Invest Like the Best with Patrick O'Shaughnessy
00:54:52 · Eric Vishria
[00:54:52] S2: Work with really special people. You wanna work really hard. You wanna work smart and get lucky, and you need it all. It really all has to come together. There's a lot of things that are timing dependent, you have no control over as a company. And you know, take the service example is a good one, which is, this is our second, you know, we took it public this time in May, but we tried to take it public in twenty Been taken public at a much, much lower valuation, and it didn't work out because of Cepheus and all this stuff. So timing matters. The advancement of that eighteen months made all the difference in the world for a bunch of things that were honestly outside of our control. There were some things that were in our control, getting inference running and everything else, but there was a lot of stuff that was outside of our control. These are all the classic things we just gotta focus on what you can control. That's one of the things that's really different than software companies, which software companies, aside from Fully in control of your destiny in that way. With hardware companies, you don't. There's an entire supply chain and all of the, so the, uh, HBM's a thing, DRAM's a thing, and TSMC's a thing, and a lot of those cross geopolitical borders, and so geopolitics gets involved and, and that makes that complicated. That's a really big difference, and so you gotta get lucky on the timing and macro and other stuff. But I think it really starts with working with these crazy people with unbounded opportunities, and if you work with these crazy special people You get lucky from time to time, you're bound to. When I was twenty years old, I was working at an investment bank. Ben Horowitz, Mark Ben, had started Loudcloud, it was still in stealth, and Ben gave me an offer to be his assistant. I was talking to this associate who seemed like this elder at times, probably twenty-five. He said this thing to me which stuck with me. He was like, "Do you golf?" It was like classic banking question, "Do you golf?" "No, I don't fuck golf." But he's like, with golf, you keep on practicing, keep getting the ball in a three par, like close to the pin, close to the pin, close to the pin, close to the pin. You keep getting the ball close to the pin, and you keep practicing, that's hard work, that's like working smart, that's what you wanna keep doing.
00:56:56 · Eric Vishria, Patrick O'Shaughnessy
Getting the hole in one, that's luck. I kinda love that framing I use with my kids actually. What it says is like, "Yeah, there's luck involved, and there really is luck involved, but there is actually a way to increase your luck. And the way to increase your luck is get a lot of balls close to the pin. Eventually, one will drop. " I'd like that. Each of us invest in one to two companies a year. I think in my twelve years, I've invested in eighteen companies total, crazy. Which is a relatively small number, so it's very high conviction and very high commitment. I have a lot Working with these very special people in these [00:57:29] S0: opportunities, magic can happen. What have you learned about the best reasons and conditions for going public?
00:57:37 · Eric Vishria
[00:57:37] S2: Benford does these Monday night dinners, and so we had a CEO last night, multi-hundred-billion-dollar private company, and we had this whole conversation, so it's kind of fresh. I think that ultimately, when you go public, you have a range of new opportunities and what you can do. Public trust, because there's some transparency that comes with being public, being a public company, you obviously have a currency that you can do things with that ends up being there. You have an unbelievable ability to raise capital, which I think is why the labs will ultimately go. Although I think the trust thing is actually a really important element of why they should go, and it's beneficial to the world and to America if they do go public. It's like, see what's going on. Yeah, see what's going on. Everyone can see it. I think that's like a really beneficial setup. There's another element of it, which is, what does a collegiate athlete want to do? Go pro. They want to play at a higher level. Is it harder? Yeah, it's harder. Is the competition tougher? Yeah, the competition's tougher. They move faster. They're tougher, they're bigger, they're stronger. The stakes are bigger. The stage is bigger. The scrutiny is bigger. All of that's true. It's That can get to this tremendous scale without going public, because things have gone through their execution and excellent lots of free cash flow. They've had lots of free cash flow and they've done really well over a really long time, and I think that's fantastic, good for them, but in general for everyone else. Get out there. The other thing that I would tell you is, there are windows for a particular type of company. The SaaS companies that went public in twenty twenty-one, a whole boat of 'em have struggled and it's been tough in the public markets because their stock's ripped to this multiple compression issue. They were trading at thirty times, they've four-axed in size, but now they're trading at six times. It turns out you're under, still. That's a tough place to be. I will also tell you that there's five hundred something- Probably SaaS companies that are between a hundred million and five hundred million that are private. What happens? Those employees never got a chance to sell. Those employees don't have annual tenders. Those employees don't have an opportunity to exit.
00:59:44 · Eric Vishria, Patrick O'Shaughnessy
Those investors don't have an opportunity to exit. They're stuck. I don't think they're all going away, and like I said, I don't think they're all getting vibe coded and everything else, but ultimately, the AI natives with their growth rates have sucked all the oxygen out of the room and all the interest, and the window was missed. That's- [01:00:03] S0: What are the biggest debates right now inside of the partnership? I always love coming here and talking to you guys when there's something interesting going on because you debate, it's healthy, can be really fun to watch, and I learn a lot from it. What are those debates today?
01:00:17 · Eric Vishria
[01:00:17] S2: There's a ton of debate around in this AI infra apps For foundational models and for our apps ecosystem, where does value accrue and how does it accrue and where are the moats and how do we think about that? But also the business model innovation, I think one of the things people don't understand about why SaaS did so well versus traditional software was, it wasn't just That it was a better delivery model and everything else, there was actual business model innovation on it. You really did have this subscription element that ended up being fantastic for both the company and the customers. It was a win-win situation. That same thing actually exists in AI and selling by outcome and that piece of it, but then wrapped up into that debate discussion is how much value just accrues. To the labs, yes. How much of the value just accrues to the semis? That's a real discussion. What do you think? Like, I am of the view that it all works. It's a very weird thing. Will the CSPs do well? Yes. Yes. Not all of them, but will some of these neocrons do well? Yes. Will the fireworks of the world do well? Yes. Will Nvidia do well? Yes. Will these chip startups do well? Some set of them. Yes. Are we gonna have edge inference on our phones? Yes. Are we gonna have near edge inference on Pops? Yes. Are we gonna have big models in data centers? Yes. There's so much zero sum thinking, which is just like, okay, how do we cut up this pie and they're gonna eat this much and like, oh no, no, no, no, Anthropic or whomever is gonna eat ninety-eight percent of the value and they're gonna do all the drug discovery and I When I say like I think everything's gonna work and I listed off all these other things, it's really important to understand that doesn't mean that every company that's doing every one of those things is gonna work. It actually means quite the opposite of that. Most companies in each of those areas aren't gonna work, and it's actually more important than ever to have real differentiation, to like really take each of these thoughts to their logical extreme and understand, wait a minute, you gotta go all the way on these things and really
01:02:20 · Patrick O'Shaughnessy
[01:02:20] S0: be differentiated on it. Is there anything that you have your eye on, whether it Funding market in the technology world, anything at all that you really are watching carefully. It's