Invest Like the Best with Patrick O'Shaughnessy
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.
00:43:23 · Ramtin Naimi
[00:43:23] S1: Terms of enthusiasm around the opportunity, I'd say it's a 10 relative to my time in venture, which is coming up on ten years now. And you see it with this subset of the market. It's not that people are funding all the best companies with huge amounts of capital. People wanna fund so many companies. It's the largest number of companies we found that we want to be investors in relative to any other vintage. In terms of opportunity set, it's a 10. In terms of frothiness, I would call 2021 a 10, and I would probably call this market a 6.5 to seven. Because while the frothiness is there, there is also a lot to justify the frothiness, which I think is really interesting because the rate at which these companies are growing and getting adoption and product market fit is kind of unprecedented, and that would warrant frothiness. I think if you leave out the obvious, the companies that are the IPO candidates near term and you kind of look at what are the next generation of companies that we're probably looking at five years from now, those are the companies you definitely want to have exposure to in this vintage. I would put, like, New Limit and Chai Discovery really high up on there, Isomorphic really high up on there in terms of IO and in terms of can you build AI native next gen Genentech. And the market opportunity for those companies is 500,000,000,000 to trillion dollar outcomes. It's even bigger if they execute on their ambitions and they have the best teams, the best investors, the access to the capital they need to actually pull those things off. I think those companies are super interesting. I think the idea of owning your own data, owning your own knowledge intelligence is a really unique idea. And I think the company that probably pioneered that as the leader in the category is applied compute. So I think it'll be really interesting to watch that as they continue to execute. I think it'll be very interesting to see how the prediction markets play out in a few years. But currently, I mean, the rate at which those companies are growing is insane, and they're not even AI companies. They're just true consumer businesses. I think physical intelligence is super interesting. I think that could be a multi $100,000,000,000, trillion dollar company, exceptional team, a huge magnet for talent, huge ability to retain exceptional talent.
00:45:14 · Ramtin Naimi, Patrick O'Shaughnessy
I think those are kind of the things that I always look for is in the market that you have an adventure in Silicon Valley, there is no shortage of talent in Silicon Valley. But as a company, retaining the highest quality talent is probably the single hardest thing you have to do as a company building and venture because the best people you have at your company can get a job anywhere they want at a higher comp and equity package, and you're paying them at your company. So whenever I see companies that have a high density of that talent and ability to retain that talent, I just get extra bullish on those companies. [00:45:44] S0: Fun three questions to end with. It'll be fun to compare in future episodes. Ramtin, thanks so much for doing this. [00:45:49] S1: Of course, Ad[00:45:57] S0: transcripts. You can also subscribe to Colossus, our quarterly print, digital, and private audio publication featuring in-depth profiles of the founders, investors, and companies that we admire most. Learn more at colossus.com/ subscribe. Ad[00:46:11] S1: Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of PositiveSum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc.
00:46:54 · Patrick O'Shaughnessy
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