Josh Kushner - Concentration and Conviction - [Invest Like the Best, EP.459]

· Josh Kushner, Patrick O'Shaughnessy

[00:00:00] S1: It was funny, Karlie got acupuncture recently, as she was pregnant. The person who was there said to me, "Josh, do you want to do it?" And I said, "Of course. I'm happy to do it just to lie by her side." And he said, "Are you experiencing any stress at the moment?" And I said to him, "I've been stressed so much for so long that I don't feel anything at all." I've always fundamentally believed that every experience is training you for the next one. There's this great line that I shared with my family recently, "In order to become king, God didn't give David a crown. He gave him Goliath." And I think it's one of these true lessons that in life, every experience is meant to make you better. Every experience is meant to push you further. If you think of these moments as ways to learn and to grow and to become the best version of yourself – you don't wish them on anyone else, but also at the same time you wouldn't take them back because it's pushed you to the next level. [00:00:00] S0: Coming back to the experience with OpenAI, because you work so closely with them. I'm curious whether that inside view has made you do certain investments that you wouldn't have otherwise, or maybe more interestingly, not do other investments that maybe you would have otherwise? What does being inside that business teach you about where AI is and where it's going?

· Patrick O'Shaughnessy, Josh Kushner

[00:00:00] S0: Coming back to the experience with OpenAI, because you work so closely with them. I'm curious whether that inside view has made you do certain investments that you wouldn't have otherwise, or maybe more interestingly, not do other investments that maybe you would have otherwise? What does being inside that business teach you about where AI is and where it's going? [00:00:00] S1: This industry is not just about the deals that you do, but it's also about the things that you don't do. Being inside of the business and learning from the people that I was fortunate enough to learn from within the company helped us avoid a lot of things that are ultimately not going to be on the right side of history. What these large labs weren't going to do that we thought were going to be large opportunities, I think pushed us in certain directions as well. [00:00:00] S0: When you think about AI just in general today – you've got one of the best views of it. Does the market feel frothy to you? Stripe and OpenAI – there weren't exactly lines of bidders out the door at the time that those companies needed capital from their partners. The line was you. Now, at least my experience of it is that AI for – name anything, cameras – has seven bidders. I'm curious if you experience that as frothiness, if you feel allergic to those situations where everyone wants to invest.

· Josh Kushner

[00:00:00] S1: The first and most important fundamental view is this core belief that this paradigm shift is the most important of our lifetimes. The internet was this incredibly democratizing technology in that it gave access to information. Anyone with a mobile phone living anywhere in the world has more access to information than the president of the United States did at the turn of the century. My view has always been that AI has potential to democratize access to intelligence. And the capacity for everyone to really get insight and perspective on any topic in a very nuanced way, and to be able to interact with that, is something that has the potential to be very powerful. I also think enterprise adoption will ultimately lead to businesses becoming more efficient. And that also has the potential to benefit consumers in a very meaningful way, because the only way to compete in a decade from now will be – are you a better product or are you a cheaper product? There's going to be so much transformation, so much enterprise value created. But naturally that will lead to a lot of people trying to chase the paradigm shift, and ultimately capital loss as well. It's very dangerous in moments like this to both be exuberant, or of a more negative perspective, because the types of things that are getting created in this moment could make a fairly meaningful impact on the next decades ahead. That being said, I've always viewed the best investors or leaders of investment firms as racecar drivers. You need to know when to drive at the speed limit. You need to know when to pull over to the side of the road and change your tires. And then, I think like we did over the last couple of years – you need to know when to look both ways, put your foot on the gas pedal and gun it.

· Patrick O'Shaughnessy

[00:00:00] S0: As you view the landscape today, what kinds of investments are you most focused on? Are there certain areas that you're tuning your attention, types of investments that interest you most?

· Josh Kushner

[00:00:00] S1: Within the ecosystem, we're predominantly focused on three different types of investments. The first are AI-native businesses. The second is pieces of infrastructure within the ecosystem, that we not only do not think are going to be disrupted, but are ultimately going to benefit tremendously. And then the third is what we're doing in Holdings, which is businesses that we think we can transform from an applied AI perspective. With regards to AI-native businesses, the way in which we think about it is first and foremost a generalized lab. And OpenAI is obviously the leading consumer company, and we've always believed that at the enterprise level, there will be somewhat of an oligopoly that exists at the hyperscaler level. The second is domain specific models. So the areas that we've predominantly focused on to date have been robotics and the embodied intelligence worlds, drug development, and life science. The third is the application layer. We've done very few investments. Our orientation around those is you need to be extremely specific with regards to what you're doing, because we're living in this moment in which Apple has launched the iPhone and they don't know what applications they want to own versus what they're willing to let other people own. The things that give us confidence with regards to the businesses that we're partnered with are these ideas of reinforcement learning – memory with an application to understand user preferences. The second category that I described in terms of pieces of infrastructure – the assumption that one can make would be that would be businesses like Databricks, but things like Stripe that need to kind of power agentic commerce. What happens in a world in which identity becomes more confusing in an agentic world, so companies like Wiz become increasingly more important.

· Patrick O'Shaughnessy

[00:00:00] S0: So the third category that you listed there is Holdings. But it's also a fantastic excuse to talk about one of my favorite topics from our discussions, which is the building of sustainable competitive advantage in an investing firm that is mostly people and decisions. Let's talk about both those things, but starting with Holdings. What is Holdings? How did it start? What are you doing with it? And then we'll take it from there.