Charlie Songhurst – Lessons from Investing in 483 Companies - [Invest Like the Best, CLASSICS]

0:00 Welcome to this classic episode. Classics are my favorite episodes from the past ten years published once a month. These are end of one conversations with end of one people. Charlie Songhurst is a brilliant strategist, an accomplished executive, and a prolific angel investor. It's one of my all time favorite conversations, not just on the podcast, but period. I hope you enjoy it.

0:21 Hello and welcome, everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper, check out Colossus Review, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus Review along with all of our podcasts at joincolosis.com. Patrick O'Shaughnessy is the CEO of Positive Sun. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Some. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of positive sum may maintain positions in the securities discussed in this podcast.

1:09 To learn more, visit psum.vc. My guest this week is Charlie Songhurst, the former head of strategy at Microsoft and a prolific investor, having personally invested in nearly 500 companies through his career. I met Charlie at an event hosted in New York, and you can tell within one minute of meeting him that his mind is sparkling with ideas and curios. It's no wonder he's been among the most commonly request guests when I asked several top investors and CEOs who I should have on the show. We discussed the lessons he's learned about business, investing, and people from such a large sample size of companies. I won't reveal any more here. I highly recommend you just listen to Charlie and learn. Let's dive in.

1:50 Charlie, I like starting these things in a unique way, and one idea that you've had is to have people stack rank their vices of power, money, and fame. I'd love you to begin by explaining why you're interested in this idea and what you've learned from the answers over the years. So it's a two part question. One is the virtues. Which is Working with people you like.

2:10 working on amazing problems and having impact. And then the three vices power, money, and fame. And you can't avoid them, they have to be stack banked separately. And it's really trying to get at the differences between There's no good answer, but they're definite good fit.

2:24 Answers. So Someone who's interested in power. tends to be better than execution. Someone that's more interested in money tends to think more about

2:34 Some capital efficiency. I tend to avoid people interested in fame. But if you were doing something in showbiz, it would presume would be the number one criteria. If you think about the difference between sort of impact intellectual interest working with people.

2:47 You really get the impression of where people are gonna be happy and where they're not gonna be happy. You also start to understand why certain organizations do so well. So SpaceX, if you think about it, stacks high on all three. It's introduced, you're working with amazing people, and you have huge utilitarian impact in the world. Whereas if you're working then FinTech, you're less likely to sort of have that utilitarian positive impact.

3:06 Any especially memorable or interesting series of answers that you've gotten on the two stack rank that come to mind? A lot of people have negative utility from fame. A lot of people Stop. with power and then when you push them.

3:22 It's actually money, but they don't want to say it. And that's more true outside of the US culture. than it is in the US. Particularly true with Europeans. And so a lot of it is trying to get people to actually say what they truly believe.

3:35 As opposed to Say what they think they should say. I'm curious in what context, whether it be interviewing prospective founders, interviewing potential hires, or others, you find it most interesting and useful. All of the above. The founder one is fascinating because you actually end up going down different lines and helping them depending on whether they answer. The power and the money.

3:55 Founders that dance with power. tend to need help more. on managing their start up capital efficiently. They tend to be the ones that spend more. They tend to be the ones that

4:04 Overexpand. They're often too aggressive. Conversely, the ones that answer money tend to be very capital efficient, but are often slightly too cautious, slightly under aggressive. sometimes not willing enough to stamp their authority. On the company.

4:17 and make it the culture that it needs to be to be successful. When it comes to hiring or evaluating founders, apart from this two part stack ranking, are there other favorite questions or devices that you return to again and again? I think what you're looking for is found a market fit. I think there's a sort of mistaken concept that there's Platonic ideal. Of an entrepreneur.

4:38 And I think maybe there's two very basic things, there's energy and there's sort of cognitive ability. But after that, you're really looking for fit. So if you take the sort of prototypical consumer founder, they tend to have more empathy for how people behave. Whereas if you take the classic enterprise founder, they tend to be more national because in some ways you can just go and ask your customers what features do you want and go build them.

5:00 And so you go down those different lines. And I think there's a lot of fallacy in that sort of platonic ideal. What you're actually looking for is someone who's a good fit. For business. I'd love to take a step back now and introduce you to the audience a little bit. One device that I've been using with people on the podcast is to ask you to give the thumbnail two minute sketch of your life and career up until this point. studied politics, first, and economics at Oxford.

5:25 Ended up very brief in McKinsey, then at Microsoft. And then sort of bumbled my way into becoming an investor. and do a lot of angel investing. So I think I've done about five hundred angel investments. I think the actual number's four hundred and eighty three. And about three hundred in the portfolio at the moment. I believe you ran strategy at Microsoft. What exactly did that entail and what is most

5:46 memorable about that time. There's so many memories working with amazing people. The hostile acquisition of Yahoo as an attempt was just On the eBay. into actually fascinating.

5:57 Trying to buy a company in a hostile acquisition for I think it's forty seven billion dollars. And just the drama and the soap opera. And realizing how much past dependency matters. And big deals.

6:07 How much a casual comment. Misinterpreted by one side or the other. actually changes the outcome. It's remarkable how little system theory that is.

6:17 In the sense of if you run experiments again and again. I think you would get a lot of different results in MA activity. Whereas in things like product usage, good products and bad products would probably be the same in each experiment. Four hundred and eighty three investments is a crazy amount. I wanna come back to your time at Microsoft probably later on and talk in more depth about strategy, but given the sheer volume of investments that you made, I think a great place to begin our conversation is your idea or your thinking around why Startups succeed and fail. I'd love to begin by

6:47 you outlining sort of what, if anything, is shared in common across those four hundred and eighty three. So are there certain features that you're always looking for and sort of how your process works and then we'll get into the success and failure of startups. In some ways it's two tie together. So I think the dominant sort of Failure mode for startups.

7:03 Is the same at each different stage. So uh sort of pre seed to seed. You basically have a failure to achieve labor productivity. Which is really just a polite way of saying the team doesn't come together, doesn't gel and produce good output. usually a team that just produces good work.

7:20 will generate enough sort of kinetic energy. To get continuing funding. Once you're sort of going from seed to series A, it's another single cause, which is failure to get product market fit. You're basically on a search for demand curve.

7:33 And you either find one or you don't find one. And this is where you've got the highest element of pure chance in a startup. It sort of always feels akin to sort of gold perspecting in the California gold rush. Which is You can be good or you can be bad. You can do the right thing.

7:47 You can do the long thing, but there's some illadusable amount of chance. the wisest perspector with the best maps and the most intelligent strategy sometimes just won't find it. And someone will just Fall asleep, put the pan in the stream and gold will come out. And there really is a real nexus of serendipity at this stage.

8:04 Then when you move to series A. It's really all about labour productivity. But in a different form. It's can the manager Scale. And one of the fallacies is most early stage startup founders think they're managers.

8:19 And they're actually not. What they have is a team that's actually managing them. 'Cause when you're managing, say, ten or less people. and you're spending time with them every day. What's actually happening?

8:28 Is them managing you by influence? because they know you well enough and they talk to you enough. to work out what your desires are. So as long as you're articulate and energetic and sort of engaged. You actually don't have to manage.

8:41 The team manages you up. But when you scale to thirty people. To ninety people or above. You no longer have those personal connections. You have to move to formal management techniques.

8:52 And that's like a sort of furmi paradox great filter. It wipes out an amazing amount of startups. And the way that's devinced is a collapse. in the labour productivity per person. There's a term in microeconomics called manageal diseconomies of scale.

9:06 And I think in some ways the angle of the decline Of productivity per person. is the difference between the sort of the stripes, the great startups, and the failures. And maybe if you're a great startup, as you go from ten people to a hundred people. output per person drops fifteen percent.

9:20 And if you're a bad startup, it actually drops over ninety percent. With the result that often hundred people startups. produce less than they did when they had ten people. Because the manageal collapse has been so extreme. And one interesting thing is if you could company escape by big.

9:34 Maybe there's a sort of interesting explanation where more than the shared attributes was an instinct for the sort of structures and processes of management. that were shared between Gates, Zuckerberg, Bezos, the Cullitons, all these sort of super talented people. Because my guess is they didn't receive formal instruction on it. Their VCs and advisors weren't that helpful on it. It may be either by chance or by skill, they just intuited on my thought.

9:57 Then when you get beyond that sort of series B and beyond I think it's institution building. And one of the interesting problems is the sort of people that become entrepreneurs are often full of energy and sort of flexibility. Almost a sort of combination of Street Smart and Book Smart. But there's a point where they've hit product market fit.

10:14 Where actually what they're doing is Repeating a process at scale. And to appear to process at scale, you need to build an institution. And often that sort of is almost anathematic to their personality. If you're going to take an eleven from forty two countries.

10:27 You really need a well developed finance department. Once you get to a certain size, you will always be in court cases. because of being sued by ex employees, you'll have patent infringement suits, you'll be debt collecting customers that didn't pay. Like this shift to sort of building an institution with institutional norms and institutional values and institutional culture. And all the boring stuff of building strong finance departments, strong legal department, strong HR department, that again

10:52 It's a big filter. And so those are sort of filters by stages. What's interesting is some of those you can do when you submit someone please. One interesting thing is I sort of close my eyes and think Can I imagine this person on a public company conference school? Remembering the Microsoft schools. And I'm thinking, can I imagine them sitting as a sort of CEO next to their CFO?

11:12 talking with all the sort of all street equity analysts on the buy side on the phone. I'm just be incredible enough and deep enough and mature enough to pull that off. It's a fascinating set of framing. The one that jumps out as maybe most interesting to me is this idea of the declining curve of people's productivity and in your experience whether or not

11:31 That is something that is typically innate to the founder, meaning they just handle that naturally and with a plum or If instead it's something perhaps that could be coached and if it's really just a set of best practices that are fairly universal that the founders just don't get. I think the irony is it is absolutely something that can and should be coached. But often isn't. So often the people that get it intuitively

11:53 Other people that survive. But there's no need for that. It can just be coached in. And I think a lot of it is you get this very strong transition. When you're a very small startup, most of the people you're employing just come in and do their job.

12:06 And go home. And the drawback of that is you tend to end up having to do tight management. a lot of micromanagement. And the beauty of it is you tend to get a value level. politics within the organization. Then you get this transition to where you're hiring people that are sort of Execs would be the sort of headhunt to description. VPs.

12:24 senior people and the beauty of these more senior people is you can give them much more complex tasks. Build me a product division doing this. Go open European markets for me. And the Drawback is it, anyone capable of those complex

12:38 conceptual abstractions necessary to do that. Tends also to be capable of politics. And because the world is not composed of saints. As an organization scales, the level of internecine politics increases exponentially. some nonsense to me. The difference between a great company is one where the exec spent only twenty five percent of their time playing politics.

12:56 And a bad one is wet. So spend fifty percent of their time. Fine politics. And that delta is the entire Gaussian bell curve from the best fortune five hundred company to the worst. And I think one of the things that really matters a founder is act as a dampener.

13:09 So reducing intern, reducing the tendency for marketing to try and take control of the sales funnel. reducing tendency for the head of sales to want to take over sort of inbound marketing. It's trying to stop the CFO.

13:24 controlling spending so tightly. that you don't get positive return capital investments. By sales. trying to stop sales, getting so much control over spending. that your margins got control. All those boundary conditions between

13:36 sort of VP we doesn't functional heads. Defining those well and managing through that transition is just so important. And There's nowhere where someone learns that. through the process of entrepreneurship. One of the things that's I think that interesting about people's careers in general is the early stages that and the personalities go into them often have negative correlation with the later stages. So if you look at a sort of McKinsey or Goldman Sachs analyst.

14:00 Often what they need is attention to detail. strong work ethic. high diligence, high conscientiousness and sort of high factors, all those sort of things. If you look at middle management of those companies, they need good project management, good ability to abstract and structure problems, good ability to pull a team together and create team along, and the sort of being cost of detail and the technical knowledge matters less. And then if you look at the sort of partner level in those firms. Often all that matters is relationship building.

14:27 And sales. and charm and the ability to empathize with the client and connect with them. And so It's barely hard to find people that are stars in all three parts of those collars.

14:37 And I think it's the same with entrepreneurship. The street smart entrepreneur at sort of Pre seed who can raise money with a good narrative. and get energy and occur people. and sort of create a sort of sense of momentum and a sweeter core.

14:51 is often very negatively correlated with a sort of personality that wants to put in quarterly HR reviews. And QBR reporting and really make sure that the finance team is taking at a later stage. And then conversely, often the entrepreneurs that do very well later find the early stage capitalising hell and earth. Because

15:11 in some ways they're so tightly gripped to reality and they're slightly pessimistic, which makes them fairly good at sort of avoiding chaos, often makes them very bad at pitching. I'd love to hear your thought on this interesting concept that actually our mutual friend Graham and I have batted around quite a lot, which is this notion the term we use based on a blog post by a guy named Rick Burden. is the idea of an alien founder. An alien here is used as the best possible compliment to a founder, where it's somebody that just has sort of what seems to be like an unfair and privileged access to some sort of underlying substrate, the thing that is going to build the business. And they just kind of know what to do. They have an incredible first principles mindset typically. And say Bill Gates would be a great example of this. I think Bezos would be a great example of this to use obvious ones. What do you think of that idea that in some ways the absolute best founders are in some sense alien and distinctly unique people? I will maybe for the Socratic sake of that sort of

16:04 Take the opposite argument and say I think one of the mistakes it's full into is just sort of seeing sort of evervescent genius. Because you're seeing people at the height of their powers.

16:14 You're not seeing them on the way up. There's that famous clip. Of Bezos, I think in ninety nine. with Amazon sprayed and spray paint in the back of the office. It would be interesting if you talk to him.

16:26 Whether he's similar. To The basos of today. Because in the intervening twenty years. Remember, you've got this incredible training programme for the mind.

16:36 Yeah. Working Every hour in the start up. They're talking with the smartest people. They're constantly getting new information. They're hiling, they're filing. So that pattern recognition of executives gets so much better.

16:49 They've got A million failed initiatives. So they have all these learnings of what not to do. They've got all the things that have worked and they've seen what scaled, they've seen the commonality. And so how much of that is sort of booking in an athlete at the peak of their

17:01 Performance. And not seeing the ten thousand hours of practice that got them there. And I could almost argue you could invert it and say, what are actually the causes of mortality? And how do we just avoid suffering?

17:15 That mortality This yeah. And if you survive long enough. Maybe greatness eventually becomes you. So one of the things I think that sort of is perhaps underestimated is if you want to live forever, maybe don't start thinking about

17:28 study centenarians, instead work out how to not die of a D UI. Right, or drunk driving or anything else, smoking twenty cigarettes a day. And to some extent the same in entrepreneurship is It would be amazing. And of course, the problem with sort of the observation of the world is people spend a lot of time studying greatness, they don't study failure. They study Mohammed Ali, they don't study all the heavyweight boxers that faked out after losing their first match.

17:50 But maybe if you study all of those, you can find a commonality in their mistake. Maybe they all, I don't know, offered their chin to the opponent or something. And In startups, I think there are common mistakes.

18:01 There's An original sin about capitalizing. I see so many startups three to five years in, still haunted by a cut bad capital A's at the beginning, some investor they don't want. some valuation that was hopelessly diluted and puts DCs off now. Often one of the things that I see collate barely well with success is how quickly they exit their first employee that doesn't fit.

18:20 Um, I think what that's actually showing is Are they willing enough? To be disagreeable. to make the company what they want. And so

18:29 the willingness to cross that chasm. And often you're dealing with bate young founders. That's a major inflection point. And if you don't do it, that often leads to a toxic culture and bad results. then there's sort of more subtle melodies like

18:42 uh sort of turning things into an academic project, particularly with founders with very strong academic backgrounds, often deep tech and pitched pees. That's sort of like generals fighting the last where they think of prestige as a currency because it is an academia. And so they just think if we do amazing work and we tell the world about that amazing work, good things will happen. Because as a holistic that did work. But it means they d don't engage with the revenue, they don't get quite product market fit. It's too much a sort of Ivy Tower.

19:08 Intellectual exercise. Or conversely, do they just sort of think we get momentum, we get revenue, we get traction. It all work. And I haven't really thought about that. deep microeconomics and unity economics of a scaling company.

19:20 And so I almost invert it and say Don't Study greatness. Study failure. and work out how not to be that. If you're sort of thinking of history.

19:30 Trying to be as good or Augustus would be really, really difficult. Not being as incompetent as a Caligula. Seems really easy. And so as a packed good vice. Not making the catastrophic mistakes. I'm just surviving long enough.

19:44 Feels like a good strategy. There was some general somewhere that said It's not that good soldiers become veterans.

19:50 It's that lucky soldiers become veterans, but veterans are good soldiers. Meaning Just the luck of surviving the first few hours. put you up an experience curve. And I see entrepreneurs transform in those first thirty six months of leadership and management.

20:05 And half of it is just Stay alive till you get good. We've talked a little bit about recruiting as someone that all of a sudden seems like half my time is spent just recruiting people in all different directions. curious how early you encourage entrepreneurs to make that a major part.

20:21 of what they do and whether or not that effectively lasts the rest of their career if they're successful. So I think well, clue things way underestimated precisely because in an early company people replicate themselves. So because people tend to hire. Not so much in their own image, but

20:37 With that own set of biases. All the initial people you hire. Or inference or their other hires. So you can either get this sort of upwards iterating culture of excellence. Well you can get this.

20:48 downwards iterating culture of excellence. So those first few higher as Utterly critical. And I think people way underestimate Just the sort of the math of the return.

20:59 Which is it seems excessive to say spend a hundred hours hiring a person. But if you're only hiring ten people, that person is ten percent of the output of your company for the next seven years if they stay. But then if they hire as well. They may actually contribute. to 10% of the productivity of the company for the first decade, both by their own labors in the early years.

21:18 But also in terms of the Way they themselves are coat. So I think people just sort of underestimate the power of the math here. And

21:26 Don't focus on biased entrepreneurs often have. Of going for speed. And the desire to move fast. And partly this has sort of come out of startup culture because of the sort of synergies of network effect businesses.

21:40 where speed often does matter. But ninety nine percent of startups don't have strong network effects. Eighty percent don't have them at all, maybe nineteen percent only have weak network effects. And in those quality matters far more. And so going slower. spending an enormous amount of time picking exceptional people. that are deeply synergetic, it's exceptional in and of themselves. And then have deep and meaningful synergies with the other team members.

22:04 Creates this thing. which is a sort of algebraic functional labour output. And I almost think that's how you have to think in the first year. How do I find amazing stand on people? that are also synergetic and so my net labor output of the firm is super high.

22:18 And the biggest mistake I see is when they're panic to hire someone. 'Cause they need sort of a job done. And so they just go for the earliest person. And then Like Mono K

22:28 Pernicious mistake. is the change in high and rate based on the amount of capital available to the start up. So what you notice if you graft it is Hiring is not consistent on a quarter by quarter basis.

22:40 It bulges after each capitalized. Please seed seed A B. And then it's attenuated almost to nothing in the six months before the next capital Ace. So the sort of entrepreneur is like the proverbial sailor. coming into port who spends all their money.

22:55 And then doesn't have any it m months afterwards. But it's in hyling. And if you think about that, that's absolutely insane. Because What's the chance that you can find, say you're hiring ten people, what's the chance you can find eight in the first ninety days that it's right to find eight in the first ninety days, and then only right to find two. in the next five hundred and forty days.

23:13 your chance of coming across the exceptional people is so much lower than if you space that out evenly. And Because you'll know the existing people and see them working together. If you hire two in that first quarter, each next one you hire you will understand their synergies with the existing team so much more.

23:31 What have you seen successful founders do? to make sure that when recruiting, they're able to win. the best candidates out there. So it's one thing to Be patient and spend the time to identify them. you also have to hold out an attractive proposition to those very talented people who presumably have other

23:46 opportunities as well. So w what have you learned about the best recruiters in terms of how they market the opportunity and market the firm. I'll give you A sort of base cynical answer and then a sort of more aspirational answer.

23:59 The cynical one is just be in a labour market sort of low competition. You really don't want to be sitting there in San Francisco trying to close your candidate when John Cullison's trying to close the candidate as the alternative because John's gonna win. Knowing John, I agree. He's one of the greatest effects of his age. Let you see this actually happen.

24:16 Whereas if you're hiring that person in Kiev. And their other option is working in outsourced IT for Deutsche Bank, it's a much, much easier win. So in some ways what you want to find is where are the incredibly qualified people? in weakly competitive labour markets. And that is a much easier filter than actually being good at the coating and a much more powerful one.

24:36 You're much better being a heavyweight boxer who's not very good fighting lightweight boxers than you are getting good as a heavyweight boxer. And it's the same, you're better going and competing in a market where the other reclusors are lightweight because they're born industrial firms with tenure-based Commotions. So that's one. And then two, look, it's some combination of

24:55 So painting a vision. that people want to be part of. understanding what they themselves are motivated. So it goes back to those sort of early questions. Are they motivated by working with great people? Are they motivated by utilitarian impact? Are they more motivated by things like money and power? It goes back to

25:09 just getting the impression that they want to spend time with you. Do they actually want to spend every day? With you as a founder,'cause these companies are small. It's not like you're equated by a big company and the hiring VP.

25:21 You may be a maybe spend an hour months with. You're gonna spend a lot of time with Spunder. So there has to be a natural desire to do this. And then third, I think there's just a sort of sense of being in a sort of gang that's gonna succeed.

25:33 A sense of we happy few. quote from Shakespeare of Just I want to be with this because this is going to be something that changes the world and it's going to be an adventure and fun. And that cliche, the journey will be the reward.

25:45 Will be true. and the economic outcome will be a reward. And when I look back, the impact will have a reward. And if you get that trip tech, You'll cause them. I would love your take on the sort of interesting tension between What I'll call in the US.

25:58 sort of east coast versus west coast investing where I would say east coast investing is very traditional Wall Street, more quantitative West Coast. more start up y and technology and and more qualitative and almost cavalier about in some cases about the quantitative aspect of things. I'd love you to riff on the pros and cons of these two styles and and where you see the appropriate mix of them. I think there's a sort of multi part explanation for that. One part I think is The absence of existing status hierarchies. The West Coast.

26:25 meant. There was less of an opportunity cost. sort of not joining Goldman. And you can almost do a counter history and say Maybe all this story about Dhaka and the Valley.

26:36 And all of that is much less important than people think. Maybe you just have a new country formed of seventy to a hundred million people without an existing status hierarchy. It would obviously glum onto the new tech. to the new industry. The new tech the industry was obviously going to be tech.

26:52 And so it was obvious that a sort of new country, which is really what the West Coast has been since sort of World War Two. when you look at just the population numbers. The West Coast would obviously win. That's one part of it. I think the second part is Differences in the nature of trust.

27:05 And zero sumness. Partly because financial markets are in the traditional sense zero sum. one person stock alpha. is another person's negative alpha. East Coast investing has had this.

27:16 sort of sense of I need to beat the other person. I need to get a deal. And that has led to sort of Uh uh Trust.

27:24 between participants. And the West Coast, and maybe it's sort of part of a California hippie culture tradition coming in, has a this very high Sense of trust. And if you look at sort of the convertible note, if you look at the s sort of letting the founder make decisions below supervision.

27:39 These things only merge in a barely high trust culture. And I'm not sure you can build trillion dollar market cap companies. Without That high trust culture. I think you don't have it.

27:50 You end up building something worth a billion dollars. And then arguing over how to sell it or how to optimize it. And you don't get that sort of machine say quoi. aspiration that you see in all the trillion market cap companies, all of which are on the West Coast.

28:05 And then I think there's some interesting little sort of cultural foibles. possibly with an actual dressed by the east and west coast, but more by the nature of investing maybe what people do. as analysts between the age of twenty one and twenty three. So

28:18 If you spend your time between twenty one and twenty three building Excel models. You tend to think more About numbers. And so you tend to have a much better intuition. For marginal economics.

28:29 And so where is the East Coast often right over the West in the way they look at businesses? It's they collect to identify businesses with shaky unit economics, but fast revenue growth and good product market fit. And they're like, look. You have part of market fit, but only because you're Giving away a hundred dollars for ninety. So of course you've got a good product market there. I'll give thee some counterpoint where

28:48 West Coast investors do very well. is when you have a product that doesn't get evinced in the numbers immediately, but is such a sort of tactile And this little experience when you use it, you have to make an imaginative leap to turn that into numbers. And there are two examples. One is the early iPhone and I was doing some investigations Microsoft at the time. And it was always easier to talk about competitors than to talk about yourself because you're less likely to say something you shouldn't.

29:12 So you always try and spir the conversation on to talk about Apple or Google or something. And one of the things you realized is There was a bunch of investors that sort of thought Apple was overvalued when it was sort of a hundred, two hundred billion market cap because they took the TAM of Nokia. And said

29:26 Even if they take all Nokia's market share, this business can't be big. Because phones only sell whatever it was back then. And they couldn't intuit. the increase in price and power that you were gonna get. I'm turning the phone.

29:38 into a computer. And the West Coast BC community immediately intuited that. And then you see the same in this sort of almost comic battle of a Tether as a stock. The Apple one week and say is a win on the West Coast. The TES story isn't fully written yet. But again, it's this difference between a culture that's well, because product is so amazing, it will redefine the economics of a category and investor saying, Well, when you look at this in a spreadsheet, it just doesn't work. And I think one interesting thing in general in the search for alpha is where do you get intuitions that are hard to make.

30:07 because there's no natural person to think that there's a public company called Zelo, X E although. Which is a small business accountant company. And it's headquartered in New Zealand, listed On the ASX. Its biggest market is accounting software in the UK.

30:21 But the people that fundamentally understand accounting software would be people that had followed into it. which is a West Coast stock. NASDAQ listed would be more than people maybe look at into it, they'd look at HR book, that maybe even go into Tableau and business analytics, right? And so then you had a company that quietly went from 50 million market cap to 10 million market cap. And I'm not sure anyone intuited it because New Zealand investors weren't used to tech, the Australian investors. came out of a sort of mining culture and the US investors tended not to look at ASX listed companies. And so one thing that's taught me is trying to be smarter than other people is very hard and doesn't work very often. Trying to have an insight that you get because you sit in an in different information flow. Just seems exponentially easier.

31:04 Everything you highlight suggests exactly what's happened in the last ten years, which is that the primary sin for public market investors is being overly quantitative. that basically anything quantitative, whether pure quantitative strategies or people that rely heavily on spreadsheets, as you say, have tended to get trounced by people that have the more qualitative fundamental insight about what will become a very big market. I'm curious how you apply those concepts in your own style of investing at an earlier stage. So where does Obviously there's a lot of qualitative, but where does the quantitative come to play? We just go a little bit further on the thoughts of Anne that which is I think one of the things that's very interesting is The way you model companies in Excel with a PCS.

31:43 There's a sort of set of cultural norms like trending down the growth rate to a terminal value over time. That Obviously we collect industrial ear companies. the sort of companies that a KKR would buy. If you were sort of Nabisco and Barbarians at the gate, it's obviously the like conceptual approach. Maybe that's just not like for network effect businesses.

32:02 Because instead of Literally how do you model an Excel? the concept of in year six something becomes a standard. And therefore gets sustained or accelerated in growth. There was the sort of joke in the eighties of you'd never get fired for buying IBM.

32:15 Well maybe in two thousand six it suddenly became you never got fired for buying salesforce dot com. How do you model in? That As a concept. Suddenly kicking in to revenue growth.

32:26 maybe what you should actually be doing is writing a sort of three thousand word essay. on revenue growth drivers. As opposed to Sort of trending it down over time.

32:35 as an automatic default. So there's sort of certain things where I think the Industrial In the protocols. Actually just mislead you.

32:43 Conversely. I think the counterpoint to that, which is the sort of two product driven mistake. Is when you look for network effects everywhere. And You sort of assume they exist and actually you're just getting into a standard competitive market.

32:56 Trying to turn that to start up investing. I think a very good rule of thumb is to think it's very hard to extract economic lent to get revenue without solving someone's problem. So go right back to a sort of Jeremy Bentham utilitarianism. Why are you making people happier? How much happier are you making them? And what percent of that can you extract?

33:16 As economic surplus. And what percent goes to them. So an interesting one is you pick on Google. There's lots of charts saying people would pay thousands and thousands of dollars for search. Yeah, Google's ad revenue RPU per person is much lower.

33:28 So potentially the utilitarian output of Google. It's ten X, maybe even twenty X, the economic value. Delive from that. Whereas I imagine if you looked at something like Oracle, you would actually find the utilitarian benefits. the economic lens are much higher percentage of the utilitarian benefits, like there's more value capture. That's a percentage of the total

33:46 Some common wheel. created the total common utility. But I think even when you're talking to a company at seed, you can sort of start to have that conversation over how big a problem are you solving. How many people

33:58 Are you solving that for Or how much money have those institutions got to spend in your product if it's in the enterprise? And then if that's utility created, that's part one. How big is that? And then two is what are the competitive dynamics in this marketplace? So how much of that utility will you capture? And how much will Just be given to your customers.

34:16 It's consumer surplus. And one of the sort of interesting wonderful tragedies of the economy over the last couple of years is there are so many companies What? A hundred and ten percent.

34:25 Of the economic energy passed over to consumer surplus. So you just had massive increases in living standards, sort of accidental Wikipedias. So there's very strange examples like L C D televisions. Everyone switched from cathode to L C D in the early two thousands. That's an increase in human utility. But no T V companies made money because the market was too competitive. Same with things like movements in consumer modems allowed as switches.

34:49 You don't see two hundred billion market cap without a companies like Intel, but we all benefit from far faster speeds than we did twenty years ago. And so what you're looking for as an investor is high utilitarian outcome and the ability to capture it. Are there markers of that latter piece, the ability to catch it that you see again and again that interest you? most extreme is obviously uh network effects. You have to get these in marketplaces, you get them in thing with the classics, Metcalf Law. You get some examples where

35:17 Talk to a company earlier today, you can bind data from other companies to generate insight. So each time you get a new customer, you improve the product for all the existing customers. because you get a bigger data set to work on. Strangely, I think spotting them has less use. Than spotting the fallacies. If we go to data, there's an amazing sort of the last gasp of a company whose unit economics don't work is the values in the data. And ninety nine percent of the times that isn't true. And the idea is that you've got unique data set that's going to be incredibly value, maybe for advertisers, maybe for other customers, maybe for enterprises, because of the insights to be generated. But it actually turns out most data sets will get the same insight on people.

35:55 There was once a company, I don't know, it's true for this principle, but they said it if you gave the last five blousing sites that someone been to. or their last five latitude longitude locations in real space. Yeah. The last five. Google search terms, all their last five credit card purchases, you could basically get to the same level of accuracy on that person's predicted behavior.

36:16 Which means there's a sort of false Millage of an oasis. which is this can be bad in the data and it turns out to be a millage because there's so many other ways to get to that answer. And so half the time what you're looking for is sort of the exact opposite. It's where it appears there should be value capture, but there won't be. I asked once a group of people what if any

36:34 specific sector or category of companies they would invest in if they could only choose one for the rest of their career. And one person said communications because you'll always have some monopoly to pick from, which is sort of a classic expression of the network effect idea. I'll go for if you pick two axes. One call access is boredom and the other is complexity. You want highly boring and highly complex because everything in the universe is a supply and demand curve, and you just get insufficient supply of entrepreneurs. in the highly boring but highly complex space, and therefore you get elevated returns. So if you go to the quadrants, you've sort of got the whole simple side, balling and simple and complex and simple. It's just too hard to get differentiation without enough complexity. That's when you get commoditization. If you go for

37:15 Interesting and complex. You get brilliant entrepreneurs. This is the problem say with space tech as an area of innovation. Every single person involved with space is basically a brilliant genius who's passionate about their work. and loves it and so very very strong dynamic. On the other hand, if you hang out in audit software Counting software.

37:33 just sitting in an area that's complex, but no one wants to boast they do it at a dinner party and what you might call the sort of spiritual rewards of the industry are lower. And therefore you just get less buying entrepreneurs, therefore the chance of having entrepreneurs succeeding is significantly higher. Do you think that two by two matrix squares with say the trillion dollar club today of Amazon and Apple and some of the Fang stocks, do you think that they generally were at their start bore No, I think it would more work in the sort of case of sales force.

38:02 Workday tableau. Data dog. All those classic enterprise SaaS names. I think the truly exceptional ones are so idiosyncratic. There's no way to find them.

38:12 Because If they were predictable. You would get so much competition. They won't exist. Interesting when you were say it, Google.

38:19 How many failed search companies preceded them. Auto Vista. Excite. Like us. Info seek.

38:27 Us Jeeves. Imagine someone sent you something about Google when it was a small company, you'd say, Oh, it's just another search engine. In some ways you almost need the opposite. You need a case. For why it was so unobvious. If you look at Facebook, there's all these comments on but surely MySpace has already won this market.

38:45 I think the exceptions are just So exceptional. You can't formate levels for them. I think it's the next tier down where there's probably more reputable behavior.

38:54 Of the four hundred and eighty three Angel investments that you've made, what percent would you say are clearly boring? Yeah. To whom would be the sort of counter question. I think to sort of the average person, probably three hundred and fifty of them. Obviously they're not pulling to the founder.

39:09 And they're never blind to me. I find things like accounting software deeply interesting because It's an intellectual puzzle, you're solving someone's problem. And I also think the utilitarian output to the world. is way underestimated of these things. If you were to think what was the precursor technology to Manhattan?

39:27 Sue us. Very hard to have Manhattan without suitors. But they don't sound exciting, right? If you were to suddenly remove them, human living standards would drop.

39:38 Exponentially. And so those Base. technologies that sort of double entry camping in the sort of fourteenth century under the Medicis or whoever. Those things really matter. Sort of

39:48 system wide improvements. to the thing. And sometimes the joy of those can be missed. Before we start recording, you mentioned this interesting word, which you don't often hear in investing, which is aesthetics. I'd love you to talk a bit about investor aesthetics, why they matter, and why they may create bias. I think there's a thing where if you think about the investment career, most people join a place where they fit.

40:09 And so they join an organization that gets them. So you do have this sort of birds of a feather flock together. So you tend to find that you get a set of people that either like the glitty and the real and the physical and the tangible. Look at, say, the overlap between Stock investors looking at things like mining companies and shipping companies.

40:28 And then you get People that like Abstract. And the ethical and the sort of conceptual think of Atlassian stripe. companies of that ill. Then I once saw this tweet, some joke about mad investors that they love owning things with names like American Asbestos.

40:44 And it made me chuckle because it seemed that there was some sort of truth to that. It felt glitier and truer and more real and more like Just better. Twin something That's a steel mill pump in Pittsburgh.

40:55 than it is to own a tableau or some company doing this sort of weird software stuff. And so the interesting trend about that is Does that create biases? And oversights.

41:05 So Maybe because V C sort of in the 2010 to 2013, 2014, network effect consumer businesses were so good, maybe too much capital went into those in the subsequent years. I think of light chair and scooters and things like that, because there wasn't enough Darwinian survival of people that focused on unit economics. Those partners have diminished in their political power within the VC organization.

41:30 Versus the partners. but bet more on a network effect on the product. Than There's actually a chapter in Dawkins' sort of selfish gene. on hawks and doves and evolutionally stable populations of different behavioral strategies. And maybe that also replicates in investors. And of course as an investing type succeeds, so it attracts more capital and more disciples.

41:50 And therefore there's more people looking for it, and therefore the alpha is more diminished. We've talked a lot about the founders and characters of entrepreneurs less so about characteristics of investors that you've worked with or seen operate. What are your observations there? Probably haven't processed four hundred and eighty three of them in the same way, but I'm sure you've been around them. What do you think makes for

42:11 The right max. Success is very idiosyncratic, rather like entrepreneurs. It's sort of finding a fit for their style. So I know one investor at C is a fantastic investor and just has an absolute essence of getting to the nub of the calic of an entrepreneur. Just the descriptions, the articulation. the strengths, the weaknesses you would have thought should spend two hundred hours doing a psychological profile. It's sort of like those T V shows when you have someone profile the seal killer in like thirty seconds. It's almost sort of a gift at that. Then there's another investor at the same stage who sort of almost ignores personality founder.

42:49 It is all about the structural economics of the business, the market power, that ability to Capture value. And Both those styles work beautifully. And then I've seen a third type. Almost doesn't think about the underlying company, what they actually watch is other investors and sort of like a pack of lions.

43:06 They don't try and kill the antelope. They just steal the antwerp when it sits down and they just swoop in and win deals that they saw other good investors go for. So three wildly different strategies, all three I've seen work superbly. And so no cookie cutter solution. I'd love to hear your take on

43:24 the effects that COVID now three, four months into it. are having on the world at large, both from a company standpoint For societal standpoint. And At what point sort of the behaviors that have changed?

43:36 become very set and in some way permanently change how we live. I see two main effects. One is this sort of tech acceleration. You've got this shift in behaviors that would have happened. only over the long term from demographics. As a sociologist at Microsoft who once said what's a thing called the law of nineteen seventy five, which is people born before that just never had computers at school. And so they'll never have the same intuitive behaviors as people born after that. And it sort of reminded me of the Einstein or maybe it's Einstein comment of science advances one funeral at a time.

44:10 And so in some way it's the natural movement progress. is as generations of people get older. Video gaming is a classic example of this. It was seen as something only for kids. until those kids grew older and kept on doing it. I think Covid has changed that because what you've had is seventy and eighty year olds get on and use Zoom and use digital apps in a way that was much more kin to twenty five year olds. That's a

44:33 Permanent. one off shift. And you always see it in the numbers for all e commerce startups. Every e-commerce startup, the numbers have gone insane. to the point where you almost start wondering whether they've made a mistake because it can't be that good. You can't get that fast in acceleration. But no, it really is that fast in acceleration. And my guess is the emotional experience of retail. Will just be

44:55 less appealing than it was. And so even in a world of the opening. My guess is you get this continued elevation of e commerce. And then once people have shifted from doing some activity like going to a bar to Video game competitively.

45:10 Probably a bigger percentage of that will spit than seems obvious because this has to do long enough that you get habit formation. It's certainly longer than the thirty days that that's formally meant to take. Then there's some much more subtle impacts, which is You've definitely had a globalization of investing. one of the things that I never made any sense to me was investors that define themselves by geography. So they were in Berlin and investing in companies in Berlin because the commonality in running a startup by geography seems Almost de minimus. Whereas the commonality of say FinTech. globally seems much more similar to each other, or quantum computing startups globally seems much more similar than a quantum computing company and a credit card company both within a few streets of each other.

45:49 So it always seemed more logical to me for startups to be defined by functional area than by geography. And that's starting to happen. Because if you're doing Zoom calls with someone, there's no difference whether they're a mile away from you or a thousand miles away. And then the same with the labor force, startups are starting to do emote in a way that was inconceivable before. And what it's starting to do is make them think very deeply about where they can find talented people. Maybe I'm too optimistic, but I think that may just lead to a permanent shift in overall productivity upwards because you're putting together a team not defined by the accidents of geography. But to find by finding the best people you can anywhere in the world.

46:27 And if everyone does that, you just have a bigger sort of liquidity in every type of output. And that leads to just a massively higher output function. What are these changes in sort of demographics and the way we live now? It does seem that there's likely to be some sort of city to suburban transition. And One of the things that I like to do is sort of I think history is real useful for investing.

46:48 Because I think one of the mistakes you can make is a sort of temporal elegance of thinking the time one lives through is sort of Overly unique. There's a book by Will Delante called Season Christ, and it's the sort of whole history of Rome from the founding to five hundred AD and sort of the full of Rome Christianity afterwards. It's always an interesting thing. How would you invest through that? Do you

47:09 Buy or sell Lowman real estate. When Caesar's murdered. 'Cause you get a civil war, you get chaos, but then you get Augustus and peace afterwards. Then when you get this whole spate of bad empers and it looks like everything's gonna fall apart, maybe you would sell, and then you get the Spasian, Trajan, Hadrian, good emperors, and you get a great hundred years. Like it really makes you think about sort of volatility. And

47:31 about having to make information so they don't need information available. At that time. And what's so interesting is you do get this sort of pattern. Of going from power and sort of passion being to have your base in the city of Rome.

47:44 to being out in Kapua or out in the smaller provinces or out on rural states. And that cycle seems to go exist for like the five hundred years of history. And if you look at London, I think the peak population was in the nineteen thirties. I think it's still higher than the present population. Or may just have peaked. So maybe there's the beginning of one of these great forty year demographic changes where people move back to the suburbs or not. This is speculation. I certainly don't have as much conviction on it as I do on startup stuff. What do you make on the other end of that barbell? So certainly agree that the far off collaboration is probably gonna permanently change. I've seen it happen just personally in many examples where now you don't care where the person is zooming in from.

48:27 It opens up an enormous pool of talent and you seem ridiculous for not having tried to tap that earlier. The other extreme would be like hyper local. What I've also noticed is the middle is gone. New York City for me, which is fifty minutes away, is way less relevant, but my town is now way more relevant and the people in it. Do you think there's investing opportunity there or I would just be curious for any thoughts you have on kind of the local community versus the distant Zoom? I'm sadly out of insight on it, but I think you're intuitively right in predicting the outcome.

48:57 I think one of the things that's gonna be barely interesting is I do think there's a sort of new shape. curve where For companies. You either have to be remote or you have to be centralized.

49:09 The bit that's going to be absolutely nightmarish is if you have a hybrid mix. Because what that'll lead to Is Everyone at headquarters. will have a political advantage.

49:19 Over everyone that works remotely. And so you'll end up promoting people who chose to move to headquarters rather than work remotely. So you'll end up promoting the more politically aware, which is probably the most toxic criteria you could have. for long term productivity of the firm.

49:38 As a quick aside, Sarah told me to ask you about crypto and farmland. And I'm curious if those are meant to be topics that are grouped together in your mind or separate. And of course I'm interested in your thoughts on both. Crypto is super interesting because it's so unanalogous to anything that's come beforeward. So one of the interesting things with investing is people get a dopamine effect from things they've made money on before. And so they like to invest in similar things. Well at least things that their friends have made money on before. So they think there will be a dopamine hit, but So if you look at DEX in startups from twenty sixteen, you would be amazed how often the Uber of or Airbnb of Up here.

50:16 A sort of mocked and poise. to sort of almost say you're gonna get the dopamine effect investing in a business that is similar to these existing successes. Once every so often you get something. That just sort of Has no

50:28 Epistemological priors. There's just nothing like it before. And I think Crypto has that. And then what's so interesting about crypto is it has such strong psychological war shall tests. So

50:40 The biggest valuable I've seen amongst people I know of whether they believe something like a bitcoin is viable is age. in a way that I don't see for any other element of tech. younger people find digital money more intuitive. Older people find it less so. There may also be something subtle there about the strength of the nation state. Then US investors find it less intuitive.

51:00 the non US investors because they think of the US government say banning crypto like FDR confiscated gold. And so they think of it as unlikely. Whereas if they're from a country like Belgium, it's less obvious that your government really has the capability to do something like And crypto. So all these

51:17 strange variables like the size of the country you're in and the government capability affect your conception of its viability. And then it's also interesting within crypto itself that you have these two major platforms, Bitcoin and Etheleum, and they sort of attract different investor types. So Bitcoin's got the sort of association almost with Austrian monetary policy. with sort of gold, with preservation of value, with this sort of fairly trust minimized, sort of slightly dark, slightly almost gothic view of humanity and sort of Bitcoin as a sort of place to go to safety. Whereas Ethereum is much more sort of visionary about DeFi changing stuff, much more software, much more network effects, much less consciousness of trust and store value. And you start to see this sort of bickling between those two cultures. And it's fascinating how you've got to sort of shilling points of shilling points. Not only are they shilling points at the economic level, but also showing points for investor personality types that go into them. What's interesting is if they continue to do that, they probably diverge far enough that there's no longer, in fact, any competition between them.

52:22 because they've diverted so much culture and aspirations. They're no longer electric competitors. One of the things that's sort of interesting is how is wealth preserved over time? And if you look at one of the best stores of value. It was forestry.

52:35 And there's two very interesting attributes for poetry. One is It's so boring no one ever bothers to seize it. So If you look at people that were in a country on the wrong side of a war. And occupied by an invading power over the last of thousand years. Things like houses and artworks were confiscated, um, things that businesses were nationalized. No one ever thought about polystry. It just sort of slid under the lader. And then the second interesting attribute of it was that the cash flow characteristics are so terrible you have to wait fifty years for trees to go. You've got very few investors and very few corporations doing it because imagine building an Excel model showing a payback.

53:14 In fifty one years, that's really sort of only two to three percent of your principal. It's so appalling, you never go into it. And therefore it had these characteristics that it did work superbly well. It's sort of interesting to think, what are the digital equivalents? of things that have some psychological appearance to them. А Actually will have great economic capture.

53:35 because there's something unappealing about them. What do you think some of the best examples of that last concept are digital equivalents of repellent asset. I think certainly up till twenty seventeen, crypto had that. It was such a strange topic. The association with things like Mt Gox and Ford and things just made it slightly Sketchy.

53:56 And then the abstraction, the the lack of physical reality of it. I think makes it unintuitive people. You can't touch it, can't feel it. It's sort of numbers. In the sky.

54:06 Things like that. just don't have psychological appeal and that absence of psychological appeal is a source of alpha. What do you think the most misvalued asset in the world is today? I would say it's probably Entrepreneurs

54:21 In markets. That are non obvious. And I don't mean because the endmarked is not obvious. It's people addressing global problems. But in some secondary city in Almena. Because

54:33 capital markets at that stage are just not efficient enough to find them. There's a famous company UIPath, I think, now worth about ten billion that came out of Armenia and sort of as a power dict example of that. I think if you were to say Where is there a core option? It's probably something in crypto. It may exist or it may not exist. I think one of the great questions is is everything in that space now out of Vista exciting or I cost space? Or is it at the Google and Amazon stage.

54:59 That's a very, very hard question to answer in foresight. Irritatingly obvious in hindsight, but it does seem there's a probability mass Of something being very big there. because there's something about finance where it's demarcated by nation state. even though it's a pure electron good. And so anything that's just pure numbers in the sky should actually be globally scalable. But it isn't because of the existing

55:26 finance wig which environment and the existing historical path, sort of banks when they were physical institutions. That makes me think this globalization of finance. has the potential for multiple trillion dollar market cap companies over the next decades. You mentioned Romania, which just makes me think of Europe more broadly speaking. I'd be curious your relative take on opportunity in Europe for business and investing when the last decade has been relatively underwhelming, certainly relative to the performance of US companies. It is amazing that if you look at the top ten, maybe even the top twenty by now, companies in the world by market cap, they're exclusively US and China. This is an absolutely fascinating stat and says so much about the last thirty years. There's a very sort of dark line of thought which says one of the best things about Europe.

56:12 is that you probably have a less geopolitical risk than any other Pice. There's something about the hollows of Sarm and Verdun and Stalingrad that makes it sort of unimaginable for Germany and France to have a conflict, whereas I think it is much more imaginable.

56:28 To have China, India, US. those sort of countries have conflict. So in some ways, one of the things you have in Europe is a sort of absence of systemic risk of wipeout. 'Cause if you look at what really destroys investing in terms, it's geopolitical conflict. If you look at the collapse of European wealth. In World War One, World War Two. It's just absolutely epic.

56:50 And I think that may be an underpriced benefit. Europe. I think the other much more cheerful and practical one is there are countries whose institutions weren't developed enough to build a Google. Arguably that's every other country apart from the US. But I think it is certainly true of very small European countries. Because They just don't have the complexity of the legal system.

57:10 They don't obviously have a means of coming against public. they don't have the institutional norms or the debt financing or anything like that. But now I see so many companies come out of Europe that are Delaware corporations. L Cs that have, say, West Coast U investors, their legal documents by Wilson Cincini or some other US firm, and you have this amazing mix of sort of Soviet quality education, which is very high in math and logic.

57:36 Post Soviet GDP per head, which basically means your capital goes by far when hiring a labor force, but with US high trust institutions. acting. To sort of scale it as a corporation. And that unique coming together.

57:53 Feels special. It's a fascinating take on everything. I mean, I had never considered really any of those angles. Again, appealing to the four hundred and eighty three companies that you've invested in, I'd love to know the geographic dispersion of those things, generally speaking. Almost an even mix between US UK

58:11 Continental Europe. would account for ninety percent of the domain tem scattered to in Asia, Africa, Latin America, with a particular hub in Singapore.'Cause an incubator called entrepreneurs first that I invest with a great deal. Yeah, I've had Matt on the show, which was a fantastic episode. I love his idea of the history of the technology of ambition. It's completely Matt's IP, which was It's very interesting to think where talented people go.

58:35 As a framework. And so if you go back and go the other way and say, what can you learn from investing when you look at history, it's interesting to think is an underestimated cause of the decline of some institution. not all the stuff people think about when they look about it, but just that very tant people who are young chose to go a different direction. So

58:54 There was a time when you're a young man and you could choose do I go and do an administration of a Roman province, or do I join the early Christian Church? possibly the talent started to flow towards the church and away from other institutions, and that actually caused a weakening. That is a generalized framework of where exceptional channel chooses to go is super interesting. So one thought that occurs in our world is perhaps the sort of investment banks and consulting firms and law firms of tomorrow will be much less good. than their precursors twenty, thirty years ago, because so many talented people are going into entrepreneurship, and that talent has to pull out of somewhere. Now, I think again, from a sort of societal viewpoint, I think putting very town people in things that can scale their products to millions of people is higher in utility than putting them in effect by a high end artisan fashion.

59:38 Like. Where the output doesn't scale. Seems to me that a lot of what you're doing with your life and career is curation of people, ideas, companies, history. I mean, so many different examples in our conversation today. I'd love you to riff on that idea of curation and whether or not it's gonna become an increasingly important skill in a world that is exploding with information and content and data.

1:00:02 Very simply is if you think back to sort of Your basic problem is Lack of information. So you sort of lead about

1:00:12 capital markets investors in the nineties and they're leading SEC filings, they're leading cell side reports. They're trying to get time with management, but it's a fundamental lack of information problem. Now you look at the massive growth of available information and I think it becomes much more of a filtering problem. And in some ways the best way to filter is to have second stage filters before your filter, which is just to find amazing people and use them as filter points. So there's a sort of phrase which is if you hang out with people smarter, harder working, and morally better than oneself.

1:00:44 You always live in a funnel of positive serendipity. Because effectively you're dragged upwards to the mean benchmark, which is higher than oneself. So that's what I try to do. You just described my whole life. I'm playing with this idea now of it's better to be interested than interesting. And as someone that's never been particularly interesting, a great way to eventu become interesting is to be purely interested all the time. Yes, a hundred percent. And I think Adrian, if you could overlay amazing people in a unique configuration, you get an information flow that is both accretive to you, it pulls you up, but is also a unique lens in the world. And from unique lenses, you get unique opportunities.

1:01:23 By that do you just mean non overlapping kind of backgrounds and areas of interest in the people in your network? Yeah, and one of the ones that I think is always fascinating to me is just how geographically dispelled networks. Often you get these very sort of tight communities, in some ways the valley, in some ways sort of New York, say the hedge fund community. And sometimes the most obvious insights are just from going between one to the other. And just seeing the difference in world views in stark relief from each other. And so I sort of think about that constantly. I'm one of the ones that's most powerful is just thinking

1:01:57 Fama say Imagine Think about the same problem. Not from a US perspective, but from say a Finnish perspective, an Albanian perspective. Suddenly Topics. Look very, very different.

1:02:09 And there's a danger of defaulting to the sort because in US is sort of the world hegemon. to defaulting to that mindset. And that's not always the best, most predictive view. We've talked about a lot. And as we wind down, I'm curious what topic that we haven't talked about at all.

1:02:25 you are most interested in. Of course, after we finish this I'll think of tons, but I'm sort of failing to think of anything. in the moment. I think there's one I would pick. It would be I think one of the thort fascinating in sort of the history of tech is how much

1:02:39 Startups. Uh Temple. Inevitabilities. So

1:02:44 Th there's a phrase someone once said to me, What's the difference between A helic and a prophet in tech. The helicop gets burnt at the stake, you know, the prophet becomes famous about two years. And You sometimes wonder how much Timing.

1:02:58 Matters. Was a site like Pinterest always going to exist within a year. that you could download a page of images on the internet in under a hundred milliseconds. Was that the sort of temple inevitability?

1:03:11 Of a product like that. And is it the same? For most parts. was GPS. And mobile phone. Did that make an Uber light thing inevitable in around two thousand nine, two thousand ten?

1:03:23 One of the better knowns is the temple one. And then I think the other sort of great unknown is How much a value is actually created for the top layers of the stack.

1:03:35 by the bottom ears that don't capture it. So are we all just the beneficiaries? Is angel investing. Pure the beneficiary of the emergence for AWS and Asia. 'Cause I can tell a story whereby

1:03:46 Engine lasting just didn't Exist. Because it was negative R O I C Because you ha spent so much on some microsystem servers. And sort of

1:03:54 physical equipment that you just have port IRR. Across the whole industry. Then AWS Nash will come along. And critically as a start up. you don't know your own future demand curve because you don't know whether you're gonna get product market fit. So you either had to buy too many servers, in which case you waste capital, or too few, in which case you couldn't meet demand.

1:04:12 Where's with AWS and Azure, they've effectively taken that risk. out of the equation and you can almost know that your cost base only scales with your success. Is the entire industry. Just sitting in that. I kind of and an intuitive feel.

1:04:25 It probably is. Better looking good. Maybe we get an AI boom. In the next couple of years. Maybe that would be written about as Batbike is an ML. Maybe it's actually

1:04:35 Nvidia Zampier chips. And the emergence of sort of five and seven nanometer nodes. Just drive improvements in throughput. That drives ML up. So it's nothing to do with the companies that are actually working on it. It's to do with sort of the pickaxe being turned from wood to iron making their work.

1:04:52 far more efficient. And but NVIDIA will probably capture some value of that, but probably won't capture the greatest of value. Same if you were to write a sort of history of early computing in the nineties and two thousands. be interesting to write up from the importance of the in evolution of Intel chips. And Smodem speeds. as the finally drivers.

1:05:09 As opposed to the narrative history of the good these great companies. Well, Charlie, I I feel like I could do this with you. almost weekly basis and be sort of endlessly entertained by your prolific Interest in so many different things.

1:05:23 I'll certainly remember this conversation as one that's a reminder that investing in business are complicated. And if you want to spend your career in those spaces, you better love it because there are so many variables and so many things happening. And you have to develop your own niche and your own strategy. My closing question for everybody in each of these conversations is to ask for the kindest thing that anyone's ever done for you. Oh my God, there are so many. There are so so many examples. I think It's probably A the current one.

1:05:52 Of Often my enthusiasm has been greater than my competence. And it's the people that bet on the enthusiasm more than the competence. I'm internally grateful to them. I love that. Again, you're sometimes describing my life, so I know exactly what you mean. And it is a wonderful thing. And the a major category of these answers is betting on somebody early, seeing something in them and taking that risk is always a great kindness. Well, Charlie, this has been a highlight of my early week, even though it's just Monday.

1:06:20 I really appreciate your time and I've loved all your insight. Thank you. Thank you. If you enjoyed this episode, visit joincolossis.com where you'll find every episode of this podcast complete with hand edited transcripts. You can also subscribe to Colossus Review, 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 join colossus dot com slash subscribe.

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