Invest Like the Best with Patrick O'Shaughnessy
· 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.
· Josh Kushner
[00:00:00] S1: One of my greatest insecurities with Thrive is that we fundamentally look very different than the businesses that we try to invest in. As you look back at the history of finance, there have been many innovations, but most of them have ultimately been arbed away. Henry Kravis created the private equity firm, now there's thousands of them. Venture capital as an industry was nascent, now it's not. Whether it be Michael Milken creating the junk bonds or Apollo creating Athene in private credit, people innovate and then people copy. If I were to look back on some of the things that we've done to get Thrive to this point – at the times that we've done them, they were perceived as deeply provocative. People made fun of us, people passed on us, but I would like for some of those things, ultimately over time, to enable us to create an element of true defensibility and a true moat. The things that Stripe did or OpenAI did or SpaceX did, were seen as provocative, but ultimately their escape velocity enabled them to create true defensibility around their products. The North Star for the next decade of Thrive is, if we are a company and we have a product – what are the products that we can create that make us look more like the businesses that we ultimately invest in? The second part of the story is after we invested in OpenAI, the business had $50 million of API revenue, and several of us went around New York City and started pitching a bunch of the private equity firms on this idea that they could use the API to create greater efficiency within their businesses. We were somewhat surprised by the fact that we did not get meaningful traction around these ideas. So Kareem, to his credit, said, "Let's just start doing this ourselves." We had always been very interested in this idea of buying businesses, but the idea of creating greater efficiency within them from a technology-enabled perspective was not something that we could ever imagine, and this was really the opportunity to do it. It's been really extraordinary to see the impact that we've been able to make, because it could enable us to achieve our North Star of creating a differentiated cost of capital at scale.
· Josh Kushner
The North Star KPI for the holding company is to not just create efficiency within these businesses, but really in many respects to think of these companies as product and technology companies. We've always looked at the world that we've lived in as one that needed to be disrupted from an outside-in perspective. If you were to think about the paradigm shift of reinforcement learning, the things that you need are both the data that is proprietary to the company, but also the experts that exist at the company to fine-tune the model. So I think we are of the belief that on a go forward basis, disruption will happen from the inside out. We set up this permanent capital vehicle that enables us to buy these businesses and hold them in perpetuity, because if you actually have a differentiated unique lens and cost of capital around these businesses and you're able to transform them in the ways in which you want to, you ultimately want to hold on to them forever. One person I'm very grateful for that helped us create this structure is Alex Taubman from Long Lake. Alex is one of my best friends. We were doing this for quite some time, but his insights and perspectives around the actual structure that it should exist in is something that I'm enormously grateful for.