Invest Like the Best with Patrick O'Shaughnessy
00:44:49 · Eric Vishria
[00:44:49] S2: I don't, and I'll explain why, and it's certainly informed by watching the LLM evolution. Some of the people who were involved in the early LLM at OpenAI really understood that code was gonna be important, and obviously, you know, the product team had this perspective that you could get to RSI if you got code generation going and automating AI research and whatnot. If you think about it, the first use cases were very much language oriented, they were very much essay writing and editing and marketing. Like, I think the first application that really took off was Jasper, which was just writing marketing copy. It's gonna evolve a lot basically. I think laundry is kind of a good task because it's arbitrary, it's complex, it requires dexterous manipulation, it isn't time sensitive. If it takes three times longer, so be it, who cares? Doesn't matter, just let it run all day. So I think it has like some of those properties. I don't think the task is actually that important. What I think is much more important is, are you pre-training an amazing model than being able to post-train on top of it and get that flywheel going? If you get that fly Then the task capability will just
00:45:57 · Patrick O'Shaughnessy
[00:45:57] S0: keep multiplying. Maybe this question will be annoying or slightly uncomfortable for you, but if you ask basically every founder and critically other investors of your type, almost everyone, if I ask like "Who's the best board partner? " will say "You. " You come up way more often than anyone else that I've come across. And I'm curious why you think that is. What it is that you're doing that other people, the incentives are there to do a great job as a board partner. What do you think you're doing on the boards of these companies, partner with the founders, that's actually different from other really talented investors who are also nominally doing the same job but don't come up nearly as often when asked that question?
00:46:37 · Eric Vishria
[00:46:37] S2: One of the things that I've realized is we each are attracted to different types of entrepreneurs where we have chemistry. I'm an investor second, and I try to be a partner first. We'll see companies come in, we had one come in yesterday, and it's what I would call an investment grade opportunity. You can invest, it probably works, you make money, it's good, and an investor would do that. A partner wouldn't, because that's not sufficient for a partner. Unless you have real chemistry with that person, where you feel like you're gonna be able to work together really effectively, and I'm gonna learn a ton from them, and they're gonna learn something from me, together we're gonna just feed each other's loops. Unless you feel that way, you can't be a partner. And so you pass on that. That's a really important like fit element to me. It kinda starts with this mutual selection actually, weirdly. They wanna partner with us, and I wanna partner with them, and really like looking forward to working with them together. And I'll give you a really good example of where this comes into play for me. If I take Saajing and Benchling. Benchling Is life sciences SaaS companies absolutely crushed, done really, really well, and then of course, you have this biotech crash and everything else, and the company, it became grindy. The company had never had any churn for the longest time. Such that even on their reports for every SaaS company, you'd have this like, okay, gross ARR added, churn line, net ARR added, like everybody does the same thing. They never had a churn line, never reported it for the first of like six years that I worked with the company. So then they got seven years of churn in like twelve months. Turns out life sucks when you get seven years of churn in twelve months. Through that grind and through it all, and related to the whole, wait a minute, the goalpost moved, we have to do something different, everything else. They kept thinking about how to apply AI for these biotech and pharma customers, which they're very close to. How can we make it better for them? How can we apply these models in their world in a way that they're excited about? And continued to iterate, and it was grindy. And I was there for it.
00:48:45 · Eric Vishria
You're excited to work with that person, 'cause like one, of course you think it's a really special opportunity and there's a way out, there's a path, and we can find it, but two, because of the joy of the game, the relationship, and like everything else, like that's part of it. It's very different. I've seen different models and lots of different models of venture capital work. Moritz was a writer, Dore was a sales guy, Gurley was an engineer, Peters a career venture capitalist. They're all different. Working with them, it's like when I call these people, I learn something and they push back on me, and then I ask them questions, and what I've realized is like so much of my job is they know the answer, they know what they want to do, they know the answer, and it's maybe asking questions of them. To maybe help solidify their conviction or solidify their articulation of what they wanna do and why, and you just keep doing that. Through that process, hopefully we get one percent better, a few times a year, we make a one percent better decision, two percent better decision, a few times a year. And if you do that over a decade, that compounds to real results. One of the questions that I ask myself before making an investment is, there are all these people that I care about through my life, like you care about yours, could I- Talk one of them into going to this company and honestly, intellectually honestly to myself, explain to them why this could be their life's work. And if I can't do that, I shouldn't invest. It just means that the project doesn't line up in that way. And so as long as we have one of those things, it doesn't matter that much what it is to me. It's just, it's important. It could make a big dent, and if it can make a big dent, and it's a special person, I'd love to work on it. Are
00:50:29 · Patrick O'Shaughnessy, Eric Vishria
[00:50:29] S0: there any other questions like that that you ask yourself before investing? That's a particularly good one. [00:50:33] S2: The other question, if this person calls me at nine PM on a Saturday night, will I pick up the phone? [00:50:38] S0: That was at [00:50:38] S2: the green button test. Yeah, yeah, yeah. It's a chemistry thing, and they have to feel the same way. Obviously, one of the other ones is, if it's right, does it matter? Which is different than this like first one, but it's-- there's so many things that we could be right on as a business. I looked at one last week, and I told the entrepreneur, I was like, "I really think that you can build an amazing company here, and you just shouldn't raise venture capital." But there's like so many things that you can be right on, but they ultimately just don't matter. Like nobody cares. That's a better way to say it. If we're right, well, nobody cares. If they won't care, then you're just not gonna build enough equity value.
00:51:12 · Patrick O'Shaughnessy
[00:51:12] S0: That's another useful one. One of the coolest things that's happening right now is all of that that you just described has higher stakes and more leverage attached to it, which is manifested most simply in more dollars and higher prices. You and I have talked about this notion of what high multiple on invested capital investing is like and what it has been like and what it's moving into. You did something recently which was you raised a growth fund for the first time in a long time. I think that is related to this concept. These companies need more capital, the prices are higher, the outcomes are bigger, maybe- We can earn the same multiple on a billion dollar entry price that we could on a fifty million dollar entry price ten years ago or whatever. Can you talk through that evolution, talk through the partnership's like way of thinking about it and talking about it, what you believe to be true that results in this decision to do this? Just go back to like, why