Invest Like the Best with Patrick O'Shaughnessy
00:47:00 · Patrick O'Shaughnessy, Sarah Guo
[00:47:00] S0: What flipped that for you? What evidence did you see from we don't know yet? [00:47:04] S2: We invested when we didn't know yet. That's part of the fun adventure. We were like, it is possible. It is worth trying. Yeah. There's no genius here. That's a $10,000,000 contract. The other piece is actually you just talk to the scientist at the customer or somebody who leads a [00:47:20] S0: User of the tool. [00:47:21] S2: Yeah. The user of the tool or you see there are also end user adopted tools, product led growth tools that are working in the space. Well, the customer knows if it's valuable or not. The light bulb moment for the industry is when we will have a new indication or a new drug that clearly the trajectory of the thing was changed, created by AI. We should see a huge wave of investment and rightfully so, but it's going to happen. I'm, like, very impressed by the speed with which pharma and health care overall has said, yes, this is gonna make a difference, and we actually think it's gonna change the business.
00:47:59 · Patrick O'Shaughnessy, S3
[00:47:59] S0: Your finance team isn't losing money on big mistakes. It's leaking through a thousand tiny decisions nobody's watching. Ramp puts guardrails on spending before it happens. Real time limits, automatic rules, zero firefighting. Try it ramp.com/invest. As your business grows, Vanta scales with you, automating compliance and giving you a single source of truth for security and risk. Learn more at vanta.com/invest. Ridgeline offers one unified platform that automates away the complexity across portfolio accounting, reconciliation, reporting, trading, compliance, and more, all at scale. Schedule a demo at ridgeline.ai. Every investment firm is unique, and generic AI chatbots don't understand your process. Rogo is built by finance professionals. It's connected to your data, learns your process, and quickly produces client ready outputs. Check them out at rogo.com/invest. The best AI and software companies from OpenAI to cursor to perplexity use WorkOS to become enterprise ready overnight, not in months. Visit workos.com to skip the unglamorous infrastructure work and focus on your product. [00:49:07] S3: Article conviction.
00:49:09 · Sarah Guo
[00:49:09] S2: It's aspirational. The most traditional form of early stage investing is you start early with a company. You have a significant position. You never sell the position, and then you work on the company until it works or a solder dies. There's wonderful alignment and simplicity to that. Mike and I have both had the benefit of being part of the journey for some companies where it took a minute to begin to work or it's, like, not obvious at the beginning. Sigma, Notion, rippling. You wouldn't bet on a company hoping that it's gonna take four or five years to, like, find the thing. I think everybody is a product of their own experiences, including investing experiences. The first couple years at base 10 were, like, very nonobvious as well. The ability to take a point of view that is not obvious in the market because the market or because of people's backgrounds, whatever reason, and then just suspend doubt and act with full belief until it's true or not. That's a great way to be a partner to somebody building a business. I am trying to build a partnership and I deeply believe this is a team sport. I was talking to a friend who runs another investing firm where he is like, we don't have individual ownership of our investments. And I'm like, that is nonsense to me. How could you run a business that way? Because somebody has to own the decision. I don't know if this is right or wrong, but I don't know any other way to invest by saying, Patrick, you must make the decision. Do you believe? Convince us. How can we help you make that decision?
00:50:41 · S3, Sarah Guo
[00:50:41] S3: Have you learned about risk taking? Behind conviction, it sounds like there is often a leap of faith of some sort. Obviously, if you knew everything and it was obvious, that would be priced in and there'd be no return opportunity. Is there always a leap of faith? Is that risk taking by another name? [00:50:55] S2: Unlike my good friends at Founderspond, I don't have an instinct to be contrarian. But I do think it is so fundamental to decide what you think and not worry too much about what other people think. Other people is the dominant narratives of the period or even what different players in the ecosystem that are really important declare one way or another. I think you just need to find the truth. The way I would relate that to risk taking is if you find the truth and it is wrongly priced and you hold on to that, you're in a good position. You want asymmetric information and then the confidence to hold the opinion when other people haven't come around to it yet. I think a lot about how to make sure we have the information that is better than other people's and then protect ourselves from noise. [00:51:42] S3: Describe that in one more level of detail. That's a great way of asking what conviction looks like today. You're building that shell. What are the keys to doing those two things well, both having the truth and protecting yourself from the noise?
00:51:54 · Sarah Guo
[00:51:54] S2: I, like, wanna spend my time when I'm learning about the world from somebody who is making it happen, our portfolio founders or the many founders who are doing amazing things outside of portfolio who are doing something that surprises me or advances their frontier or like really smart believe something I don't. There's like three different categories. And I'll give you an example. Mikey Schulman at Suno is building an amazing business doing music generation. Shame on me. I knew Mikey, a mutual friend of ours who's an investor asked me to invest and I stupidly said no. But I was just like, oh, I don't think that many people want to make music. I make music. But can you turn it into a social network? How much consumption is there gonna be? A lot of questions. My intuition is just wrong. It's been actually somewhat wrong because I have underestimated the amount of expression or entertainment and creation for a lot of AI tools. I've learned something here by talking to Mikey about his business and what people are trying to do. So if it is founders who have companies that are creating a behavior you don't understand, somebody working on research and an interesting direction, businesses that are like, here's my plan for AI, all that is super educational. I think the circular logic sometimes of what do people believe about the big lab strategy today, How can any of the applications live? It's actually not that instructive for your decision making. The way I think of it is any organization has a couple key priorities. Let's assume the priority for OpenAI and Anthropic and DeepMind is AGI or ASI in a safe way where they capture a lot of profit. The priorities that ladder into that probably look like chat GPT, ads, coding. Maybe there's an expansion after that. Cowork, the ability to get different types of users to do richer tasks and more interfaces. I think you have to judge the actual competitiveness of any of those efforts, the reasonable scope of them, and then look at them relative to each of our companies or opportunities that we're looking at. Coming up with some grand strategic framework for, like, what layer is gonna win here, I think is not useful to me. And I feel like people spend so much of their investing energy thinking about versus I wanna spend my energy figuring out if we're 1% of the way in, what is the next 99% of diffusion?
00:54:23 · Sarah Guo, S3
That's where we try to direct our energy. [00:54:26] S3: For fun, as we wind down here, understand this is like a purely speculative question, and it's meant more fun than raw prediction. What are some things you think are true a year from now based on all these incredible people that you're close with, the research community, the entrepreneurs like the Sunday founders, you add it all up, things are moving fast. A year is a long time and it's like reverse dog years now. What do you think is notably different about the world of technology a year from now? [00:54:52] S2: I'm hopeful that a year from now, we see Jevan's paradox in practice as we have agents and products that do more of the mundane more effectively in all the domains of our lives. It should look like the transformation that has happened in software engineering. You have companies. I have companies where they're like, we're just going way faster. I expect that some analogy like that will happen [00:55:21] S3: For everywhere else.