Invest Like the Best with Patrick O'Shaughnessy
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.
00:59:03 · Martin Casado
[00:59:03] S1: One thing I will say is venture is not what it used to be. The startup ecosystem is not what it used to be. I mean, you look at the largest private companies right now, they would rival any public companies twenty years ago. I think like Stripe or Databricks or like SpaceX before an IPO or Andreessen. These companies are massive. And so one of the problems is is what it means to be a startup has shifted so much that now you have this undefined quagmire of who should probably be public investors investing in early stage startups and I just don't think those intuitions are right and so I think that's kind of the root of the confusion. I think maybe it just actually makes sense to start delineating a bit more on the private side Or if you have later stage people investing in earlier stage companies, maybe a little bit more self awareness. Like for example, you wouldn't put me on a mining company board. So remember 2021 and we'd have these PE investors and they would invest in these series p companies. I would sit on the board with these people and it's like, it's literally like putting me on the board of a mining company. Yeah. Have no idea, like they're like trying to like reason about the company through like burn. Like dude, you're gonna be miserable here because all we do is burn cash for a long time. It's more kind of the blending of the lines because private companies are a real asset class for late stage investors. A lot of this is just growing pains. Like how much larger do you think the market is now than it was thirty years ago? Thousand times? So of course of course the industry is gonna have to mature around that and of course you're gonna have to view it like a kind of later stage investor, of course. But I just think that there's this funny identity crisis with a lot of later stage investors who view the world that way just because they're in private markets and their VCs think that... For example, I would never invest in a late stage company. Like I don't think it goes here like I'm gonna... I'm like, what would I do? I'd go there and tell you how to like run a finance operator, it's just not me. So I think that's it. It's basically the encourage of traditional banking and traditional finance and venture which absolutely belongs there.
01:01:05 · Martin Casado, Patrick O'Shaughnessy
I just think sometimes it kind of reaches a little bit too low and then you would have these issues. You have these issues in m and a where they're like, whatever. Let's run an auction and let's do all this other stuff. You have it in the operations of a company where, like, you're 20 people and they're ready to up burn or they're over rotating on metrics for disruptive technology. I just feel like we need to kind of bring back traditional productive VC for some subset of this and there's enough market for everyone. [01:01:33] S0: Has anything changed about how when you meet somebody for the first time? Like if I came and watched 10 meetings in a week with you ten years ago when you started. Yeah. And then I came today and watched 10 meetings with you. Have you changed how you conduct your early interactions with founders?