Buyers and Builders
00:04:36 · Mikk
In order to generate alpha, rather than trying to own hundreds of companies, the firm and Marc believes that the relatively small number of extraordinary businesses will generate the majority of long term returns. What makes it all super special and why I wanted to create this episode is some of the stories which Marc has been sharing. You can just learn so much from these because it's about how to acquire, how to build, how to operate, and how to eventually sell great businesses. I think you need some qualities and Marc is covering those. Number one is you need inner flame, the resilience to keep going when things get difficult because things will happen. You need to be comfortable venturing into unchartered territory, doing things you've never done before and figuring them out along the way. You need to understand how to use every form of leverage available to you. I don't just mean financial leverage. I'm talking about relationships, knowledge, reputation, partnerships, creativity, big one, and finding people who can help you accomplish things you couldn't accomplish alone. You also need an almost unreasonable level of intensity and determination. And I say intensity, I mean, just wait to hear the story how Marc was approaching Jeff Bezos, because it might change your definition of what it takes to create your own luck in life. Next is you just need to be creative. I mean, the best opportunities rarely come perfectly packaged and following the same playbook as everyone else isn't always going to give you advantage on this market. Perhaps most importantly, you need to learn from people who've already done what you want to do. Marc puts it beautifully. Find people who have done it before, call them, write them big. And when it comes to Marc's story, the scale may be different, but many of the challenges, decisions and qualities required are remarkably similar for folks who just go after those lower middle market one to 15 of EBITDA businesses. My hope is that at least one of them makes you approach something differently, whether that's a deal you're working on or a company you're operating, or maybe a simple relationship you're trying to build, or just an opportunity you've been hesitant to pursue. And to understand where Marc developed this extraordinary way of thinking, I mean, started in early 30s and he's 47 now.
00:06:58 · Mikk
The data which shows who's listening to this episode, it's folks from 25 to 40. So I think that's exactly perfect audience for this type of episode. And first thing, the inner flame. For you to understand where Marc is coming from and how he made it all happen, we have to cover the early days. He grew up in Montebello, California as the youngest of five children. Neither his parents nor any of his four older siblings had graduated from high school. He describes growing up in a difficult environment surrounded by gangs, drugs, and violence. When he started thinking about university, he didn't have anyone at home who could explain how the whole process worked. Nobody in his immediate family had done it before. What Marc did, he figured it out. He applied to 21 colleges and took the SAT eight times. Eventually, he got into Harvard. When he arrived, things didn't get easier because he quickly discovered how different his preparation had been from many of other students. He'd been an exceptional student in his local high school, but during his first year at Harvard, he didn't receive a single grade higher than a B plus He had to learn how to study differently, how to write better papers, and how to compete in an environment where many people had been preparing for that kind of education their entire lives. And as we all know, Marc did it. He says he went to earn straight A's during his remaining three years. What really stayed with me was how Marc reflected on his upbringing. He doesn't wish he'd had a completely different childhood. He believes that some of the qualities that later made him successful came precisely from what he didn't have. Hustle, the willingness to figure things out without someone showing him exactly what to do. He calls this the inner flame. He makes a fascinating observation. People who learn to navigate uncharted territory early in life may be more willing to do uncharted things later. Now, I don't think we should romanticize hardship or suggest that people need a difficult upbringing to become successful, but I do think there's something powerful about people who have learned to operate when there is no obvious answer. So let's move forward. Don't accept other people's rules. Because before founding Dragoneer, Marc was working at McKinsey and wanted to move into private equity.
00:09:18 · Mikk
The large private equity firms generally preferred candidates who'd come through investment banking. And Marc didn't have that background. He kept getting rejected. He says he received around 25 rejections from firms, including some of the biggest names in the industry. Eventually he joined the middle market private equity firm, but he still wanted to work at TPG. The problem was that TPG had already rejected him. And according to Marc, what he was saying on the panel, they had a policy that once they rejected someone, they wouldn't reconsider them anymore. Same what I said in the beginning, most people would have moved on. But one day Marc was having lunch near TPG office and he decided to walk in. Didn't have an appointment, didn't have any intro. And he just went there and he just asked from the receptionist like, Who's responsible for recruiting? Eventually the head of recruiting came out to speak with him. Marc explained that he'd already spent two years working in private equity, that he could do the financial modeling and that he was confident he could do the job if they give him a chance. He persuaded the recruiter to spend a few minutes with him. Those few minutes turned into six hours of interviews. By the end of the day, he had a job offer. And it makes me wonder, how often do we accept the process as thought it's the only possible way to achieve the outcome? I think what makes it even better is the next one. Marc has pretty unforgettable example how he was having a conversation with Jeff Bezos. He was attending to an event where Bezos was also present and he had an investment in a company that he thought Amazon might be interested in acquiring. Marc wanted to pitch Jeff Bezos the idea. What he did, he spent five, six hours waiting for the right opportunity and eventually Bezos left the room, went into their bathroom and Marc followed him. You can imagine he was sharing this story on the panel as well. He was just laughing and he was just... The thought process on his head was like, Okay, I'm just going go after it. He followed Jeff to a bathroom and he just approached Bezos at the urinal and started talking about the company. What then happened, Bezos asked him to give a minute and meet him in a hallway, which they did. They spoke afterwards.
00:11:36 · Mikk
Although Bezos didn't ultimately acquire the company, Marc was saying on a panel that Jeff really helped create momentum around this specific transaction and they were eventually able to sell this business. Listening to Marc's story, I wouldn't recommend following executives into bathrooms, but you have to appreciate the extraordinary determination behind that story. That is the lesson here. Maybe you're chasing some of those people. One thing is you can just send a cold email, but I mean, everyone's doing that, or I hope they do. But if you really want to go an extra mile, you should probably look where their office is and just try to make it happen, try to meet them in person. Marc calls it creating your own luck. I think that phrase is often misunderstood. It's not that hard work guarantees success. It doesn't, but you can dramatically influence how many meaningful opportunities you create by the people you reach out to, the relationships you build, and the amount of preparation you're willing to do. I mean, Marc Stories, that's why I want to share those. One is just be super aggressive. Next, I want to share a story which describes all this pretty well. This goes back in time when Marc was studying at Stanford Business School. He was able to secure an unusual internship at the investment group of Santa Barbara. What they did, they gave him a million dollars to invest in public markets over ten weeks and he would receive half the profits. But before he started, the firm sent him 30 books to read. During that summer, Marc found an interesting business, which is called Mercado Libre. It's a Latin American online marketplace, which back then was preparing to do an IPO, preparing to go public. He liked the founder, Marcos Galperin, the massive opportunity, the network effect and the potential for the company to become something extraordinary. So he met the founder and became even more convinced that it was going to be an exceptional investment. What Marc did, he bet all the million dollars into a stock of Mercado Libre. Obviously, once he did that, the mentor reminded him that diversification was a thing.
00:13:45 · Mikk
Mercado Libre went public at $18 per share and the stock very, very quickly rose to around $80 His position became worth approximately $4,000,000 which itself pretty extraordinary internship story because Marc was sharing that just five days before his net worth was negative because he had this massive student loan, which he had to repay. Then five days later, he's about to make a lot of money because he invested 1,000,000 and this has turned into 4 and he was promised to make half the profits. Marc said on the stage as well, like, that's how you do it. Obviously the audience and himself as well, everyone were just laughing. The next idea is Marc is big one, and this is find people who've already done it. He shared the story of David Bonderman, the legendary co founder of TPG. Marc was a junior employee and wanted to build a relationship with Bonderman, but there were many layers between them. You can imagine one is as junior as one gets, another one is the OG of the industry and senior in his firm. There's just so many layers between them. But one day during the company off-site, he overheard Bonderman discussing a hotel he wanted to acquire. And Marc, what he did, he approached him and offered to work on the transaction. The funny part Marc was saying on a panel as well was that he didn't know anything about hotels, but he, again, as he has been doing previously, I can figure it out. He spent the following year working on the hotel transaction and largely during nights and weekends alongside his normal work. And he even remembers spending Valentine's Day reading these hotel documents. He was saying on a stage as well, the wife wasn't very delighted about this. But eventually the transaction was completed and Bonderman offered to reward him financially. But Marc, what he did, Marc declined. He asked for an IOU instead. And years later, when Marc had the opportunity to bring outside capital into his investment activities, he called Bonderman and asked him to invest $5,000,000 which Bonderman agreed. And Marc joked that he'd clearly asked for too little. The relationship went far beyond that one single investment. They became long term partners and friends. And here we go. There's a wonderful lesson for mentorship here. Marc didn't start by asking for an incredibly successful person to become his mentor. He started by finding a way to be useful.
00:16:09 · Mikk
He helped him accomplish something first, build trust and develop the relationship that became valuable for both of them over their long careers. And I have to bring up this, Marc said so many times, find people who have done it before, call them, write them big. Because if you're maybe buying your first company, there are people who have already bought 10. If you're building a roll up, there are people who have successfully built platforms and others who have made expensive mistakes already. If you're trying to raise capital, there are investors and entrepreneurs who've already navigated the process. Why wouldn't you learn from them? You want to be, how was the saying? You don't need to do all those mistakes yourself. You can just learn it from others. One of the most unappreciated forms of leverage in business is simply being willing to ask intelligent questions of people who know more than you and who have experienced more than you. Yes, you may have to create your own path in life, but you don't have to figure out everything alone. I say that again. You may have to create your own path in life, but you don't have to figure out everything alone. When he was building Dragoneer and raising money from institutional investors, they often struggled to categorize his strategy. Was it the hedge fund, private equity, growth equity, public markets, private markets? It didn't fit neatly into the existing categories. Marc would joke that they needed to create the new category called miscellaneous. He makes the point that some of the most attractive opportunities exist in that miscellaneous category before everybody else has figured out how to define them. Again, fascinating observation because so much of business is built around copying models that have already worked and there is enormous value in learning from successful investors and entrepreneurs. But if all we are doing is copying what everyone else is doing, where does our advantage come from? Sometimes the opportunity is in, let's take an overlooked industry or an unconventional acquisition structure or a business model that doesn't fit neatly into established category. Sometimes you have to invent your own approach and perhaps that's the thread that connects all of Marc's stories. Number one, he didn't grow up with a kind of background that made an investment career an obvious path.