Invest Like the Best with Patrick O'Shaughnessy
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
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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
00:54:08 · Patrick O'Shaughnessy, Martin Casado
[00:54:08] S0: The company's job is to show the inductive step. [00:54:10] S1: The company being acquired or both of them. The the discussion [00:54:14] S0: The clearing has to
00:54:14 · Patrick O'Shaughnessy, Martin Casado
[00:54:14] S0: The clearing has to [00:54:15] S1: Yeah. The discussion for the m and a has to be that you have the base case, you have the abductive step. Therefore, you can get this to this market, which is like the large markets that happens. And that conversation, in my experience, is one kind of only founders can do and maybe investors that really understand strategically what is going on. But those conversations are almost like really high stakes enterprise sales. I've been a part of a lot of more auctiony type m and a. You never have those conversations. You're looking at the financial metrics and the spreadsheets and can they're buying an asset, etcetera. They've got a very different flavor. But I think that, especially with the timelines going down on tech, I think we're gonna see more and more strategic exits. And so I think it's probably important for people to get pretty smart of how these things look. And it's very different than they assume. And most people assume you should hire a banker and you should have an auction and get the highest price. Hiring a banker is fine. You can do that if you want. But the idea that you're gonna go to the apex predator, someone like, whatever, Mark Zuckerberg and play poker, you're kidding yourself. Right? Like, these things are built on trust and telling out a story, not playing games or playing poker. And so I just think that there's a mindset that you need to have if you're gonna engage in these things that's quite different than the intuition. So can