Invest Like the Best with Patrick O'Shaughnessy
· Martín Escobari
[00:00:00] S1: This is a funny story. When I got promoted to chairman of the investment committee, so elevated from a Latin American role all of my life to head of the investment committee of General Atlantic, this iconic global, I was lost. So, I go to the two founders, Steve Denning was the CEO for the first 20 years, army man, McKinsey man, Stanford, MBA structured. I say, "Steve, how do I make decisions across so many geographies and business models? What's the framework you think I should apply to add value to my partners? And he said, you should develop a checklist that captures the characteristics of a winning GA deal. So, go back and look at our 25 years or history, our best deals. I'll share a couple of characteristics. I give you the 3Ms, but they're probably 5Ps as well. Create a checklist." And I was like, "Yeah, checklist." Same day I go to the co-founder, Dave Hodgson. He's just super good, but just the smartest guy in the room always. And I asked him the same question and the first thing he says, "Avoid the temptation to use a checklist. If it was as simple as a checklist, we wouldn't get paid millions of dollars to do what we do." And I was say, "Checklist not just, okay." So, whenever there is a paradox, there's an elegant unparadoxing of the paradox. So, Daniel Kahneman, Thinking, Fast and Slow, Checklist Manifesto built on work he did for the Israeli defense forces to create the checklist for the elite agents. Turns out, the checklists work, but in applying the IDF checklist, there were these super interviewers that got even better results consistently than just the average interviewer. So, there was something beyond the checklist that was statistically significant. And there's one interview of the super interviewer where she says, "I do the checklist because I have to. But after I do the appraisal, I close it and I close my eyes and see how I feel, and I go with my gut." And she has perfect scores. So, the framework I use for what's the perfect Martin or GA deal is the combination of a checklist with my gut, which I call the educated intuition. What's in the checklist of things we like? Huge temps, business models that create economic value and have mode, teams with the right go forward capabilities, situations where there's inorganic growth to get and there's tremendous amount of strategic value.
· Martín Escobari, Patrick O'Shaughnessy
Meaning, someone will overpay to have this capability if we are successful. So, those are the things that the checklist suppliers. Me personally in the deals I've led, they have to make the world better. I am so proud that I invested in the number one investing platform in Brazil when there were only 80,000 people that owned stocks in Brazil and now 10 million people own stocks. [00:00:00] S0: What's it called?
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: What's it called? [00:00:00] S1: It's publicly traded, $10 billion market cap. I invested when they were nothing. I am so proud that I went against every convention and invested on an EdTech company. EdTech was a dark alley. We have power alleys. There are some places we don't touch. And I was like, "No, no, no, this is different. This is different." This little company in the northeastern Brazil, which was creating K through 12 learning systems. Instead of using textbooks, you package everything in as a hybrid notebook with digital, dah, dah, dah. Went from 80,000 students to eight million students. Eight million kids every day today use this platform and it's world-class. It's really good content and it's an amazing entrepreneur, son of a teacher and we made money. We have a platform that 97% of financial institutions use for digital onboarding. Turns out Brazil is the world capital of online fraud and this is the one company that catches it. And I'm so proud that I started mentoring this kid when this company was nothing. And I did it through Endeavor and it took me eight years before I had became invest in for J and then we invested, and now they're dominant. And if they mix the world better, you see it's beyond money, it's energy. [00:00:00] S0: If the checklist is mind and the instinct is gut, have you met a great investor who's mostly heart?
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: If the checklist is mind and the instinct is gut, have you met a great investor who's mostly heart? [00:00:00] S1: No, I think heart is super important if you want to be a leader of a large organization because you have to move the hearts of hundreds, thousands of people to row in the same direction with purpose and with effectiveness and that is crucial and the heart is so powerful, it overrides God and brain. And to do it at scale, you see these people that are super good leaders, the energy is captivating and they are wizards of the trade. It's really hard to do all three, and part of being a good investor is to not fall in love because at the end of the day, you have a fiduciary duty to produce returns and you have to make some tough calls. Love is a treacherous though. Funny story, so the one time that I didn't follow the checklist was for love. So, obviously I had a checklist for the woman I'm going to marry. And when I met Daniella, my Portuguese teacher, she didn't score very high on the checklist. [00:00:00] S0: Where was she deficient? [00:00:00] S1: I won't say, but things that are absolutely irrelevant to the task at hands. I had the wrong framework and she was perfect in every way and she's been perfect in every way. So, it matters of the heart, forget the checklist, but I don't think the three of them come together in the investment profession. [00:00:00] S0: You mentioned the two founders. What about Bill Ford? What have you learned from him?
· Martín Escobari
[00:00:00] S1: So much. I've worked with Bill for 15 years, actually pitched Bill, my startup, this is 1998, came in through New York and I had heard a lot about General Atlantic and how they're different and they think long-term and they're good partners and Chuck Feeney... it's really hard to get the meeting. We give them the meeting. Bill and I really hit it off. I made the pitch and he's like, "Ah, we're not ready for Brazil. I'm really sorry." I was heartbroken because I really wanted GA and Bill was an amazing guy. Ten years later after I sold my business, I was working at another fund, he called me and he's like, "Remember me?" I said, "Yeah, I remember you." He's like, "Can we try this again?" I said, "Yeah, we can try this again. But just for you, you would've made 18 times your money or you had said yes, like what." He said, "Yeah, yeah, I know, I know, I know, so come." Bill has an incredible ability to see around corners and be visionary in making bets before they're obvious. So, going into Europe, going to the emerging markets, going into consumer, going into life sciences, pushing me now to go into robotics and human noise is an incredible ability to look around corners. Here, also in managing the partnership and US has heart, not for investment, but in keeping our culture the meritocracy of the firm also with heart has helped me develop as a leader of GA and letting speaking more a little bit from the heart and is an incredible moneymaker. So, his mind is just fantastic.
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: That helps too, that helps too. That's detailed. As you've progressed in your investing-specific career, what changes the most as you become more senior? How does it feel the most different doing it today versus doing it when you're a lots to prove young analyst? [00:00:00] S1: The hardest thing when you're young is developing patience and the conviction that you can wait a little longer for the big fish. You're young... [00:00:00] S0: You want to get going. [00:00:00] S1: You want to get going, you want to get deal experience. You want to get notches on your belt and that's the completely wrong instinct. When you're older, you have a lot more reigns, you've seen a lot more and you've got patience. You're like, "Ha, ha." Nothing scares me and I know what big fish will come, come down. No pressure. You are less in the front lines and more as a coach player, training young partners to do what you used to do and initially that can be very demotivating because Tom Brady likes to be in the field not coaching or opining on Fox... [00:00:00] S0: Commentating, yeah.