Invest Like the Best with Patrick O'Shaughnessy
· 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.
· David George
So our expectations for our team, we're very collaborative. We care about winning as a team. But you better be good. You better be doing your job really well, you better be working hard. This is one of the things that maybe is not as obvious to people. It wasn't as obvious to me, actually, until I joined the firm. It's so funny, when I was considering it, my perception from the outside before I really started the process was, "Marc and Ben, they're like celebrities, semi-celebrities, do they really work hard? They got all these other interests." And I got in and man, it is a competitive place. We are very intensely competitive. We want to win. And everybody works really, really hard. No one is resting on their laurels. We're all constantly chatting nonstop, late at night, we're all working hard, we're kicking around ideas, and I love that. I love the dynamic of partnership, but high expectations around performance. On the, why am I at A16Z? Why don't I run my own firm? I always tell people, "I have a dream job. This is awesome. I got to join a firm that was on the top of their game. They were on the ascent, but there was a real latent opportunity for us to build a franchise on the growth side." And I came from a place with a really strong culture at GA, but I joined a place that is full of optimism. And I think you need that in growth investing. That is the number one ingredient, is you've got to be optimistic, you got to be able to see what can go right. But I also got a chance to hire the team, I got to set the strategy, set the investment process, take what I felt were some of the learnings that I had, which were great, and bring those things with me, and leave some things behind. So for example, one of the things that we set up at the outset was a bit of a different investment decision making process than a traditional growth equity investment firm. So most growth equity investment firms have an investment committee. It's central, you go, you present, you battle to get the votes, and then they disappear, and then the smoke comes out, and here's the decision. And what we decided to do at the firm in the growth fund was do it totally differently. So we were going to actually make the decision process just like our venture process, which is single trigger puller.
· David George, Patrick O'Shaughnessy
And the expectation I have set with our team and that Marc and Ben have conveyed, and I think we do a pretty good job of is, you got to be intellectually honest, you've got to be transparent and we openly expect disagreement. But once you disagree, you disagree, and then you commit. I think by doing it this way, you encourage people to fully explore the risks of investing and fully explore the rewards. You're never in this temptation to sell or to politic for a vote or try to influence someone's decision for the wrong reasons. If you really like something and you really want to push, we don't have that dynamic. So I think it allows us to more openly explore the merits of an investment, and I think it's been a reasonably good process. And we're small, so we move very fast. We do this very iteratively. It's not like we need to have a Monday investment committee process. My first investment committee decision was before I even joined the firm, and it was Mark Scott and I having breakfast, and we were deciding on an investment at breakfast. So I like to keep it informal, but we want to make it rigorous at the same time. The other thing I did that's a little bit different is when we hired the team ... By the way, I feel very lucky. It's one of the most special parts of the job for me. [00:00:00] S0: How big is the team?
· Patrick O'Shaughnessy, David George
[00:00:00] S0: How big is the team? [00:00:00] S1: It's about 10 investors, so it's pretty small. The reason we can be so small is because we have the early stage teams. But a cultural trade that I think we've done a pretty good job of building is just collaboration and the willingness to roll up your sleeves and help people. As part of the team's promotion criteria, evaluation, et cetera, I put in their contribution to collective investment judgment. Entry level, from the start, this is part of your job. You better be contributing to our collective investment judgment, and it's something that we're going to evaluate you on from the start. So it's a little bit different for a junior person to be faced with that. And a lot of times, the junior folks, when they join, they have to find their footing, and when do they chime in, when do they not? But I think it's made us better as a team at making decisions. [00:00:00] S0: If you think about the environments that are better or worse for growth investing of the type that you do, what are those conditions? If you could cook up in the kitchen the perfect environment for you to be deploying dollars, what are the features of it? [00:00:00] S1: Well, the optimal would be early product cycle, bad capital cycle, but those rarely happen and coincide with one another. If I had to pick, it's all early product cycle, for the style of growth investing that we do. [00:00:00] S0: What does that mean, early product cycle? [00:00:00] S1: It means we're at the outset of a new technological change. [00:00:00] S0: Beginning of a market wave?