Invest Like the Best with Patrick O'Shaughnessy
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
00:39:16 · Ramtin Naimi
[00:39:16] S1: than that? We have evolved into more than that. So I think in recent years, we've dabbled a little bit more at venture stage, which is defined as series a through c. We've led some series b financings in companies like Socket and companies like Doctronic or Dust. And then we've also advanced some passive growth investments into companies like Crusoe. We put, I think, like, 15% of our 2023 vintage fund into the formation round of x AI. So we were a big investor in the series b round of Polymarket. We've scaled. I think our first fund was a $100,000,000. The latest one we just raised is $800,000,000. But to give you a sense of how much the market has shifted from when I went from a 100,000,000 fund to an $800,000,000 fund is when I was raising a $100,000,000 seed fund. It was 2018. And I got so much shit from LPs saying that it was raising too big of a seed fund for a fund one and that I should raise a smaller fund. And then this latest vintage went out for 800,000,000, and I got LPs commending me on my discipline for staying so small. So it's just funny that 100,000,000 was seen as a large fund in 2018, and 800,000,000 is seen as a small fund in in 2026. But I think if we look at some of the best deals we've invested in over the years that have produced a line of the returns for our fund in almost all of them. We were never allocation constrained. We were capital constrained. So I think we have a lot of data points that support. We have very good relation with a of the companies in our portfolio. We have great conviction in those companies, but historically, fund size hasn't given us the option to be a lead investor in those financings. Having a relationship with a founder that trusts you and knowing them early and showing up outside of a traditional financing process and giving them a number that they don't feel like they need to shop and taking enough of the round that they don't feel like they need to do much besides go ask or other investors for pro rata is probably the most easy way for us to continue piling capital into our value driving positions. But most managers that are building a venture capital firm or franchise at the stage that we're at, I think oftentimes they're overly fixated on what their fund looks like in the future and not fixated enough on what their current fund that they have could be.
00:41:10 · Ramtin Naimi
My general take is if you deploy the capital you have as well as you possibly can, by the time you go out to raise your next fund, you'll have more optionality than you would have otherwise. Every time we go out to raise, we basically base it off of about six months before we go to market. What is our position in market today? How does it compare from our position in market? You know, we raised our last fund. Do we believe that we can deploy more capital into the same quality of companies, if not greater quality of companies, than we were in the previous vintage? And if so, do we believe we can jet raise a larger fund without compromising on the return profile we've created for ourselves? And if the answer is yes, then we raise a fund size that corresponds with what we believe we could actually deploy. Somebody asks me, what's, like, the biggest mistake I've made since building Abstract? And the idea is actually we've always raised our funds too small. In every single fund that we've had, I could have maintained an identical return profile with probably two x the capital we had there. So from an LP perspective, they would gotten the same quality of return. From our founder perspective, we could have given them more capital. We could have been a lead investor more frequently than we were a co investor. And that would have improved our position within those companies. And then our name and the ecosystem is a firm that not only leads seed rounds, but also leads later stage financings as well if we had the ability to do so. So I think if anything, the model is going to continue to be do the best you can with the money you have and then evaluate your position and raise accordingly at the next vintage.
00:42:33 · Patrick O'Shaughnessy, Ramtin Naimi
[00:42:33] S0: I thought it'd be fun at the end to ask the same three questions at the end of each of these. The first two are like one through 10 ratings. The first rating is how exciting the opportunity set of companies, if you just think about like the current moment, feels to you relative to your own history. [00:42:49] S1: You're one of the people [00:42:50] S0: that has the most reps, you and your firm, just looking at companies. So opportunity set kind of versus history, one through 10, 10 being the highest. Frothiness, one through 10, self explanatory. 10 is the most frothy, maybe like early mid twenty twenty two is like a two or something. The third question is what you think the bellwether companies are today? The companies, you can name one, two, three, whatever, and don't just say Anthropic, other companies that you think if you watch them, they'll teach you a lot about what's gonna happen or what is happening in the marketplace. [00:43:21] S1: You can [00:43:21] S0: answer them however.