Invest Like the Best with Patrick O'Shaughnessy
00:47:19 · Martin Casado
[00:47:19] S1: to the... Yeah. Okay. I think venture capital early on... And I wasn't there. I just read the books. I think it believed that tech created value. I mean, often there was no business to evaluate. And I just don't see so much hand wringing about bubbles or this or that or the other thing. The market price is the market price. To me there's always this huge dissonance when I'm talking with other investors, they're always decrying the bubbles which nobody could ever predict. By definition, everybody's calling it a bubble is probably not a bubble. Like, it's almost a bubble like when everybody's investing because they think there's still upsides. And then they don't somehow think private markets are efficient. Remember I got VC canceled because I'm like, non consistent investing is dangerous. I once on Twitter was like, hey, listen, I think it's dangerous to invest against consensus because basically there's follow on capital risk. And from saying that, many prominent VCs came out and they were like, oh, like all of these deals that we've done were nonconsensus. And I think there's something very tied to the ego and the identity of investors that they have to believe that they can truffle hunt and find the nonconsensus thing. They're smarter than everybody else. But I think the reality is is certainly if you look at our portfolio, the ones that return money were actually very, competitive in general. I just think these markets are actually quite efficient.
00:48:30 · Patrick O'Shaughnessy, Martin Casado
[00:48:30] S0: I love the idea of market efficiency and private markets being one area that you disagreed with lots of well known [00:48:35] S1: Yeah. And apparently, a whole lot. [00:48:37] S0: Apparently all of them. Are there any other areas like that where you feel especially alone? [00:48:41] S1: Yes. That's another one that drives me nuts. This is my last one [00:48:44] S0: I promise.
00:48:44 · Martin Casado
[00:48:44] S1: Okay. Another thing that drives me nuts is this belief that if you put money in private markets, it doesn't somehow grow the TAM of private markets. I love Roelof. I think he's fantastic. He's an incredibly intelligent guy. He's a great board member. But he gave this talk, do you remember at TechCrunch Disrupt... Many investors believe this. So this isn't a call for Roelof because I was actually a huge fan of his but he was like, venture capital is not an asset class. There's only 20 startups that matter and that's it. If there's too much money going in, you've overfunded private markets. And to me, this is ludicrous. Capital creates opportunities and markets and value. And even though there is so much more money that has gone into private markets in the last twenty years, the value in the private markets has kept pace. Right? You've gotten massive private companies, tons of opportunities, very large exits. And so this zero sum thinking about private markets is so bizarre. Like, we're venture investors. We create value. Like, tech creates value. We put more money in it, it'll grow. And you will be surprised, and maybe you won't be surprised, but I've been very surprised how common this mindset is. And very often I'll talk to a pretty senior GP who's been investing for twenty years. They'll be like, oh, there's too much money. I'm like, what are you talking about? There's been more money in there. We need more ecosystem, more value, more investment. So I do believe money in private markets creates TAM. It creates the investable TAM. I think it creates value. I think there's more opportunity to deploy money now in private markets than ever has before. Even very simple examples of that are like companies not going public. Like if there's more private money available, why would you even go public? Again, we need to all step away from zero sum thinking. I think we all need to believe that technology creates value. Now, especially with AI, we need to believe that capital enables technology to create value. And if that's the case, more money in private markets, we should deploy the money and we should create the value.
00:50:37 · Patrick O'Shaughnessy
[00:50:37] S0: Your finance team isn't losing money on big mistakes. It's leaking through a thousand tiny decisions nobody's watching. Ramp puts guardrails on spending before it happens. Real time limits, automatic rules, zero firefighting. Try it at ramp.com/invest. As your business grows, Vanta scales with you, automating compliance and giving you a single source of truth for security and risk. Learn more at vanta.com/invest. Ridgeline offers one unified platform that automates away the complexity across portfolio accounting, reconciliation, reporting, trading, compliance, and more, all at scale. Schedule a demo at ridgeline.ai. Every investment firm is unique, and generic AI chatbots don't understand your process. Rogo is built by finance professionals. It's connected to your data, learns your process, and quickly produces client ready outputs. Check them out at rogo.com/invest. The best AI and software companies from OpenAI to Cursor to Perplexity use WorkOS to become enterprise ready overnight, not in months. Visit workos.com to skip the unglamorous infrastructure work and focus on your product. You've been on NBA Jam terms. You're like the player that's like on fire. It can like jump really high between Cursor and Fei Fei's company and Open Router, you know, all of these in a very short period of time. Well done. But I'm more curious about lessons you learned about M and A and what's going on in this market having been a part of maybe the three biggest major scale M and As in the last couple months.
00:52:06 · Martin Casado, Patrick O'Shaughnessy
[00:52:06] S1: So actually, I I kinda have a history with strategic M and A going back to my company. So when sold my company to VMware, there was a $1,260,000,000 exit which at the time was the high... I think I beat David Sachs' Yammer. It was the highest acquisitions I've ever He counting, yeah. It was kinda funny because Catalyst showed me this chart. It was just multiples of revenue at the total exit and there's two outliers and it was like, yeah. [00:52:32] S0: You're an Arab
00:52:33 · Martin Casado
[00:52:33] S1: company. They're like really close to each other. I was like, marginally better. Just a small bet. At the time, I think that was the highest acquisition of multiples of revenue enterprise software. And then actually, I was part of a deal that beat that which was the Tabular acquisition to Databricks. And then of course, Cursor, think it was the largest price fit acquisition ever. And then of course, know, Fei Fei's acquisition was a very large acquisition. Have this been a part of a lot of these strategic m and a? And so I think my comment only goes to strategic m and a. I've noticed a few trends. One of them is there's almost always deep personal alignment because it's a real risk for both sides. I think like Lisa Sue and Faith, I think Michael Truell and Elon or think like Alex and Patrick. I mean, you know almost always have people that have same visions of the future and they think about it the same way whether it's you think in terms of markets or you think in terms of infrastructure or you think in terms of data. That's almost always present. There's some existing alignment. The second one is you have to take it from the mind of the buyer. So what the buyer is doing is they're basically buying an option on a large market. So in the case of VMware buying the Nicira, they're buying a $1,000,000,000 option on a $40,000,000,000 market. And so in order for that to make sense, you kind of have to solve the inductive proof for them. You have to show them the base case, which is we have this business that sells into networking. We can get that budget. And then you have to do the inductive step, and you guys have virtual machines. So if we attach this to a virtual machine, we can sell more. And then therefore, for part of you, we can sell a whole bunch of these things. So you almost... Because they're buying a future option on a market