Invest Like the Best with Patrick O'Shaughnessy
· 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.
· Patrick O'Shaughnessy
[00:00:00] S0: I want to talk about the huge transaction that you led in Stripe at or around $50 billion a couple of years ago. Stripe, by any account, is one of the most interesting, dominant franchises of this last cycle. John and Patrick are some of the best entrepreneurs alive. And yet, it was a really interesting time and round – back to our original premise of our conversation – one of the defining, shaping deals, investments that you've made. Maybe just say a little bit more about that process and that experience because it seemed to set the stage for Databricks and other deals like it that you've done since.
· Josh Kushner
[00:00:00] S1: There are the details of how the deal happened, but I think more importantly, the experience for us in terms of learning about how other people think in certain moments was probably the most transformational thing for the firm. So we had agreed to terms with John and Patrick at a $50 billion price, which was a 50% discount to what they had done a year prior. For us, it was very obvious. It's much easier to predict what is going to happen in the long term than it is in the short term. If there's one thing that I could predict between now and the day that I die, it's that people will buy more stuff on the internet every year. It was the largest check that we had ever written at that point. I think we invested about $1.8 billion. But as a result of the moment in the market, but also the size of check that we were writing, everyone asked to speak to us. And I think what was most interesting was the fact that everyone was so focused on the now. They were so focused on what Adyen’s multiple was. They were so focused on what the margin structures looked like in that very specific moment post-COVID. We've always had this idea of being long-term investors in what we believe to be category defining businesses run by the most exceptional people, but it was just really interesting to see how other people thought in that moment. When you have a very product and founder-oriented investment style, the capacity to have conviction is very much driven by people's ability to figure things out. And there will be bad quarters, there'll be bad years. But if you believe in the people who are running the business, ultimately everything will end up okay. Vince has this line that “John and Patrick went into founder mode before founder mode was a thing.” The idea that anyone could ever doubt Patrick and John is blasphemy.
· Patrick O'Shaughnessy, Josh Kushner
[00:00:00] S0: And a lot of people did doubt them in that moment. [00:00:00] S1: They should never be doubted. [00:00:00] S0: One is tempted after a deal like that – $2 billion check – I don't know what it's valued at now, probably back north of $100 billion, at least in secondary markets, to pat oneself on the back. Can you tell the Instagram story and the message that you got? You doubled your money on Instagram in like, days or something, in your original Instagram investment. Again, tempted to pat oneself on the back. What was the fun story after that?