Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: Five years. [00:00:00] S1: Ever, five years, closed the deal in a week and then he waited 10 years until Antarctica was in trouble when a big devaluation and closed the deal in three months. And then he waited another seven years to do a deal with Interbrew. And then the biggest of all deals waited a following decade to do a deal with Anheuser-Busch. And basically over this period, 80 million dollars initial investment in Brahma became a 60 billion dollar plus, excluding dividends, but they're great fishermen and they wait for the big fish. And as a concept, that is something I've learned from them, which is every four or five years there's a once-in-a-generational opportunity that you have to be ready and be willing to move quickly to capture. And if you do, you can create this proportional value for your company, for your investors, for your employees. [00:00:00] S0: Do you have a story of your own that is the closest to a great spearfishing outing? [00:00:00] S1: As an entrepreneur ... I wasn't an entrepreneur. I was set out by these three guys to go and find great entrepreneurial companies and invest 500 million dollars in 20 companies. You got 18 months, go. In month three- [00:00:00] S0: That was your mission. That was specific ... Yeah.
· Martín Escobari
[00:00:00] S1: That was my mission, that mission number went out of business school. Now that I was speaking Portuguese, I could go and ... And by month three, I remember talking to a buddy of mine, because we were benchmarking different models and buddy of mine had taken a job in the US company that went public in the dot com era. Clearly a bubble, being valued at 20 times revenue, which sounds quaint by today's standards, by 1998 standards. And I said, "Dennis, it's a bubble. How does it feel to be in a bubble?" And he said to me ... He grabbed my hand and he said, "Martín, it feels better than being outside the bubble." And I was like, "He's absolutely right. I have to go into this bubble. I'm in the wrong side of the table." So very quickly left the fund and within, I think three months, we had raised 80 million dollars to launch submarino.com, which was the E-commerce, amazon.com merged with Alibaba to take on Brazil. And that happened very, very quickly. A second time after we sold my business, during the GFC, I was working for another fund briefly and looking to buy the sort of a fixed income exchange in Brazil. It's a dominant platform, 80% EBITDA margin business, a lot of competition. And then all of a sudden the GFC happened and everyone dropped out, everyone. And I was like, no double down. And we were able to buy a market dominant high margin business, that's six times EBITDA and we did it in two months. And people were like, "What do you mean you're doing something with the GFC?" And I said, "If we're not willing to buy a dominant platform at six times EBITDA, we should shut down. It means the world is ending and we should ..." The world is not ending. A dominant platform will always be worth more than six times EBITDA. And it's been ... every three or four years, there's one such unique distortion that you have to move very quickly. That's perhaps one of the learnings of being an entrepreneur in the dot com. I'm a rare investor that has been an operator. It's not just I have been an operator. What the dot com taught me ... And I just realized this recently, you can do seven years of work in one year.
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: Say more about it, what do you mean? [00:00:00] S1: Elon Musk says, "Do your 10-year plan and try to get it done in one year." [00:00:00] S0: Yeah. [00:00:00] S1: You're like, he's crazy. Look what he's built. In the dot com, it felt like the world was on steroids. In Submarino and only had we raised 80 million dollars within the first three months. Within one year, I was in charge of international. We open Submarino in six countries. With warehouses and customers and registrations and teams, it was done in one year. If you had told me how only it would take a normal person to do that, I would say three to four years going fast. And we were like, no, we have to do it. First move, moving will be incredibly valuable, we did it in one year. So it's this ability to move very, very fast to capture opportunities which are fleeting, which seem humanly impossible or actually not.
· Martín Escobari, Patrick O'Shaughnessy
[00:00:00] S1: You're like, he's crazy. Look what he's built. In the dot com, it felt like the world was on steroids. In Submarino and only had we raised 80 million dollars within the first three months. Within one year, I was in charge of international. We open Submarino in six countries. With warehouses and customers and registrations and teams, it was done in one year. If you had told me how only it would take a normal person to do that, I would say three to four years going fast. And we were like, no, we have to do it. First move, moving will be incredibly valuable, we did it in one year. So it's this ability to move very, very fast to capture opportunities which are fleeting, which seem humanly impossible or actually not. [00:00:00] S0: This seems like a moment of that is happening again maybe on Mega-steroids. Think of a company like Cognition as a recent example that I know well, where the pace of growth of the business is just sort of hard to believe that it's possible. Serving developers maybe previously a company like Stripe, which is one of the great companies in the US in the technology world is a certain size. It's grown that size over 15 years and these things are growing at a pace that it's sort of hard to wrap one's head around. And so, I'm curious how you think about that in the current moment right now, but also, what lessons you learned about what it takes to go to put a ten-year plan into one year. What is different about the behavior in that compressed one-year period that makes that possible?
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: This seems like a moment of that is happening again maybe on Mega-steroids. Think of a company like Cognition as a recent example that I know well, where the pace of growth of the business is just sort of hard to believe that it's possible. Serving developers maybe previously a company like Stripe, which is one of the great companies in the US in the technology world is a certain size. It's grown that size over 15 years and these things are growing at a pace that it's sort of hard to wrap one's head around. And so, I'm curious how you think about that in the current moment right now, but also, what lessons you learned about what it takes to go to put a ten-year plan into one year. What is different about the behavior in that compressed one-year period that makes that possible? [00:00:00] S1: So this is like my fourth or fifth bubble and all bubbles are born out of a truly transformative technology. In all the previous bubbles, they promise it was spectacular. The short term was disappointing and the long term delivered more than expected. But in that process, a lot of fortunes were made and destroyed. So I think as a firm that General Atlantic has been around for 45 years. We try to make different mistakes in each bubble and I'm sure we're- [00:00:00] S0: Making your own this time. Yeah.
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: Making your own this time. Yeah. [00:00:00] S1: Our approach this time different from the internet has been to be incredibly aggressive at deploying AI in the portfolio. The promise of AI is clear to everyone. Let's see what's working in the real world and let's share Brecht's practices. And we have an incredible scale with over 200 portfolio companies. We have 100 people in our portfolio support, portfolio operations team. This year we'll do 500 projects with the portfolio. A third of them are AI projects. So we're seeing what works in the front lines. And as soon as we see a use case with real ROI and a real revenue to the provider of the service and you can sort of model what the economics and the cost to serve and what the long-term profitability maybe is of this exciting new market, then we pounce. The first one where we fell that has happened is co-generation. [00:00:00] S0: Yeah, Cognition and Cursor- [00:00:00] S1: And it just happened right now, in the last 12 months. [00:00:00] S0: It's crazy.