00:43:44] S1: Yeah. There's 500 proposed legislations to stop data center building in The United States alone including Texas, right? Like if you can't build a data center in Texas, I don't know what we're doing anymore. If that regulatory pressure continues and you actually can't break ground and I've heard from many of the top data center people like it's very tough to break ground right now, then either you go international or you [00:44:03] S0: go into space. Your comment on these software companies growing 60% reminds me to ask about prevailing valuations in the market. And as a productive investor that's focused on disruptive assets being created, even if the disruptive asset is truly incredibly valuable and great, every one of those has a price that will ruin the return of investing in it if it's too high.
00:44:03 · Patrick O'Shaughnessy, Martin Casado
[00:44:03] S0: go into space. Your comment on these software companies growing 60% reminds me to ask about prevailing valuations in the market. And as a productive investor that's focused on disruptive assets being created, even if the disruptive asset is truly incredibly valuable and great, every one of those has a price that will ruin the return of investing in it if it's too high. [00:44:25] S1: So this is another one of my bugaboos. I don't know how you can be a VC and not believe tech creates value, which is the first conversation I had. Now I'm gonna have a second conversation which is I don't know how you can be a VC and not believe markets are efficient. What are we doing? Like, we're capitalists. You have to believe markets are efficient. I think private markets are very efficient and private markets figure out the price. And so I just don't try and bet against the market. I think a lot of people think that private markets aren't efficient and so you can find the deal and find a non consensus deal and all of those deals were incredibly competitive. And I didn't win by looking for a deal or whatever. I pay the market price and maybe I'll get a little discount for negotiating or whatever, but I never really worry about that. And so as a productive investor, I just trust that the markets are actually pretty smart. And I trust that the markets will value it given the risk adjusted and I believe that my diligence reduces that risk for me. I don't do it on market value. I'm not trying to find a better price. I'm just trying to find a less riskier asset.
00:44:25 · Martin Casado, Patrick O'Shaughnessy
[00:44:25] S1: So this is another one of my bugaboos. I don't know how you can be a VC and not believe tech creates value, which is the first conversation I had. Now I'm gonna have a second conversation which is I don't know how you can be a VC and not believe markets are efficient. What are we doing? Like, we're capitalists. You have to believe markets are efficient. I think private markets are very efficient and private markets figure out the price. And so I just don't try and bet against the market. I think a lot of people think that private markets aren't efficient and so you can find the deal and find a non consensus deal and all of those deals were incredibly competitive. And I didn't win by looking for a deal or whatever. I pay the market price and maybe I'll get a little discount for negotiating or whatever, but I never really worry about that. And so as a productive investor, I just trust that the markets are actually pretty smart. And I trust that the markets will value it given the risk adjusted and I believe that my diligence reduces that risk for me. I don't do it on market value. I'm not trying to find a better price. I'm just trying to find a less riskier asset. [00:45:22] S0: Doesn't it follow though that then the approach would be to actually try to index the private markets? Like you just try to own literally the market weights of...
00:45:22 · Patrick O'Shaughnessy, Martin Casado
[00:45:22] S0: Doesn't it follow though that then the approach would be to actually try to index the private markets? Like you just try to own literally the market weights of... [00:45:29] S1: Oh, I would love to but you can't. I would love to, of course. Yeah. So this is right. So this is where this all lends to. And this is kind of how we think about investing. Of course, if I have an index of every competitive... Like literally my my dream would be I get 5% [00:45:42] S0: cognition when you buy Cursor.