Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Josh Kushner
[00:00:00] S0: Why are small teams such a key concept for you? Why do you think they're so powerful? Why don't you have a hundred person investment team? [00:00:00] S1: Since the early days, I really wanted Thrive to feel like a company. I think there's always been this dynamic that has existed within investment organizations, that the investment team is what matters and other people mattered less. Our core belief is we wanted every single person within our organization to be the best possible person in that role. In order to have that, you need to give everyone incredible transparency around everything that you're doing. Give them the autonomy and the responsibility to ensure that, even if they're not within the investment organization, they're helping us get to the right decisions. The reason why we've been able to stay so small, not just as an investment team but as an organization is because across every dimension of our business we have these 10x people. Whether it be in legal, finance, compliance or engineering organization, our portfolio support and impact team. I think people feel like they're responsible for every decision that we are making. They feel pride and authorship around the decisions that we're making.
· Patrick O'Shaughnessy, Josh Kushner
[00:00:00] S0: I was having a conversation last week with a friend about the state of the venture ecosystem and which firms had differentiation. My friend said that he thinks that there's only two firms that have true differentiation, his firm and yours. And that the reason that yours did was that there was no one else willing to make the size of bet, the conviction of the bet, at the stage of the company, at a price. By doing that early, you were the person that people called for this specific thing. How much of that was deliberate? Ooh, there's an opening here to be the only provider of capital in this specific part of the market, versus it just being a natural consequence of you doing you. [00:00:00] S1: It was a natural consequence of the firm being intuitive around where we thought that the world was moving. We think of ourselves as a service provider. We were not looking to put meaningful capital to work. The companies that we were partnered with needed to raise meaningful capital, and in order to be the best possible partner to them, we needed to do whatever we needed to do to support them in that capacity. [00:00:00] S0: But there wasn't some grand meeting of, “No one's providing a billion-dollar check to these big companies, we should do it.” It was more bottom up, it was more company specific.
· Patrick O'Shaughnessy, Josh Kushner
[00:00:00] S0: But there wasn't some grand meeting of, “No one's providing a billion-dollar check to these big companies, we should do it.” It was more bottom up, it was more company specific. [00:00:00] S1: Stripe needed to raise $6 billion or else they had to go public, and it was our job to find a way to get them that capital. OpenAI is a very capital intensive business. It was our job to get them that capital. Same with Databricks. We did not view it from an output orientation. It was an input orientation, which was – our job is to serve these companies. [00:00:00] S0: I think it'd be really fun to review some of the iconic deals that maybe people scratch their heads about through Thrive's history. It seems like when you tell the story of the business and of your investment arc, there are these hash marks of incredibly defining things that you've done. The first one that really, really caught my attention was GitHub, which I think was in Fund Four or something like that. It turned out to be a huge percent of that fund and a very large return, but probably at the time, people were scratching their heads about it. Can you tell me that story in as much detail as possible since it seemed fairly formative?
· Patrick O'Shaughnessy, Josh Kushner
[00:00:00] S0: I think it'd be really fun to review some of the iconic deals that maybe people scratch their heads about through Thrive's history. It seems like when you tell the story of the business and of your investment arc, there are these hash marks of incredibly defining things that you've done. The first one that really, really caught my attention was GitHub, which I think was in Fund Four or something like that. It turned out to be a huge percent of that fund and a very large return, but probably at the time, people were scratching their heads about it. Can you tell me that story in as much detail as possible since it seemed fairly formative? [00:00:00] S1: We invested in GitHub in 2014. We were fortunate enough to participate in the initial round with what was a big check for us at the time, which was $20 million. Almost a month into our investment, Chris Wanstrath, who is the CEO, decided to move on from a disproportionate amount of his leadership team, and Nabil who had just joined from 3G running finance for Heinz… [00:00:00] S0: Working in ketchup as he says.
· Patrick O'Shaughnessy, Josh Kushner
[00:00:00] S0: Working in ketchup as he says. [00:00:00] S1: A lot of similarities to software. Moved out to the West Coast and effectively became the CFO of the business. The outside perspective of the business was considered to be troubled, but our general view is the only way to truly develop context on businesses is to spend meaningful time, and that's why we have such a concentrated portfolio. To really understand every aspect of everything that we're a part of in a very intimate way. The more time and energy that we spent, the more convicted that we became that a lot of the things that were happening were noise. Some of the earlier founders associated with the business wanted to get liquidity. Thrive was the only person who wanted to buy the shares, and we feel very grateful for the outcome. Thrive owned about 10% and no one knew. [00:00:00] S0: What did it feel like to have that much concentration? This deal is so interesting to me because it highlights two things that have driven a lot of your success, which is very concentrated and very involved. And maybe in GitHub's case, the nominal price as a multiple of revenue or something was high at the point of entry, and then you earned a huge multiple on capital in relatively short order. These ingredients have been very common to some of the important stories around Thrive's investments. Was that the first one that you had that degree of insight, understanding and concentration? And did that embolden you to do more of that kind of investing?
· Josh Kushner
[00:00:00] S1: The authenticity of our desire to be the most meaningful partner is a very important construct for us. Our desire to only partner with very few is driven by our core belief that in order for us to truly deliver the full value of ourselves, we can only commit ourselves to so many things. I remember we had just invested in Stripe at 50 billion. We had led OpenAI's investment. We had just got asked by Eric and Karim from Ramp to lead an investment in the company at a lower price than the round that was done in '21. We were getting absolutely eviscerated by everyone in the ecosystem. One of the people that I respect the most is Stan Druckenmiller. I called Stan up and I said, "Stan, I need to see you today." And he says, "Of course, come by." I drove uptown and I said to him, "Stan, we've been doing the exact same thing for a long time. We've always been concentrated in the businesses that we believe have the generational characteristics to compound on themselves for a very long period of time. We sold a lot in '21 and we've leaned in very meaningfully in this moment. And I feel like I'm running into a burning building, taking my most favored possessions and everyone thinks I'm crazy." And his response, which I'll never forget is, “That's always the right decision. You just better fucking pick right." Concentration is core to what we do. It puts a true burden on all of us to ensure that we need to be extremely disciplined and careful, both in terms of the fiduciary responsibility that we have to our limited partners, but also at the same time to the founders that we are committing ourselves to. We want to ensure that everyone knows that we are a hundred percent on their team, we are in their corner. There's only truth tellers and foxholes, and we try our best to be that person for the people that we work with.