Invest Like the Best with Patrick O'Shaughnessy
00:32:42 · Patrick O'Shaughnessy
[00:32:42] S0: Do you think then in this market, the most rational thing to do is go all the way to the other end of the spectrum to the businesses where we can really investigate them? Everything you're describing feels so untethered from any underlying reality of a product or traction of that product, anything that the business is ultimately going to get built on. It's literally just reputation and this weird multiplayer game of pricing. Totally untethered. Whereas Databricks, where I think you're a big shareholder, it's just so so much simpler to understand or think about an investment in Databricks from here. There are fantastic companies growing really fast that are really big. Do you think that perhaps the smarter thing to do is to go to the total other side of the spectrum given this craziness? I think that's probably competition there.
00:33:25 · Ramtin Naimi
[00:33:25] S1: It's less competition. You could deploy large sums of capital into those companies and be a passive investor. I think it's probably a safe way to know that you have exposure to great companies. The main question is if you're pricing those companies in today's environment, you need to kind of answer for yourself whether you believe it's 2019 or 2021. Because in 2021, you could have invested in Stripe at a $100,000,000,000. And Stripe was a great company. It still is a great company, arguably one of the best. But today, Stripe is a $179,000,000,000, which is great. But that's what, like an 11, 12% IRR over five years, which, by the way, is still better than, like, the bottom 75% of ventures. So you can probably secure yourself a top quartile position in the venture market by backing the best companies at the highest prices Because they are great companies and great companies tend to continue to be great companies. They do tend to compound over time. But I do think the thing that gives me a little concern around that strategy is how consensus the approach you described has just become recently. Because I've seen a record number of VC firms in the last eighteen months honing on the same idea of there is a handful of obviously great companies that can absorb a huge amount of capital. And as a VC, if you can demonstrate access to these names, you can raise large funds and become a passive investor with large sums of money in these companies, almost to the point where it's become a consensus strategy of an easy way to deploy large sums of money and do well. And you might have more data on this than I do, but I can't really think of many times in history where, like, an easy strategy turned out to also be a good strategy long term. So I think that's kind of the interesting thing about this market is if everybody believes that's an easy way to make money, it's probably not a great way to make money. But I can't think of any strategies that were considered easy money at the scale that people believe it's easy money right now.
00:35:05 · Patrick O'Shaughnessy, Ramtin Naimi
[00:35:05] S0: What about the data companies where the narrative for years was, is it more like a trade than a company? We need to arm all these models with tons of data, but once we have the data, we're gonna be good. Seems like maybe that narrative has shifted and these things seem to be more persistent than one might have thought or bigger than one might have thought. [00:35:22] S1: What do you [00:35:22] S0: think about data companies?
00:35:23 · Ramtin Naimi
[00:35:23] S1: Data companies are kind of like a conundrum to most investors because I think the belief historically was these companies don't have long term sustainability because eventually the people they sell the data to will get all the data they need and not need their data anymore. But I think people have dramatically underestimated the data needs of these model builders. It seems that their data needs are only increasing, and there are certain companies that are just ahead of the curve on knowing what data they need. They can deliver the data at the quality they need it at, and they're going out and collecting that data. And some of the data is harder to collect than others, and those companies charge accordingly and their margins are treated accordingly. I've seen two types of companies that sell data and robotics. I just believe data is a gigantic business, and we can continue selling data for the next ten, fifteen, twenty years and collect tens of billions of dollars of revenue as a result of doing it. I don't think there's ever gonna be an end to the data needs of these companies. And there's a subset of VCs that believe that and just wanna invest in a lot of data provider companies. And then there's other companies that are selling data that are like, we believe that data has a means to an end and that ultimately there is an end in sight to how much data we can sell and how much we can scale our business. But we believe selling the data is a really good way to finance our own research, to train our own robotics model because we know this market better than anybody. We know how to collect the data, and we can either go out and raise tons and tons of equity capital, which we'll do as well, but we could also finance our research by selling the data to the other model providers as well. So it's two camps, and they're both incredibly well versed in the category, but they have two very different perspectives on the ultimate outcome of a data selling business actually is.
00:36:55 · Patrick O'Shaughnessy
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00:38:20 · Ramtin Naimi, Patrick O'Shaughnessy
[00:38:20] S1: I think it just continues making Silicon Valley the best place in the world to start a company. I think the reason that no other ecosystem has ever taken off the way Silicon Valley has is because Silicon Valley has the largest density by, like, an order of magnitude of probably 100 x or greater of individual people running around writing one hundred k to one million dollar personal checks off their balance sheet to help out companies in the business before they're institutional. And I think that's just a unique thing you won't have anywhere else. People that'll write you a million dollar check, and if they lose it, they don't care. It's the mentality you have here. And I think it's probably good for innovation the more and more people you get that do that. But I do think a bunch of people making huge amounts of money off of early angel investments is probably good to continue startup innovation. [00:39:02] S0: I'm sure you want Abstract to keep evolving. How are you thinking about that evolution? Like, you've been kind of a pure play seed investor for a long time and established yourself as one of the seed firms that founders come see when they wanna raise money. Do you wanna stay that? Do you wanna evolve into more