Invest Like the Best with Patrick O'Shaughnessy
· David George
[00:00:00] S1: Helping them as if we were already investors in their company. So helping them with candidates, helping them with customers, spending quality time and showing that we understand their business. Often that's the biggest thing. Honestly, for the companies where we're not existing investors, oddly enough, sometimes it's easier because our platform is so strong. Our brand is so strong. I'll give you another fun example, which was Dylan at Figma. When we first invested in Dylan at Figma, I was considering joining the firm from GA. This was 2018. I knew all the guys already at the firm. And so I'm spending time with Peter Levine, who's one of our partners. And I come in and I'm like, "Peter, what's top of mind? How are you thinking about the growth business? What can I tell you?" And he was like, "We need this tomorrow. We got to invest in Figma. We need this tomorrow. I don't know how we didn't. We missed it. I was late to it. We just need a growth business and it was a growth deal and we should have done it. It's crazy. We did GitHub early. How did we not do this one?" And he was just apoplectic. "I need this." That was very encouraging, exciting. So day one, I told you, I knew the six companies in the portfolio. I also knew the five-ish companies that I really loved. Outside the portfolio. Roblox was one that I was close to. Figma was another. So from the moment I joined, we had done the full court press on Dylan. He came to our summit. It was Marc and Ben bear hugs. He was really into crypto. We bear hugged him on the crypto side. We did everything we could with him, helping him with a board search. We placed a person in our network onto his board. We were trying to do everything and trying to catalyze a deal. And he was like, "I'll let you know when. I'll let you know when." So COVID strikes and he calls us and he's like, "Now's the time." Oh my God. This was in the moment of COVID where we all thought the world was going to end and everything was screwed. Stock market was way down. I felt like, "Oh, great, good timing." So at least we got the luck. So he came and pitched, we had done all the work and we're having the debate as a team. And me and my team, we're taking this traditional growth lens looking at it and we're like, "The market for designers is not that big. It's really small.
· David George
And if you do the math of the market size of designers and what they charge, I don't think the price makes sense at $2 billion. It's too limiting." And our venture guys were losing their minds in this discussion. They're like, "You guys are totally missing the point. The ratio of designers to engineers is basically double for the modern technology companies. So that's a leading indicator. That ratio's going to change. There's going to be double the designers in the world. More importantly, the whole engineering to design process is changing and there's a melding that's happening of front end engineering and design. So thinking about this as the market for design is way too limiting. So you're just missing the point." So we were debating it and it was like speaking past each other. And finally Ben called it off. He's like, "Okay, all right, we're not going to solve this tonight." And ultimately it was a call on the growth fund side and I slept on it and I woke up and I was like, "Look, this is an exceptional business model and we're squinting to believe enough on the market size. Great founder, great business model. Is the market good enough?" And I'm happy to take that risk. The risk I don't want to take is quality of business, quality of founder. But you really had to have a nuanced view of the market in order to get there, like with a traditional growth investing lens. And so fortunately we got there and it worked out really well. I bring up that story, one, to say that's an example of something where the price is the price and you have to figure out if you can take it, if you're willing for the very best of the best companies. But two, I think it speaks to the advantage that we have and what you need to be successful in growth investing. You need those product and market insights or you're just going to live in a spreadsheet and die in a spreadsheet. So everything that we've done, or I've done, and our team has done to design a process of tightly integrating with our early stage teams has been in the spirit of optimizing insights around people, products, and markets. And I think that's where you actually get success.
· Patrick O'Shaughnessy
[00:00:00] S0: One thing that I'm trying to do more of, because I'm just interested by it, is to hear about the minutiae of your day and life. In this incredibly competitive environment, I've become interested in how some of the best investors literally just run a given day and what that looks like for you. And I think you'd be surprised how in the weeds I'm interested in learning about. So err on the side of detail, I'm just curious what the actual life of your job feels and looks like.
· David George
[00:00:00] S1: Bob Swan, who is a longtime mentor and friend of mine, and an operating partner at our firm, gave me this really good advice that he and John Donahoe, at the end of every year, always went through an exercise where they spent two hours looking at their calendar from the year, and then they had an objective of cutting 30% of stuff that was on their calendar. It was a way for them to make sure that they were giving responsibility down to the people on their teams, but also that they would get leverage. So he's given me that, and then he reminds me of it when he can tell I'm too busy with things that I shouldn't be. So I think I'm not very good at this, but I'll answer the question anyway. I try to make sure I'm spending adequate time meeting companies. So right now, our investment business looks something like two-thirds relatively known companies and one-third newer stuff, but I want to make sure my time is spent pretty differently than that. I want my time to be 20% on those known companies and spending time with people like Ali and the founders of Anduril, whatever it may be, Flock Safety. But I want most of my time spent on the new stuff because I need to be learning about those new markets. So constantly meeting with AI founders, talking to smart AI employees and making sure that I'm deep and conversational and have an understanding of those markets. So I spend a lot of my day on that. I've started to move away from doing one-on-ones and I'm like, "You know what? I don't need to schedule one-on-ones. I talk to my team all the time. I'll call them after hours." I've started to very deliberately block off hours and days, so I block off two hours every Tuesday, two hours every Thursday. And then I also put an hour and a half block twice a week in afternoons, and that often gets consumed with things that are pressing, and I need to make calls, or whatever it may be. But I find that I learn a lot and develop a lot of my own thinking just by having think time. I'm the kind of person that has 20 things open in the browser, and I want to read them all, and then I don't get to them. So unless I block off a bunch of time, I actually just don't find that I'm spending the time learning as much as I should. So trying to learn about companies, spending time with entrepreneurs I want to be 80% of my time.
· David George, Patrick O'Shaughnessy
And then 20% is spending time with founders, internal management, time shift when we're fundraising. [00:00:00] S0: How many new companies do you think you meet a week? [00:00:00] S1: We, as a growth fund, probably meet 30 companies a week, not new, probably 30 companies a week. I personally probably meet 10, somewhere around there. [00:00:00] S0: How do you run those meetings? If I came into one of those 10, what is the structure of the meeting? [00:00:00] S1: I keep the introduction super brief. I like to jump in and say, "Hey, why don't you please spend five minutes explaining to me the strategy and your vision? Because I've read your website, I know a little bit about the company," I've talked to some customers maybe, "But what is the bigger thing? You tell me." And then I just ask questions for 20 minutes. "Okay, so what do you think about this? What do you think about that? This may be a stupid question, but can you tell me about this?" And I find that to be a lot more effective. And the ultimate compliment that we get from a founder is, "Thanks, you've done your research," or, "Hey, thanks for asking that question, and that's pretty smart." [00:00:00] S0: If you think about the reasons why you do this versus something else, what are the most important ones? Why aren't you a founder? Why don't you work in some other industry? Why don't you have your own firm? There's other things that you could do, what are the most important reasons why this is the thing you do?
· David George
[00:00:00] S1: So my wife would say that I have a low attention span. And what she means by that is I'm interested in a lot of different things, and this is a really cool way of getting to learn about tons of new stuff. I suspect this is the same reason that you like to invest, is how lucky are we? We get to sit and spend time with the entrepreneurs who are building the most interesting companies in the world right now. We get to learn about the most cutting-edge technology stuff that, if you were in the public markets or just in a job, you would never get a chance to learn about. So I love to learn and I love to be around great founders as they're exploring really interesting things. So that part of it is really, really attractive. There's another part that plays to a totally different side of me, which is this business is a scoreboard business, and I convey this to our team all the time. "There's a scoreboard in this business and our expectation is that we win." Now, it's a very long-dated scoreboard, especially in the venture side, but on the growth side even, it's a pretty long-dated scoreboard, but at the end of the day, we have to put up returns. Our customers, our founders, and our LPs. And on the founder side, we need to make sure we do a great job with them, and there's a virtuous flywheel if we do. On the LP side, it's pretty simple. Are we doing a good job generating returns? A16Z, we're known as running ourselves a little bit differently as a firm. Marc and Ben really drive that. We do things like Ben runs every new employee onboarding, and he runs through our culture document. When you sign an offer letter at our firm, you sign your offer letter, but you also have to sign our culture document, which lays out our cultural principles. I also created a subset of principles that I wanted to convey for our growth fund, the scoreboard, and we expect to win is a very direct way of saying, "We better be competitive." I have one that is we, "Are the Yankees, and we're going to act like it.' And what I mean by that is not, "We're going to be arrogant or we think we're the best team," or something like that. What I mean by that is we're lucky enough to be a part of a firm that has an incredible brand. So we're going to run our team very, very high performance. If you're on the Yankees, you better be performing. This is the big stage.