Invest Like the Best with Patrick O'Shaughnessy
· William Hockey
[00:00:00] S1: So this is my second company. And I started Plaid back in 2012. And it's very easy to stay in Silicon Valley. Quality of life is amazing. There's a lot of money to be had. There's a lot of super smart people. But you can start to get quite isolated and you can start to get very consensus focused. Probably a lot of your listeners read Dan Wang's last letter on China. And he has this great, and I think accurate, but somewhat harsh criticism. Where he says the two most consensus societies he's ever been to is San Francisco and Beijing. And I think that's quite accurate, actually. San Francisco is probably the most consensus place I've ever been to. And I think that is both a huge clutch for us, but it's also probably the most valuable asset. Because as a founder, if you're building in AI or stablecoins or something that San Francisco believes is very consensus, but the world does not believe yet, that's actually a great operating environment. Because you can go and you can have these outlandish ideas that other people are gonna believe in, that nobody across the world would believe in. You can build this in a very safe way. And that's why Silicon Valley and San Francisco are so dynamic and we're so in front of the curve. But we also have completely lost touch with how the rest of the world operates. Even how the everyday American operates. And you've probably seen this smack us in the face over the past decade or two. And so I think it's very important to go to places that don't have that same bias. And I think if you think about emerging markets specifically – the founders who build there, there's the everyday people, they live in this constrained society. They're constrained in a way that San Francisco and New York isn't. And that breeds a different type of creativity, it breeds a different type of innovation that you really can't get anywhere else. If you go to talk to people in London or Vienna or Mexico City or San Francisco or whatever, people are living to an extent in a world of abundance. And that causes a very specific creation cycle. Where if you go to Kinshasa, which is the capital of Democratic Republic of Congo, it's gonna be the largest city in the world then in probably five to 10 years. I think it's already larger than most of the mega cities.
· Patrick O'Shaughnessy, William Hockey
[00:00:00] S0: Wow. [00:00:00] S1: Probably 95% of people in Silicon Valley couldn't tell you what Kinshasa is the capital of. But, tens of millions of people that live in a highly, highly constrained society. And so that breeds a sense of creativity, that breeds ideas, that breeds stuff that you can't really get anywhere else outside of emerging markets. So that's one. I think second for my business, the dollar is fundamentally global. And the dollar tends to be strongest in places that we could imagine are relatively dollarized. Places that are dollarized tend to be more emerging markets where they are using the dollar as their main currency, either unofficially or officially. Because maybe they can't trust their central bank, maybe they have a history of super bad inflation and the country got implicitly dollarized. And so those places tend to actually need US financial services more than, I don't know, UK and the GBP is pretty strong or France. Those places don't need American financial services as much as maybe some parts of the emerging world do. [00:00:00] S0: So, sticking with Kinshasa as the example. So you go there, what are you doing there? What are you discovering? Say more about the constraints you encounter there. Teach us a bit about – I've never been to Kinshasa.
· William Hockey, Patrick O'Shaughnessy
[00:00:00] S1: They operate in a world where there's actually relatively large markets. DRC, I think as an example, is one of the largest exporters, if not the largest exporter of some critical minerals in the world. So there is a lot of money flowing through there. It's a massive exporter. It's a place where there's a lot of Chinese investment. Africa broadly has had more Chinese investment than anywhere else in the world outside of Pakistan. And so there is money and there's a lot of people doing things and the population growth is absolutely bananas. I mean, the population growth in Africa is probably larger than Western Europe, North America and parts of Asia combined. And so while they may be GDP per capita quite small, there's still a lot going on. Where there is, there are founders that are building super cool things. The large companies actually tend to be quite innovative and I can kind of talk about that in a second. And so you just talk to them. I meet a ton of people. I'm meeting CEOs of the largest multinational companies there. I'm meeting founders on the ground and I'm talking them through like, what are you building? What is your perception of America? What is your perception of American financial services? How can we be helpful? Honestly, I spend a lot of my time walking around, ideating, taking in the scenes. And sometimes, a quarter of the time I come up with a really interesting idea that ends up with us building a cool product or just a good market. [00:00:00] S0: What's an example of that?
· Patrick O'Shaughnessy, William Hockey
[00:00:00] S0: What's an example of that? [00:00:00] S1: I've probably had 90% of my ideas either in the shower or walking around in a random emerging markets country. It kind of expands your senses a little bit. If I'm walking down the Marina Green, I'm walking to The Mission in San Francisco, the only thing I'm thinking about is like, oh my gosh, how is AI gonna change things? Because you can't walk around San Francisco and just not get completely hit with AI FOMO 24/7. But there's other stuff we need to do in order to get people up to mobile penetration. Take DRC, like mobile phone penetration is still less than 25%. Banking penetration is like still less than 5%. That's crazy. There's stuff we need to do before we think about embedding LLM in everybody's brain. [00:00:00] S0: Yeah, so to stick with that example again, if that penetration is that low, will you and your business naturally benefit from that going up based on the products that you're building? Is that how you think about some of these opportunities where it's much lower hanging and just no one's paying attention?
· William Hockey
[00:00:00] S1: The leapfrogging that happened in Asia is obviously quite well known. China skipped the laptop, went straight to the mobile phone. Most famously, we skipped online e-commerce and went straight to social commerce in China. There's gonna be leapfrogging as well. And you're gonna see the same thing in financial services. Financial services tend to be most innovative and most progressive in the worst countries. You can see this in Argentina, you can see this in Iran, you can see this in other places. The Iranian financial system, say what you will – it's complicated. They have to deal with a lot of incredible constraints and thus they've built a lot of bespoke stuff just for themselves because they do not have access to global financial markets. And when you get to design things from scratch, you end up actually building things a little bit differently. And that's actually quite interesting. If you look at these emerging markets, Africa, for example, they were the first ones to do mobile payments and M-PESA decades ago. Well before Venmo. If you talk to them, they are actually quite a bit more open. They are used to their category being somewhat disrupted. An interesting thing is they have a bit of access to differentiated capital, which is differentiated talent. If you're in the US, pardon the banks that I'll shit on here, but you do not have access to the top talent. The top talent’s going to Anthropic, they're going to Google, et cetera. But if you believe that brains are distributed equally, you go to Congo and there's going to be some proportion of equally smart people as there are in France. There’s no Anthropic to go to. They don't have the ability to move to London and go to DeepMind. But there's still a pretty decent talent pool there. They're going to go to where there is job safety and where there is money. That tends to be in a lot of emerging markets, the breweries and the banks. That's where the money is. And so the talent, I'd say the middle level and top can actually be quite a bit higher than people think. I'd say, take your emerging markets bank executive team – they're hands down way better than I think probably what you see in the Western world. They also have the ability to verticalize much better than they do in the US, because we already have amazing software, amazing retail experiences down the entire stack.
· William Hockey, Patrick O'Shaughnessy
In most emerging markets or in a developing country, everybody has a bank account. A lot of the people who have a phone have a bank account so they can actually cross sell there effectively. You and I have talked about this before, but I think one of the most interesting companies out there is Kaspi in Kazakhstan. [00:00:00] S0: Fascinating. Can you explain it? [00:00:00] S1: They started out by buying a bank, and then they just built. [00:00:00] S0: Did everything. [00:00:00] S1: Did everything. They're the largest e-commerce company, the largest bank. You pay your taxes on Kaspi. You can renew your driver's licences on Kaspi. Because what they realized is where people start – okay, maybe people start in social media, but they also start in financial services. And so if we require financial services, we can cross sell and we can distribute products there. The largest bank in Congo has been called Rawbank. Highly sophisticated, download the mobile app. It's way better than anything we have here in the US. You can upgrade your TV subscription on it. Imagine JP Morgan doing that, or Bank of America doing that, or Wells Fargo doing that. Or candidly, even US fintechs doing that. Even if they could build that, there's no market for that. And so their ability to land and expand is fundamentally different. And you know, the good thing for us is, in all these countries, the main currency is the dollar. And so our ability to kind of innovate with them is much more akin to what a fintech looks like in the US than maybe a large traditional bank.