Invest Like the Best with Patrick O'Shaughnessy
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
00:55:26 · Patrick O'Shaughnessy, Martin Casado
[00:55:26] S0: you tell from your perspective the story of let's say the Cursor since that's the biggest one of that acquisition since you're such an involved investor? Give us the story. [00:55:34] S1: We're just about ready to get a raise done. We raised a few billion dollars that was getting done, but this is about the time that Methos came out. And if you worked backwards, realize it probably cost... I don't know how much it cost, but it probably cost, say, $3,000,000,000 to make Methos. And so we're like, if Cursor is gonna build models, we need to raise more money and get access to those compute. And so then of course that kicks off strategic discussions, like there's not a lot of people that have access to that much compute. And so then you have those conversations and then, of course, there's quite a bit of interest in the company as a result just because the company had by far the most users and by far the most data. Again, this is one of these great examples where in the end, SpaceX had the compute and Cursor did have the data and had a team that had very successfully built models and built this practice and code was very important. So there was just a lot of alignment. And it always helps to have a raise because that helps actually set the value and set the price of these things. So that was actually a fairly straightforward
00:55:34 · Martin Casado, Patrick O'Shaughnessy
[00:55:34] S1: We're just about ready to get a raise done. We raised a few billion dollars that was getting done, but this is about the time that Methos came out. And if you worked backwards, realize it probably cost... I don't know how much it cost, but it probably cost, say, $3,000,000,000 to make Methos. And so we're like, if Cursor is gonna build models, we need to raise more money and get access to those compute. And so then of course that kicks off strategic discussions, like there's not a lot of people that have access to that much compute. And so then you have those conversations and then, of course, there's quite a bit of interest in the company as a result just because the company had by far the most users and by far the most data. Again, this is one of these great examples where in the end, SpaceX had the compute and Cursor did have the data and had a team that had very successfully built models and built this practice and code was very important. So there was just a lot of alignment. And it always helps to have a raise because that helps actually set the value and set the price of these things. So that was actually a fairly straightforward [00:56:29] S0: deal. I'm curious if there's anything similar lesson wise from OpenRouter or from FitFace company WorldLabs. Anything else that is shareable from those two experiences that might bear some lessons from this kind of strategic M and A?
00:56:29 · Patrick O'Shaughnessy, Martin Casado
[00:56:29] S0: deal. I'm curious if there's anything similar lesson wise from OpenRouter or from FitFace company WorldLabs. Anything else that is shareable from those two experiences that might bear some lessons from this kind of strategic M and A? [00:56:43] S1: So I'm gonna go back to what I said, which is for these strategic M and the most important thing is the intuition, especially of a lot of investors is there's a deal going down, we need to play games, we need to leak it to the press, drives me fucking nuts. We need to get other companies in and you don't realize like you're literally dealing with the most sophisticated people on the planet. I just don't think you walk up to Zuckerberg and you're like, oh, like I'm gonna beat you in poker dude, that guy will fucking take out your sucker. Every one of these deals, and these are world record deals, the companies in very good faith engaged with the buyers. They didn't play any games and they knew that they were worth a certain amount of money because they had done raises or there were market comps and there was a lot of trust. Having now done so many of these deals, I've just found that that approach for strategic M and A is the right approach. And I've been part of deals that are that size that have fallen apart because somehow a board member got into the head of the founder that, oh, you need to get competitors, you gotta leak into the... I mean, god, that Open deal drove me nuts. Like, I got leaked. Did you notice, by the way, that World Labs did not get leaked? [00:57:50] S0: Yeah. Interesting.
00:57:50 · Patrick O'Shaughnessy, Martin Casado
[00:57:50] S0: Yeah. Interesting. [00:57:51] S1: Didn't get leaked because we didn't tell anybody. Was like me and Jose, there's a few people. OpenRouter was leaking constantly, right? And I think a number of VCs think, this is how you drive up the price or this is how you get it done. You see these things leak all the time. That destabilizes deals. Again, I think the most important thing is a structural thing like your intuition as an investor in particular that this is like some commodity asset and it's about playing poker. It's just wrong. If it's strategic deal for a lot of money, I think you need to view it very professionally. I think you need to develop a trust relationship. I think you need to do it in good faith. You should not leak these deals and realize that the people that are counter parties to this are the most sophisticated people in the industry. The founders in every one of these cases treated it that way. Michael Truell treated it that way and the team Alex and Chris treated it that way for OpenRouter and for sure Fei Fei treated it. [00:58:39] S0: How are you seeing the role of investors evolve? Both literally how it's evolving across these many many boards that you're on, but also some commentary on if you think investors generally of your type are doing a good job or actually helping companies. It seems like because the stakes are so high, growth is so big, the capital dollar amounts are so big that all these investors are overseeing, it's kind of crazy. Some commentary on like the role of the investor.