Invest Like the Best with Patrick O'Shaughnessy
· William Hockey
[00:00:00] S1: I think that the good founders bet on themselves and take an extreme amount of risk to do that. And I think the extreme amount of risk part is something that we no longer have. But when there's literally only one door in front of you, you don't have a choice. You have to go in. And that fear, that innate desire creates another part of you. It creates creativity, it creates inspiration. It's an extremely valuable part of the founder journey. And in many ways, I think in Silicon Valley we've actually removed that. If you think about most founders these days – I talk all the time, you talk to a 23-year-old and like, "You know what, I'm thinking about go going to be like the 12th employee at this company or starting a company for myself. And I don't know, I'm kinda like mixed." And we've created this incredible environment in Silicon Valley that it's really safe to start a company. And there's a playbook and you go through YC and assuming you're moderately competent and went to the right high school and college, you're gonna get a $3 million seed round. And worst case scenario, you can go work at like a great company as an engineer. You'll have "Founder" on your resume and life is good. And that has created a lot of value. But I'm not quite sure it's created a lot of great founders and a lot of great companies, because there is no risk in that proposition. And if you go back to even pre-2008 or something like that, you're on the edge of the knife. And I think that creates just so much intensity and creativity and fear that is such a critical part of the founder journey. And I don't know why we don't talk about it more. We don't create environments where a founder has to bet themselves. And I think if we did that, I think we'd actually be in a slightly different place. I always am somewhat perplexed by -- I'm a second time founder, but I'm not alone. There's a lot of great founders I shall not name that have made a bunch of money. And you go digging. They're like oh, here's my second company or third company. And you dig into that. Of the hundred million dollars they've made, they're putting like a million dollars of their capital at risk and they've raised like $500 million. And I'm always like, why? If you believe in this so much, if you're going to dedicate your life to it, why the fuck aren't you going all in?
· William Hockey, Patrick O'Shaughnessy
And if I'm an employee, I look at them and I'm like, "You're asking me to go all in, but you can't go all in?" Because the weird thing is an early stage employee takes way more risk than an early stage founder. [00:00:00] S0: Explain that.
· William Hockey
[00:00:00] S1: So let's just talk through an example here. So I'm a 24-year-old, I'm making TTC perspective 400k, 500k at Google or Meta or something like that. And I'm gonna go to an early stage company and I'm gonna go get 1% of this company, and I'm gonna make $90,000. Well, I've now changed the trajectory of my life. I can no longer buy a house. I can no longer go on the vacations I want. So I'm making a four to five year trade off where I'm saying "I'm gonna make pretty much no money over the next four or five years. But maybe in five, six years I'm gonna make millions of dollars that I couldn't make at Google and Meta." That's actually a lot of risk. To say I'm gonna live with my friends instead of living by myself. I'm making massive, massive changes to my life. But as a founder, you're not. It's a much higher likelihood at the next round, regardless of your company, you'll be able to sell some secondary. You know that if it shuts down, you can go get employed at a great company, you have CEO on your resume. That first employee? They have first employee at a failing company. That's actually not a great resume line item. And so we've de-risked the founder, but we haven't de-risked the early-stage employee. And I don't think we should actually de-risk the early-stage employee, for what it's worth. I just think we need to increase the risk for founders. I think we need to make failure much more expensive. I think we need to say hey, you're a second time founder and you have liquidity. Put all of your money into that. If you're gonna be asking this of employees, you should ask it of yourself. And I don't think we're having that conversation enough. And I think starting companies is just too fucking safe. And it's caused a lot of companies to be just super safe companies. They're like hey, we're gonna pivot to AI and wrap OpenAI, wrap Anthropic, whatever. That's not bold, that's not ambitious. And it's because we are attracting founders that actually maybe want to be employees. They don't actually think about the long term. They actually don't think and say hey, if I don't pull this off, I'm gonna become bankrupt. My life is over. And I think that's pretty healthy. That's when you bring out the rawness of humanity. And I don't see that very much anymore.
· Patrick O'Shaughnessy, William Hockey
[00:00:00] S0: How have you felt that in yourself? So how has your behavior changed or your perspective changed, or just the ways that you show up that are different now than prior to this pretty extreme three year period. [00:00:00] S1: I am not the most diversified person on the planet. I own two things. I own Column and Plaid. That's it. I don't even own the majority of my house. That is truly it. Those are the only two things, and that's motivating to me. At some point in my life – I have a six month old son and I do need to probably diversify. And so that is a goal for me at some point. As a 36-year-old, you should probably not be this concentrated. But also, that's what makes building companies unique. There's probably a lot of people that look at me and they're like, oh man, billionaire, amazing. I think that's what makes it special. I think that's what drives me every day. Which is if you don't have something you are driving towards, which for me is solvency, it's really hard to be motivated every day. [00:00:00] S0: The other thing though too is that, very often the thing you own and control and are building might be your best investment. And getting money out of something is costly from a tax standpoint and other things. So in some ways you just continue to be all in on what you're building.
· William Hockey, Patrick O'Shaughnessy
[00:00:00] S1: Bet on yourself. I'm sure every fancy executive has probably told you that, but I think it is somewhat true. Compounding on yourself is probably the best investment they make. I'm not a generalist, I'm a specialist. I’m probably the best in the world at a couple small, boring stuff. I'm like really good at creating really confusing, boring sounding companies that's really hard to explain on podcasts. And I think that's my expertise, that's my niche. I feel pretty confident in my business because I do not think in my business you want to compete with me. I'm mean, I'm hungry, and I know my little niche space better than anybody in the entire world. And if I'm investing or doing something else, there's a me on the other side of that trade. I don't want to do that. I'm a builder and I think sometimes there's a trap where builders think they're investors and investors think they're builders. There are rare cases when you can do both. But in a world where it's increasingly competitive, I do think the world for builders is the world of specialists. And you have to go extremely, extremely deep into your area. And that's where you find value. I probably have read more about the history of my space, the history of financial services. I studied banks in Japan in the 1800s. I read a very boring 2000-page book on the history of banking in China in the 19th century. And there's stuff I got out of that. [00:00:00] S0: What's something, not necessarily that book, but what's something you get out of that degree of extreme study?
· Patrick O'Shaughnessy, William Hockey
[00:00:00] S0: What's something, not necessarily that book, but what's something you get out of that degree of extreme study? [00:00:00] S1: The hard part about this is you probably get one small thing in a 2000-page book. And so it's probably not efficient unless you own a thing that happens to be in that space. [00:00:00] S0: That has crazy leverage on that thing. [00:00:00] S1: And that one little thing can create millions of dollars of value. Two little things create hundreds of millions of dollars of value. And so, without going too much into detail on it, that's where you find your leverage. I'm pretty good at that. [00:00:00] S0: This notion of being the best in the world at the thing you do is really interesting to me. It seems the environment today makes that harder than ever, because there's so much distraction. [00:00:00] S1: Totally. [00:00:00] S0: And there's such a high rate, an ease of comparison, which is certainly the thief of joy. But it's really hard to ignore people doing other stuff. Spending a third of your day reading about Anthropic or whatever, it's exciting. So what have you learned about how to become – apart from reading obscure 19th century Chinese banking books – what else have you learned about how to become the best in the world at what you do? Assuming that there's lots of people interested in that mission or that idea.