Invest Like the Best with Patrick O'Shaughnessy
00:11:06 · Micky Malka
[00:11:06] S2: So we had this thesis back then, super early. You walk back a few years before that, two thousand and nine financial crisis, 'eight or 'nine financial crisis. The trust for incumbent brands or for established brands goes to negative. Nobody trusts them, nobody likes them, nobody feels identified with them. They get overly regulated and what happens is their innovation disappears. And in the late nineties and early two thousands, they were building this entire tech stack to run their back ends because before then they were paper. You walk to a branch, bank branch in the nineties, it was still paper based, completely paper based. So they had modernized the back end, but 'eight, 'nine came in a moment where they never built the last mile. And when the app store shows up in two thousand ten, 'eleven, it's a perfect storm of a mobile device with an app store, which allows you to compete as a new channel to acquire attention and customers that incumbents were way behind on. And that infrastructure that they had built in the nineties and two thousands was good enough to find bridges to connect to it and offer the last mile. So our whole thesis in the early days was let's go around the world, finding the teams and the companies that are building that last mile that will touch consumers and businesses with financial services. The crypto angle came as somebody who grew up in Venezuela, as somebody who experienced over max inflation of triple digits in any given year, in your teenagers, as somebody who... As my first startup, I was 17 in financial services in Venezuela. And when I was 20 or 21, half of the banking system collapsed and disappeared. As somebody who saw the dollar devaluate and saw what happened in Argentina and was in Argentina doing business when the Corralito happened, when they took the peso out of the peg of the 1 to one or the Real in Brazil because I also was there. I didn't need to go to school. I already had a life lesson on macro and governments and currencies, more than people have in a life lifetime. So when we saw Bitcoin early two thousand eleven, before even starting Ribbit, it was super obvious that this was something really big. So the first businesses there that we were investing in those early funds were who's gonna connect the fiat rails to the crypto rails.
00:13:32 · Micky Malka, Patrick O'Shaughnessy
And one of the first ones was Coinbase and Brian and Fred and that team there. And so we did all of these things that were in the early days of connecting the last mile of financial services to consumers and businesses. [00:13:46] S0: You're probably the most famous private FinTech investor. And yet last year you told the world that would listen to you that FinTech maybe was dead. Can you explain just that moment in time and what led you to say that?
00:13:46 · Patrick O'Shaughnessy, Micky Malka
[00:13:46] S0: You're probably the most famous private FinTech investor. And yet last year you told the world that would listen to you that FinTech maybe was dead. Can you explain just that moment in time and what led you to say that? [00:13:59] S2: We had a slide in our annual meeting. It had this cemetery and it said fintech and it had a Tom and it says fintech 2012 to 2023. And it was dead. And you could see people's faces were like, what is this team just telling me? And the reality is, I think to play an infinite game, to play a game that you get to reinvent yourself, to play a game that you enjoy, There's no winning or losing. And once you're ahead, you have to change the rules of the game so you fall behind. And we were seeing slowly and slowly that there was... Every other day, somebody else was trying to do something else in the same space. And we look at each other and said, what is this? Should we keep doing this or should we just say, you know what? It's dead. It's done. Everything that needed to get started in this last twelve years did it. So the nice thing about that mentality is to say, yes, we were ahead for a long, long time, but let's change the rules of the game so we fall behind again. Because the game is better played when you're trying to get ahead, not when you are ahead and trying to avoid people from being ahead of you. So changing the rules is the best thing in life.
00:15:18 · Patrick O'Shaughnessy
[00:15:18] S0: It's so interesting that you're allowed to range around public businesses, private, late stage, early stage. How do you know where to focus at any given point in time as you think across all the funds, which themselves have been so different? And when is it more common for a very late stage, let's say, valuation opportunity to get you more excited than an earlier stage one that by definition is a lower price, maybe a higher potential upside? What draws you around that range that you're allowed to move through?
00:15:48 · Micky Malka
[00:15:48] S2: I think it's this combination of finding amazing people that you can see through their soul, through their motivation, and you can see that they will do whatever it takes to win and to build that mission that they find themselves to. At the beginning, when you start backing them super early, you don't know. You just don't know. But you try to see signals and follow through them. Before we said to our investors, hey, fintech is dead. It didn't come out of the blue. A year before or eighteen months before, we presented this pyramid and said, there's 3,000 companies that got backed in the last decade in financial services around the world. We think there's 50 winners. There'll be 50 companies that are gonna compound for the next fifteen years. They have asymmetric brand knowledge. They know how to use time, people. They know how to deploy capital in ways that they will just be compounders for a very long time. The kind of services that the Berkshire hathaway that the world would love to have. Which in many ways, you look back at Berkshire, that's what they did in the seventies and eighties when they started to buy American Express and GEICO and the Wells Fargo, they looked at compounders when it was not obvious that they were gonna compound for that long. And they hit the macro right. And then we said there'll be 200 companies that own an asset, a license, a software, a customer base, a product that will be acquired by this compounders. So they'll be taken out one way or the other through M and A. There was gonna be another 500 companies that are gonna get to profitability because liquidity was drying up, the market was starting to get out of favor for this space, moving more to AI. And those companies will get profitable and they will trade at a multiple of earnings and just do fine and private equities will buy them or they'll live in a cash flow business. And there was 1,500 that should not exist. And they will disappear over the next number of years. So that thesis put all of our attention to look at, all right, who are the compounders? Are they public? Are they private? Are they both? Do we know which market who? And we spent over a year and a half just studying that and placing bets all over the world around that.
00:18:04 · Patrick O'Shaughnessy, Micky Malka
[00:18:04] S0: What's an example of one of a compounder just to make it... Bring it to life? [00:18:08] S2: The first one that comes to mind is probably Robinhood. I'm on the board, so I gotta be careful with what I said. But it's a company that every time they have time, the millennial customer in a way that they're growing with them. So think about it, Vlad and Baiju started a company when they're 26. The oldest are the millennials. They're now 37, 38. They're the oldest. Probably the [00:18:33] S0: millennials The