Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: We were talking last time about in any business, but certainly in yours, the three key stakeholders being your team talent that you have to recruit. And I want to talk about that in detail. Capital investors and customers. Maybe suppliers too is a fourth category, but especially interested in the first three. And the last time we were together I asked you which one do you have trouble with? And we laugh because you said, well, definitely not investors. Talk a little bit about the demand from investors to invest in companies yours and how that feels. What are they doing to try to give you more money, get on the cap table? How competitive does it feel? What does that feel right now? Because it does seem there's a handful of companies yours that are in one of these white-hot areas that have key traction, that have great teams and basically every investor wants to be involved in those companies. What does that feel like?
· Jesse Zhang, Patrick O'Shaughnessy
[00:00:00] S1: It definitely feels there's maybe a little bit too much excitement right now on the AI side. It just seems way too easy to raise money. So many companies out there, I mean for us we've been very fortunate, right? We don't take it for granted. I mean, I think in my first company we were also fortunate. It was easy to raise, but it was for different reasons in 2021. Nowadays, it's just there aren't that many AI companies that have real, real traction on the revenue side, especially in the enterprise. And so I think that's attractive to investors because they want to deploy their capital into AI and that's the biggest trend. So I think we've had a great relationship with all of our investors. I think we just really selected for folks that we get along with at a personal level and we feel will be very helpful for our go-to-market normally. Yeah, that's kind of been an interesting process. So, yeah, pretty much after every single time we've raised a round, we just almost immediately gotten preempted. And that alone can't be right here. Thinking first principles to make an investment. The previous valuation should not be a super big factor in that. It should be: how well is the business doing? What do I believe the potential is? So it feels there's a little bit of mania. But yeah, we're definitely, I would say, more indexed on the other two things: talent and customers. [00:00:00] S0: What's the craziest thing that an investor has done to try to invest in the business?
· Patrick O'Shaughnessy, Jesse Zhang
[00:00:00] S0: What's the craziest thing that an investor has done to try to invest in the business? [00:00:00] S1: I don't think there's anything super crazy. The main thing that we do, and I would actually encourage more founders to do this, is that during the stage where people want to invest but they haven't yet, that's when they're most willing to be helpful. And so it's actually a great way for you to use that to proxy how helpful they'll be afterwards. Because if they're not that helpful in that stage where they really, really want to invest and they're willing to do anything, they're for sure not going to be helpful afterwards. I mean, they'll still be friendly and hopefully they'll not be detrimental. But that's your opportunity to really test folks and see how helpful someone will be. And we obviously know a lot of investors very well. I think no one has an issue with that. They know that they're going back to competition. They're also in a competitive sport. They know that they need to earn basically the ability to invest in the best companies. And so I think from their perspective, they're happy to work for it. So if you just give them opportunity to, they will.
· Patrick O'Shaughnessy
[00:00:00] S0: I'm going to ask about this from both founder and investor perspective. What advice would you give investors during that window? When there's a fundraising that's happening, you know, there's sort of an open process or a window or whatever, or what have you seen the best of them do? Well, not just, I'm sure, helping you, here's 10 customers you can talk to. I'm sure that's great. But also on the underwriting side, them making sure they understand your business extremely well. I'm expecting as a short period of time, what have the very best done in that window?
· Jesse Zhang
[00:00:00] S1: Number one, I think the best investors get this dynamic. We've definitely talked to a lot of high-profile investors where they're just not willing to help much until they're invested. Totally, they're right. It's hey, we have a lot of our current investments. We don't want to use our social capital or whatever to help with an new investor or a new investment. But I think from a founder's perspective, if that's the case, then it's hard to tell if you'll actually be useful or not. There's no difference between you saying that and then someone who can't really help and just saying that. I think the best ones just are able to give a lot of signal to the founder that hey, I'm really willing to help, I have the ability to help and we have a very strong network or we're very good at certain elements of go-to-market and we're just able to show that in the—let's say it doesn't have to be that long a period of time, a couple months before the round actually happens. That's one thing. I think the other thing is that if you just think about anyone you bring into the org, this could be employees or investors or advisors or anything. What we really index a lot on is just cognitive ability, raw intellectual throughput. And you can almost feel that out in an investor in the same way you would feel it out in an employee just by spending time with them and just actually seeing if they're thinking about things from first principles of your company. For example, right. A lot of AI companies are growing much faster than traditional SaaS companies right now. Because that's the case, a lot of things are different. You generally don't want investors that are just so many reps. You got to do things XYZ way. You want people that are just intellectually curious and will think about things along with you and can help problem solve.
· Patrick O'Shaughnessy, Jesse Zhang
[00:00:00] S0: What about on just the pure underwriting side? So an investor comes in, they're really smart. Let's take that for granted. They just want to understand your business. The good, the bad, the ugly. As fast as possible. What have you seen the best do in that side of the investment process? Including things like how fast they move or how deliberate they move or anything like that. [00:00:00] S1: I think the best ones, I would say they all mean one, they get a very deep understanding of our customers. It's actually funny, our customers have made probably so much money on expert calls because so many investors are hitting them up and I think the best ones can before they even talk to you. They've probably already done quite a bit of research and have a pretty full view on your customers. Unfortunately, I think what we've seen is that there is a lot of noise there because a lot of people just lie on customer calls. And we have people who had said that they've used us and we literally never heard of them. But generally if you do enough research and you're good at it, then you can underwrite the business that way because that gives you the most signal. And the other one is people that index on culture because I think culture is quite important and a lot of good investors know how important that is. And so if they feel you are becoming a place where good talent is congregating, then folks will index on that more.