Invest Like the Best with Patrick O'Shaughnessy
· 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.
· Patrick O'Shaughnessy, Josh Kushner
[00:00:00] S0: I love the idea that the disruption because of data and internal know-how is happening inside out rather than outside in. That's a totally interesting, different paradigm than in the past. How do you relate to competition? Back to the Thiel idea, he would say you don't want competition at all. The same way that SpaceX doesn't really have competition for Starlink. There's just nothing else, and that's better than fighting everyone and trying to beat everyone all the time. VC and venture and private investing has massively proliferated since you started Thrive. How do you think about your “competitors”? [00:00:00] S1: We think about competition in probably more of a positive sum capacity than others. We feel like we have a lot to learn from other firms. We have deep respect for a lot of other firms. We always try our best to be as collaborative as possible. I view competition as a swim race. When you are swimming, if you look to your left or if you look to your right, you're going to lose. You just need to look straight ahead. We are competing against ourselves most of the days that we are working, and it's just fundamentally important that we don't look at anyone else in terms of how they're doing. We just have to swim as hard as we can in one direction, and “don't save anything for the swim back.” [00:00:00] S0: Nonetheless, sometimes you're in your lane – someone else comes in and they swim into the lane. There are competitive deals that you want to win, I'm sure, that other great firms also want to win. How do you win when you want to?
· Patrick O'Shaughnessy, Josh Kushner
[00:00:00] S0: Nonetheless, sometimes you're in your lane – someone else comes in and they swim into the lane. There are competitive deals that you want to win, I'm sure, that other great firms also want to win. How do you win when you want to? [00:00:00] S1: The ethos of the firm is never sell against anyone else. There are truly a lot of firms that we respect deeply, and we will never compare ourselves to anyone else. What we like to do is just express to people that this is who we are. These are the types of values that we represent. These are the types of things that we can do for you. Other firms can do other things as well, but we try our best to make it about ourselves and what we can do, as opposed to us versus anyone else, and just give it to the entrepreneur for them to ultimately decide. [00:00:00] S0: Tell me about loyalty as a concept. [00:00:00] S1: It's been very hard at times to see people act in ways that don't necessarily resonate with the ethics and values of Thrive. And as I've expressed to you sometimes before, perhaps Thrive will be less successful because we're not willing to do the things that other people are willing to do. But it depends on how you define success. We really try our best to be positive sum, but also at the same time, if you're on our team, you're on our team. And if you decide not to be on our team, that's fine as well. [00:00:00] S0: What's something you'd be unwilling to do that you've seen others willing to do? What’s an example of that?
· Patrick O'Shaughnessy, Josh Kushner
[00:00:00] S0: What's something you'd be unwilling to do that you've seen others willing to do? What’s an example of that? [00:00:00] S1: I believe that my word, the word of the firm is more important than anything else. And if I commit to someone that I'm going to be by their side, I'm going to be by their side. We don't invest in competitive businesses. I've always fundamentally believed that that notion is more important than whatever the ultimate trade is. I think it's important that we always think about the industry in a positive sum capacity, but also at the same time, I think it's fundamentally important that we also hold our ground. And a line that I've used to the team before is, “kindness without toughness falters, and toughness without kindness corrodes.” [00:00:00] S0: Do you think of the words that could be used to describe you that ferocious is a fair one? [00:00:00] S1: There's a lot of passion in what we do every day, and we want to be the best that we possibly can. Define it however you want. [00:00:00] S0: Trust is something I'm always interested in. Has it become harder or easier for you to trust people with your success? [00:00:00] S1: I don't think we've achieved much, but I'm a trust by default person. But if someone breaks that trust, they’re out. [00:00:00] S0: What's the best way to build it?
· Patrick O'Shaughnessy, Josh Kushner
[00:00:00] S0: What's the best way to build it? [00:00:00] S1: I really believe in humanity. I really believe that people were created to be good. People can grow. People can always aspire to be better. So, I think seeing people for who they are in the best versions of themselves is the best way to build it. And to be honest, to live your life in a certain way. The only way to create trust with someone is to be trustworthy, to make sure that they know where you stand on something. That doesn't mean we're not all human, and that we don't all make mistakes, but I think that's the way in which I've gone about it. [00:00:00] S0: You just had a daughter whose name is Rae. Rae was your grandma's name. And your grandma, I did not fully appreciate until recently when I learned more about it, led an absolutely insane life and story. Maybe say a little bit about her significance in your life and the significance of that story in your life.