Invest Like the Best with Patrick O'Shaughnessy - Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224]

Starting point is 00:00:00 This episode of Invest Like the Best is sponsored by Canalyst. Canalyst is the leading destination for public company data and analysis. I'd heard of Canalyst over the past few years and became more interested after meeting the founder and CEO last year to pick his brain about SaaS businesses. Founded by a former byside analyst who encountered friction in sourcing, building, and updating models, Canalist is now used by over 300 institutions, including the largest money managers in North America and by a number of guests on the show. With detailed company-specific models on virtually every investable public equity, Canalist clients are able to react more quickly. If you've been scrambling to keep up with the deluge of IPOs and SPACs these days,

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Starting point is 00:01:11 officer, Jeremy Payne. This episode is brought to you by MIT Investment Management Company, also known as Matimco, the Endowment Office of MIT. Matimco seeks to find people who are focused on achieving exceptional long-term investment returns, partner with these firms early, and stick around for the very long term. Matimco doesn't care how small, new, or uninstitutional your firm is. If you have the potential to generate amazing results that supports MIT's pursuit of world-class education, cutting-edge research, and groundbreaking innovation. Despite their willingness to invest early, they do not ask for general partner economics,

Starting point is 00:01:43 and they commit their initial capital for 10 years. Matimco is also searching for an exceptional new teammate to join their internal investment team. Visit matimco.org, M-I-T-I-M-C-O-Rg to learn more. Click join to learn more about the global investor role at Matimco's team or click emerging managers to learn more about their emerging manager activities. 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. Invest Like the Best is part of the Colossus family of podcasts and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at Join colossus.com.

Starting point is 00:02:30 Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaunacy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaunice asset management may maintain positions in the securities discussed in this podcast. My guest today is Andrew Segru, co-founder and partner at Avenue

Starting point is 00:03:01 Avenue growth capital. Avenir is a growth equity firm focused on backing category defining businesses. In our conversation, we cover Andrew's investing career, what he learned from Julian Robertson, how counter positioning could drive unique distribution, and the difference between good and bad growth. We also spend time examining the business model of two of Andrew's portfolio companies, Savage X Fenty and Latch. There are so many great lessons for investors and operators to take away from Andrew. Please enjoy our conversation. So Andrew, you sit in a very interesting position, giving your career background and how you got to what you're doing now. Maybe you can begin by giving us that thumbnail sketch, the unique couple pit stops you had before showing up at your

Starting point is 00:03:44 current firm and describe your current firm. And then we're going to go into all details of your investment process. Great. Well, thanks again for having me on the show. At Catterton, which is where I really cut my teeth in investing my first job in the investing world, I really learned the concept of keeping the consumer as your North Star to steal a line from Rich Barton. the focus of the best companies at solving a unique problem that the customers have and being relentless and improving that experience to that end customer, looking for very large end markets that are being disrupted by some new technology, some changing consumer preference or evolving regulatory environment and leaning in towards the disruptors who are taking advantage of that.

Starting point is 00:04:24 So back in the day at Catterton, we were looking at new models like Peloton, new marketplaces like Vroom, that we're taking on very large end markets and saying, hey, we can create a better user experience, and that will be a great business. I think at Schumway Capital, what I really learned was this relentless focus on business quality. Chris was interested in where the world was going, but he really wanted to make sure that winning was worth it. Not only was the market size large, but that category leading business, that these businesses had a sustainable advantage, a compounding advantage over time, whether they be powered by network effects or some scale pricing advantage or intellectual property, these initially attractive returns could be sustained over time.

Starting point is 00:05:06 I think working for someone like him who had this purview of having invested for multiple decades, there's a healthy respect for the efficiency of capital markets that initially attractive returns could quickly get competed away. And so many of the kind of e-commerce models and others where you find this initial product market fit where there's a consumer demand for a product. and high internal returns on Investee Capital, whether that be through Facebook marketing or Google AdWords, those get competed away quite quickly when you have contract manufacturers who can stand up the same competing product for your competitors, where you have branding similar to others in a very

Starting point is 00:05:43 efficient marketplace, which is Facebook and Google, where those returns quickly get competed away. So unless you had some kind of sustainable advantage over time, these businesses weren't really investable for us. What did you learn in your career from Julian Robertson and how he saw the world? One of the things that's always stuck with me about Julian is, one, his approach to human capital and two, his clarity of thinking. The best investment theses are oftentimes the most simple to explain. He has told me that the vast majority of his money was made on a handful of ideas and the rest was just surviving. I think that's something that we take to heart here,

Starting point is 00:06:15 while we run concentrated, whereas others run a highly diffused portfolios. We run a portfolio of eight to ten of the best ideas that we can find, recognizing that there are few truly great ideas in the world. I think the thing that Julian really totally changed is the view on hiring young, hungry, sharp people. I think Julian really changed the game. If you look at the number of people who started their career working for him and the number of people who have started their career working for Tiger Cubs, folks who trained under him, is really extraordinary, the amount of capital that's now controlled by that group of people. I think he recognized that everyone in this industry is smart.

Starting point is 00:06:53 key difference between successful and unsuccessful people is really the hunger. Why do they have a chip on their shoulder that's going to motivate them to outwork the competition? Focusing on people who have a first principles-based mindset, just because the world is the way it is, is a horrible excuse. It's really about finding people who are willing to dive in and understand why the world is the way it is today and how it could change, doing the work to go meet with customers, meet with suppliers, understand the first principle dynamics of a market and why it's constructed the way it is. I think his relentless focus on understanding the first principles of a market and their business is what's made him quite successful. And I think what's so interesting about first principles-based mindset is it's a

Starting point is 00:07:32 mental model that you can use across all industries. Julian wasn't just successful in consumer or healthcare or technology. He was successful across those because he had consistent mental models around attractive internal returns on investing capital around defensibility of business models that enabled him to look at very different end markets with a consistent framework. What's the chip on your shoulder? Where do you think your differentiated drive comes from? I grew up gay in the South. When I was growing up, there weren't a ton of people who I knew who were like me. I struggled with that for quite a lot of time as a young person. And I really invested that nervous energy into trying to be successful on quantifiable metrics, succeeding in school, succeeding in

Starting point is 00:08:19 athletics, et cetera, so that I could be outwardly perceived as being successful and worthwhile when internally I didn't feel that way. And so as I came to be more accepting and celebrating who I am as a human, I thankfully didn't lose that drive to be successful, that drive to prove myself that probably started from an area of insecurity. That's an incredible answer. How did you transition from that motivation early on to something maybe more sustainable? I might think that would be very stressful in the early days. And now it's something that can be harnessed as a competitive advantage doing something that you love to do. How did you do that? Like, how do you turn a source into something that can be burned sort of forever? I find our job to be the most

Starting point is 00:09:05 fascinating job in the world. This purpose that we get to meet with the smartest individuals in the world, the most driven individuals in the world who see the world not as it is today, but how it should be and how it could be and have a tactical vision of how they're going to make that in-state accomplish is the most intoxicating thing to be around. And so I get energy from my job. My job doesn't consume my energy. I look forward to my Monday morning rather than dreading it. Doing my very, very small part, and our firm's small part in helping these entrepreneurs realize their vision, helping to change the world for what we see as the better, is hugely gratifying. I look at what Rihanna has been able to do at Savage X-Fentie, and we've been so blessed to be a small part of her story as her largest

Starting point is 00:09:53 outside investor. It's not just that she's creating a highly cash generative business that will be quite impactful for shareholders. She's changed the way that women perceive beauty. The ability to change beauty from beauty is size zero to beauty is who you are, that beauty is about someone's perspective on you versus self-empowerment, self-actualization. The inclusivity that she's brought to a category that's been defined by its exclusivity has been so powerful to be a part of. The direct messages you get from folks who say, I've never felt beautiful before and I now feel beautiful. I now feel worthwhile. That resonates with me as someone who, for a large part of my life, didn't feel worthwhile. You just get such satisfaction about scaling that impact and partnering

Starting point is 00:10:43 with folks like that who have a vision of how the world could be better. You said something that's so resonant with me. Well, two things. One, that second piece of making real improvement in people's lives, but also there's just unbelievable Monday morning feeling that you can get in the investing business because it's always changing. There's always a million things to learn. Talk me through your version of that. There's lots of ways to approach a business and investing opportunity, an industry, a person, a founder. There's all sorts of attack services, if you will, for this kind of curious pursuit that we both do. Which, aspects of it are the ones that fuel your fire. When you're approaching a new business or a new person, what do you love to do first? I think first we like to understand the world as it is today and why is it the case. So this market is defined by X. It's this size. It has this market share makeup. It has this earnings power, this supplier versus demand dynamic. Why is that the case? and how could technology fundamentally reshape that in market? How can business models totally re-rate?

Starting point is 00:11:50 You look at things like the Internet of Things, a business like Latch that's taken a relatively staid category of lock hardware, a one-time sale, and transitioned it into an enterprise software business with some of the best economics. That's what gets me kind of excited is these kind of businesses that have masked business quality, businesses that are taking these very old line industries without a lot of innovation in solving a real large consumer need and creating a high quality business around that. We're very okay to be on an island on our own. One of the things that you learn in the

Starting point is 00:12:24 hedge film world, which you know quite well, is not just to be able to articulate the bull case, but to understand intimately the bear case and to take it down piece by piece. I really enjoy when the armchair quarterbacks have a perspective that's totally different than our own. When we first invested in Savage, I can't tell you how many people, said, haven't you heard of XYZ consumer category? Direct consumer is a horrible business model. Haven't you seen how XYZ category has commoditized so quickly? And we had a very differentiated view of why this business was quite sustainable in its competitive advantage and why Savage could be the category defining the business, which has happened to take place. Frankly, it's happened a lot

Starting point is 00:13:06 faster than I would have anticipated. We really loved investing in latch first when everyone said, isn't this just a commoditized hardware product or at least a product that will commoditize quite quickly over time. And we had a very differentiated view that, no, this was not just an upfront sale of hardware. It was hardware that won you a software relationship of 10 plus years, where five plus years of that's paid up front. It's a software relationship that gives you a consumer and user relationship for free. You have the one to many enterprise go-to-market model of software selling to building owners and building managers. You get customers for free who use your app, five times a day. That's an unfair advantage to be able to sell them incremental products and services

Starting point is 00:13:48 over time. So what we're constantly looking for is like, where is there this unfair advantage on customer acquisition that a company may have? And how is that maybe not so obvious to the outside world? You already use two of my favorite examples from your portfolio and I can't help myself to want to dive deeply into each of them. And let's start with Savage. So Savage for those that don't know is a lingerie company. Rihanna is sort of the face of this company, the founder, the leader behind it. I would love you to begin by describing what you said earlier, which is the state of the world when you first approached it. So when you first thought, okay, like lingerie, that's an industry. Victoria's Secret pops to mind. I'm sure there's lots of inertia and incumbents. Walk us through

Starting point is 00:14:28 what the world looked like when you approached this category or when Savage was started. I want to use this story to pick apart what you learned about the world and how stuff works as a result of being involved in this business. Well, I've been looking for Savage before I knew that Savage existed for seven years. If you go back to the Catterton days, we had a view that most apparel businesses were low-quality businesses. Apparel is a highly fragmented category with very low, long-term operating margins. There are segments of the broader consumer industry that are very attractive. Laundrae is one of those. Unlike most categories of apparel where there's a increasing commoditization, where you're

Starting point is 00:15:04 going to buy that product on Amazon, private label, lingerie has historically been a category where there's high brand affinity, where there's a high desire to buy branded products. because it's not a purchase that's used for utility. It's a purchase that says something about who you are as a person. It's really interesting as you look at market share. It's about a $16 billion category in the United States. And historically, more than half of that was captured by Victoria's Secret. It's the opposite of most other apparel categories where they're highly fragmented. The reason is really interesting, which is that the supply chain in lingerie is quite complicated. You're talking about six to 12 month lead times on inventory. This is not something that you make in a contract

Starting point is 00:15:45 manufacturer that you can drop, ship it as demand comes in. The requirement to no demand six, 12 months ahead of time makes it a very venture unfriendly category. It's also a category where the product is quite important to the consumer. A T-shirt, if it's plus or five percent too large or too small, you're not really going to notice. If a bra is five percent too large or too small, I can tell you that the female consumer is going to notice that. And so there are very few manufacturers who can do this well, and you have to put massive minimum orders to get into those manufacturers. It's a category that's operated at high product margins for a long period of time, right?

Starting point is 00:16:22 It's a very attractive category, 20 plus percent long-term operating margins when you do it, do it right. The thing that we got really excited about is Victoria's Secret was the 800-pound gorilla in the category. It had peaked at 7.5 billion or so of annual sales. It was a mostly United States-based business. which we can talk about why the internet can enable this category like Savage, be much more international business, particularly given Rihanna's following. I think what we thought was so interesting is that two massive paradigm shifts had happened in that industry. The first was

Starting point is 00:16:51 the transformation of consumers wanting to shop in store to shopping online, but the second piece was a fundamental shift in how consumers wanted to be spoken to. Victoria's Secret was created as a beauty as size zero. It was a very male-centric vision of beauty. And the female consumer had shifted quite dramatically towards inclusivity, body positivity. You think about the original Dove campaigns, right, about inclusive beauty. And Victoria's Secret had totally missed the mark on this change in consumer behavior, which is why you saw pre-COVID these sequential year over your 10% negative same store sales comps. We have a strong view that legacy businesses oftentimes struggle to take advantage of paradigm shifts. They're usually on the losing end of those. Leases are a

Starting point is 00:17:36 liability. It makes it really hard to invest in innovation in e-commerce capabilities. Merchandising for an e-commerce brand is totally different than merchandising in a store. There's so much more data that can be leveraged to improve the process. Actually, a centralized fulfillment model is far more attractive than having your products spread out across a thousand stores because you can turn inventory far faster, which allows you to accommodate a wider range of sizes, a wider range of styles. Having data and predictability and having cohorts of consumers who you can test product with allows you to innovate far faster, to replenish winning styles far faster. And so Savage was really set up to take advantage of the structural shift in consumer behavior away from in store

Starting point is 00:18:19 towards online, the willingness of consumers to try new brands and the willingness of consumers to embrace brands that stood for their core beliefs. We talk about how brands have changed from being defined by being created in the boardroom to now being defined by their community. I think Savage is a perfect example of that. If you go look across Instagram, across Twitter, across consumer discussions about that brand, it elicits tremendous NPS. It has higher NPS scores than Apple. And it's because it's telling them something about who they are, not just about what they

Starting point is 00:18:52 purchase. I think that's so powerful. So when we saw Savage, there's a couple things that got us really interested. The first was that it was on the right side of history. It was digitally native. It was constructed in the cloud for this future that we thought was inevitable. The second was that it was defined by Rihanna in this very powerful, inclusive way that was resonating with consumers. That has a viral impact, right? When you're talking about something that people want to talk about, when you're defining a cultural narrative, it engenders a ton of free press impressions. That is how we've been able to build brand awareness far faster than any consumer. direct consumer brand that I'm aware of. The second thing that we got really excited about was their

Starting point is 00:19:33 ability to leverage the existing model that Victoria's Secret had built around the fashion show. So Victoria's Secret has historically defined its brand off of this fashion show. We're all probably familiar with the idea of the Victoria's Secret Angel was not a very representative group of people, representative of the broader consumer base in terms of diversity of size, background, ethnic identity, etc, of sexual orientation. And Rihanna decided to totally reimagine that show. We signed a deal with Amazon to create the Savage X Fenty fashion show, which replaced Victoria's Secret in New York Fashion Week.

Starting point is 00:20:09 It's the most watched fashion show on Amazon Prime. In fact, I believe it was most watched shows last October, generating over 16 billion press impressions. When someone's willing to produce an hour-long infomercial for you and pay for it, it's a pretty interesting unfair advantage in customer acquisition. Just say a bit more about why Amazon would be willing to do that. Like you said, lower customer acquisition costs because of some huge impact event like that. Just talk us through that in a little bit more detail. Is that something that you think other businesses could emulate? What drove that?

Starting point is 00:20:41 It's a category that people want to talk about. I think you'd have a hard time having that mattress show. This is a category that is at the forefront of social change. Think about what drives a lot of the press impressions on that show. It's the fact that. that's the first time you had plus-size models walking in a show. The first time you had transgender models walking in a show. This past year, it was the first time male models were in a lingerie show. And so I think Rihanna has fundamentally changed the narrative in this broader category. And you're seeing so many other brands embrace inclusivity, not just because of why we did it, which is because it was for societal good, but also because it's good for business. This is what customers

Starting point is 00:21:24 ultimately want. It's great content. Amazon wouldn't produce it if it wasn't a huge driver of traffic to Amazon Prime. I mean, I think Jen Sarkia at Amazon Studios would tell you it's a highly successful show given the fact they keep renewing it for future editions. The other thing I just wanted to touch on about Savage, I think is really interesting is the secret to success in consumer is high repeat ordering. We used to talk about this when we looked at the alcohol industry and the advent of craft beer. Anyone can get trial. If you get it in the hands of customers, you can get trial and that can drive explosive growth in the early days of a brand. The hard part is getting repeat. In a celebrity driven brand, you're willing to try something because your favorite celebrity is endorsing it.

Starting point is 00:22:05 But you're only going to repeat purchase if that brand fulfills the traditional consumer dynamics of better value for price, high quality, convenience, selection, et cetera. And I think what we got so excited about of seeing with Savage was not just the credit card panel data that showed explosive growth in the overall revenue of the business, but the cohort level performance, what we saw is given our price point, which is broadly comparative to Victoria Secrets pricing, we had similar first order AOVs as Victoria Secret. But over 12 months, a Victoria Secret consumer was spending $110 and our consumer was spending over $200. That incremental delta under that line is incremental LTV that we capture, which means that in a world where we were competing to the last

Starting point is 00:22:49 dollar that we would be willing to spend on digital acquisition, take Amazon aside for a second, we would be far more profitable than anyone trying to compete with us. And so that was really what suggested to me that this was much bigger than Rihanna. This was much bigger than a fad. This was a brand that was really hitting on a massive hole in the market, was delivering better value for price, was delivering a brand that really was resonating with consumers. And that was showing up in the data. The whole story just bleeds counter positioning, right? You're talking about distributed stores and Adriana Lima, nothing against her, but this sort of very well-entrenched model. And then the fundamental business equation of Savage, even though they're selling the same product, is like almost

Starting point is 00:23:32 entirely different, like all the variables of the, sounds like the supply chain, the product iteration, the marketing, like everything is sort of the exact opposite of Victoria's Secret. What about that is generalizable? What would you say, having now done all this work and been involved in Savage, almost like framed as advice? Like, what advice would you give other direct to consumer would be entrepreneurs as they think about building a new business, given everything that you've learned? Well, I think the historical disposition in consumer was that it was more art than science. It was create the brand and the boardroom and define it and push that out. And it's all about marketing. what you've found is there are far more data sources now available that you can actually make the creative process scientific. What makes Savage so successful is the data that they harness. We have a million customers who we know extraordinarily well who come back to us. We know their sizes so we can better predict inventory. We have customer panels that we tried new products on who tell us what they like and don't. We iterate on PDP, which is photography and merchandising

Starting point is 00:24:39 on the site. So you would look at three different images and say those all look the same to me. When you test them on the site, you find that some convert at dramatically different rates than others. So that iteration, that desire to test, which is consistent across great tech-enabled businesses, can be applied to consumer, lean into science, lean into data because ultimately we believe that the companies that amass large data advantages are those that are going to be the most successful over time. What have you learned about the pros and cons, probably more pros, of having such a well-known personality at the front of a brand. You already mentioned that you can obviously drive a lot of first-time purchases. That's not enough to have a great business like this,

Starting point is 00:25:17 probably in any business. What have you learned there? It seems like the world is going that direction that more and more well-known people will build operating businesses as like their monetization strategy. What are your thoughts there? Do you think that's true? Has that always been true? Where does the power lie? What are the lessons that you've learned in this area? I think having a well-known celebrity, can be a great growth hack to get a business started, but every celebrity is not created equally. Authenticity really matters. You see so many of these startups being founded by celebrities that don't have a ton of authenticity in their end category. Rihanna has always been very authentic in this end market of saying that beauty is inclusive. She's been doing it for a long period of time.

Starting point is 00:26:01 And so it really resonates in an authentic way with customers. I think it's really hard to do that. I think that those opportunities are few and far between. But I think the most exciting thing about Savage is that Rihanna is used in less than 10% of our creative. This brand is defined by the community. We have 300 plus influencers who are the majority of where our marketing spend goes towards. We are not reliant on Facebook and Google for acquisition like other brands are. And we leverage our community to grow our community.

Starting point is 00:26:28 There's this viral coefficient in the business. And I think transitioning from a brand being defined by one person to a brand being inspired by one person, but ultimately defined by that community that develops is the future of these brands. Can you say a little bit about what a generic like income statement looks like for an apparel company and where the levers lie in this transition from store-based world and Victoria's Secret Model will call it to something more like Savage? How does that make you as an investor change the way you think through like an income statement of an appell? Let's just stick with apparel since that's the example. Well, I think with scale, most of these businesses are going to have

Starting point is 00:27:03 consistent gross margins, assuming that they're pricing at the same price point. So the big opportunities are really around repeat behavior. Many of our friends have coined the term CAQ is the new rent. The productivity of your CAQ is ultimately the driver of the success of these businesses. Said otherwise, it's kind of a contribution margin. What are you generating after your cost of goods sold, after your variable costs of distribution and fulfillment, and after marketing? That dynamic that I mentioned about Savage having almost double the 12-month spend of a Victoria's Secret customer is the definition of why we believe this would be a more attractive long-term model than even Victoria's Secret was, which was attractive at its peak. The businesses that are one-time in their use case have a much harder time of getting that leverage on that initial CAQ. CPMs today are at their all-time highs as we're in a reopening economy, the travel and retail brands are spending, and the digital brands are spending.

Starting point is 00:27:58 and the digital brands are spending. And so unless you have that long-term LTV that's differentiated, it's really hard to make money at an in-state. And so these businesses, I kind of think about it, kind of like a four-wall margin. That contribution margin is effectively, after marketing is effectively like store-level EBITDA for these businesses. Our contribution margin for Savage is as good as Lulu Lemon. Most direct consumer businesses don't have a contribution margin, said otherwise they spend all of the gross profit dollars on acquisition. That's, I think, the reason why we're. we're so excited about a savage and what we would look for across other businesses.

Starting point is 00:28:32 Are you profitable on that unit level basis? It doesn't mean on a per order basis. It's on a customer cohort. If you're growing really quickly, unlike a retail business where the growth costs are really showing up in your CAPX on the free cash flow side, here you're expensing all of your growth costs. It's in marketing. And so if you're growing really quickly, if you're acquiring customers towards the end

Starting point is 00:28:54 of the year, right, your contribution margin might look lower than what the LTV to CAC would suggest. But that's what we're really looking for is, are you stacking cohorts that have very high returns on that initial investment in acquiring those customers? Can you retain them? And then do you have the ability to sell them more products over time? I think that's what we've found that to be highly successful for Savage is as we add more categories, our customers purchase them. This is a brand that they want to support. It's a brand that they identify with. So the long-term operating margins for our business, we're going to have similar gross margins to a Victoria's or any of these other businesses, we might have some slightly higher gross margins as we

Starting point is 00:29:31 turn our inventory more quickly as we have less discounting because we're more efficient and a centralized fulfillment model. But we're going to have a store level EBITDA, in our case, contribution margins that we think are as good or better. And then the question just becomes the scale of your OPEX. The great businesses, the LULUs of the world can operate on a kind of after store level EBITDA with about 6% of overhead. So these businesses should be 20 plus percent operating margins in the future. Lulu, I think, is the comp that I would look to in terms of business quality, category defining business that has very high consumer NPS and very high repeat rates. I would say the vast majority of direct consumer businesses don't look like that.

Starting point is 00:30:08 Are all of the current and potential future, in your opinion, interesting areas of apparel tied to this notion of identity? Like, I think Lulu Lemon is the same thing. Like, you could kind of picture what that identity or persona profile is like just by saying the name. Is that a good heuristic and rule of thumb for what might make an apparel business interesting? I think so. I think brands have to stand out in a very, very fragmented market where there's so much competition for our time. One of the things that most brands start with is they have to then go reacquire their

Starting point is 00:30:39 existing customers to come back. So how do you create community engagement that has people coming back? Savage has been very successful with these monthly drops. The average customers coming back once a month to check things. They're only purchasing four or five times a year, but they're highly engaged. We don't have to continually reacquire them. I think brands that create that community do so to their benefit because they don't have to continually spend to reacquire their existing traffic. I'm fascinated with drop culture. It's such like a cool internet native thing. I've been

Starting point is 00:31:08 studying that company Mischief for a long time and just the drop is a very cool concept. I would love to shift total gear here and talk about latch. So the reason I'm so interested in Latch is this, again, sort of the counter positioning idea. Like hardware is hard. Hardware is a very hard business to predict well, to do well in. A lot of money has been lost on hardware projects over time. And we also know that this hardware plus software model in something like a Peloton can be extremely powerful. Talk us through the same series of questions. We'll go through with Latch that we did with Savage in terms of what it taught you about apparel. I would love to learn what Latch has taught you about hardware plus software and why that can be such an amazing business.

Starting point is 00:31:46 I would say that much like Apparel can be a very challenging category to be in. Hardware is a very bad business model on its own, right? It's a hit-driven business. It's peaks and valleys, you know, the Gopros. There's countless examples of where folks have gotten burned thinking that these one-time sales can be extrapolated into the future. Hardware commoditizes quite quickly, generally speaking. You're talking about one to two-year lead times versus your competitors versus many years for software.

Starting point is 00:32:14 I think what we found to be so different about latch is, first of all, the hardware is really complicated to build. This isn't something that you can just stand up in a contract manufacturer. When you add in components, silicon chips, plastics and cameras, etc., into a lock, it combusts at lower temperatures than a traditional hardware-only lock device, which means for multifamily where you have very stringent fire code regulations, the hardware itself is really complicated to build, which is why there is no other competitive product on the market, despite the fact that Latch has been in business for a number of years. But I fully assume that our hardware advantages could commoditize over time.

Starting point is 00:32:51 What we really want to build is the density of the network. One of the things that's so interesting about Latch is it drives a high ROI to its customer base. When you as a building owner install Latch, you see a real demonstrable R.O.I. You save costs on the operations of the business from labor and buildings, from placing lost keys, from changing out key cylinders every year. but most importantly, you drive higher rents. So there's a phenomenal ROI associated with deploying these devices, which is why you see the majority of the top 20 property owners now on our platform and that continuing to grow

Starting point is 00:33:27 over time, that ability to grow within our customer base. As we've proven out that ROI, people have embraced it. And that's a benefit of selling to enterprises. If you can drive great returns to them that exceed, that dramatically exceed their cost capital, they'll deploy your solution. Can you just walk us through just so we don't, those unfamiliar with Latch, What exactly happens? So why is all what you just said true? Like who is the buyer? Why is it drive good outcomes for that buyer relative to a key that I stick my normal key into or something

Starting point is 00:33:53 like that? What is the actual process of the business and the product? I think we actually abstract up to a higher level. Why do you need something like this? Consumer behavior has changed dramatically. The rise of on-demand services, whether it's dog walking, cleaning, etc. the rise of grocery delivery, food delivery, the rise of Airbnb, the sharing economy, have necessitated a totally new paradigm for access. If you're going to use a Wag Dog Walker, are you going to have hundreds of copies of your keys for every time there's a new gig economy worker coming in? No way.

Starting point is 00:34:26 Are you going to change the code on the front of your building every time a delivery person has to come in? No way. So there's a need for a new paradigm around access, which is provisioning the access to the right people at the right times. and nothing but that. As we saw the world changing, there's this last millimeter challenge on delivery, right? It's no longer the last mile. It's that last millimeter. How do you get into that apartment? How do you have that density of demand that comes when having the demand of an entire building,

Starting point is 00:34:53 which makes the economics of all these services far more attractive? So there's a huge consumer shift in behavior embracing these access-based services that's necessitating a need for a new technology paradigm. Latch is accomplishing that. The system works as an integrated system, of hardware, everything from the front door intercom, the front door locks, the package room, the garage access, your buildings gym, to your apartment door. It allows you, with your smartphone, a key card, or your unique code to access seamlessly that entire building. The average tenant needs access to six different doors, the old world of kind of a slag lock

Starting point is 00:35:28 with a keypad, who's going to remember six different codes that, by the way, need to be changing constantly because there are new people coming into those building, people who are moving out who no longer need that access and shouldn't have that access. So there's a massive change in behavior that's necessitating this need. Buildings are deploying these locks because consumers are demanding them, but also because there's a high return on them. So the average lock that gets deployed, there's a software contract associated with that that building owners pay to latch to enable this ongoing system of record, this access for the building. One of the things that's phenomenal about being a great vertical software business is that you get to reinvest your subscription profit

Starting point is 00:36:07 dollars into R&D to solve more and more of your customers' challenges. So we sell to building owners. These building owners have lots of different problems on their hands. There's a need for enterprise management of smart devices from thermostats to leak detectors, etc. There's the need to have a better onboarding experience for tenants to collect payments. There's so many problems that they face. And we sit in this very privileged position as their core. software relationship to be able to solve more of their problems, upsell them and more solutions that in order to our benefit. But I think the thing that I get most excited about with Latch is version 3.0 of what people didn't expect. The first version was this is a hardware device

Starting point is 00:36:48 that people think is commoditized. They don't realize the fact that this is a really complex software problem that Latch uniquely solves and becomes very sticky. On average, our customers are paying us five years up front for the software. You can't turn off the product, because your doors no longer work. So talk about a sticky customer relationship, a locked in customer, pun intended there. But what I get so excited about is coming back to our consumer predisposition in the world, is the fact that we have an unfair customer acquisition angle.

Starting point is 00:37:19 When you move into a latch building, you have to download the latch app, right? That's your onboarding flow. It says, you know, Patrick, welcome to 172 Broadway. Here's your access credentials to the building. Do you have renters insurance? your building requires renters insurance. No, click here for a latch offer. If you go look at Lemonade, any of these insurance business,

Starting point is 00:37:38 renters insurance businesses, they spend the disproportionate amount of their gross profit dollars on customer acquisition. Because these are very infrequently consumed products. You buy these when you move. They have to advertise to a broad base of customers knowing that people are moving every seven years in the residential world,

Starting point is 00:37:53 every one and a half years in the multifamily world. You have to catch that person at the time they need it. When we can reinvest those 40% of dollars, premium value spent on marketing and instead reduce cost to customers. That's a huge conversion opportunity. The second thing when you're checking and says, do you want internet installed when you move into your building? Well, of course you do.

Starting point is 00:38:13 No one wants this way to wait at home for the Time Warner cable guy to come. I think there's a few categories that have lower NPS and the cable industry. We can provide those services at cheaper costs to our customers and drive high conversion on that. So fundamentally, the way I think about Latch is this unfair advantage. You have customers who are using your app five times a day. Those are five times a day that we can solve more of their problems and monetize it by leveraging this very unique attribute of our business, which is we've got homescreen app with high frequency and we have density of demand.

Starting point is 00:38:46 That is the key to any of these last mile logistics businesses, key to the on-demand economy, is having density of demand. We have that without spending a dollar on marketing. What really cool concept that I never thought about is the advantage of knowing when a certain event is happening and building a business around that event itself. Lemonade obviously doesn't know when somebody's going to move. I'm sure you can infer it from search activity or something else, but you're not tied to like something so obvious as the actual building.

Starting point is 00:39:15 And so other businesses thinking about that might benefit as well. Like what are the events that drive demand in our thing? How can we market uniquely or create an advantage, a customer acquisition advantage around the event? That's a really cool concept. Have you seen that elsewhere? Like, is that something just very unique to latch? Or do you think that that's a more generalizable principle for thinking about marketing

Starting point is 00:39:37 edge? I think it's a generalizable approach, right? It's like, how do you have unique relationships with customers and how do you solve more of their problems? That is the core of vertical software and great consumer businesses adopt that same mindset. How do we use our privileged relationship to solve more of their problems and do so in a way that's really accretive to us, right? we're generating incremental gross profit dollars while passing on a substantial amount of savings

Starting point is 00:40:02 to the customer driving very high conversion on that. So I think there's tons of examples of other companies that have that privileged relationship that they can continue to monetize over time. You mentioned a term that I think is really interesting, Densities of Demand, which I know is also important for a business like Drizley that you were a big investor in that was acquired by Uber. Teach us everything you've learned about densities of demand. What is that concept? Why is it important, the good and the bad side? Yeah, I mean, Latch is probably a really great example of density of demand. When you have 200 households in a building, you can prove the marginal cost of provisioning that incremental service is very low. Cleaning is a good example. In New York, for instance,

Starting point is 00:40:38 the average cost to clean a one-bedroom apartment is about $90. Now, why is that the case? It's the fact that your cleaning person is commuting 30, 45 minutes between appointments. If you think about what it costs a hotel to turn a similarly sized unit, it's $45.50. It's because they have that density of demand. A cleaning personnel is moving down the hall, cleaning those apartments, or in the case of hotel rooms. So the ability to be able to provision services at far lower costs and pass on those savings is a huge opportunity. The second piece is that enables you to start doing things that otherwise would not have been economic. Watering your plants, turn down service, having your trash taken out, things that would take 10, 15 minutes. You can't justify,

Starting point is 00:41:24 given the cost of those services. But when you already have labor present in the building, it enables you to do things that solve real consumer needs in the way that has never been achievable in the past. What are some of the other areas where density of demand is interesting? Is it mostly going to be in lost costs of services that can be compressed by creating those densities? Is that kind of the main place to apply that concept or are there others? Well, I think I kind of go back to first principles. And I think what's really interesting is there's a lot of elasticity of the demand for all of these services. And so you think about why does the average person have their apartment cleaned once a month? It's not because their apartment's only dirty once a

Starting point is 00:42:02 month, is that they have the propensity to spend $90 a month on that service. And so if you can reduce the cost, can you actually increase the frequency that those things are used? I get really excited about thinking about how the world changes dynamically by being able to drive better services to customers, which density of demand enables. But I think density of demand is extrapolatable across tons of different business models. You mentioned in Drizli, which is a nice segue. They have tremendous local network effects. The more demand they have in a specific area, the more they can bring on supply, which interestingly also has a secondary network effect, which is that the more demand they already have in the platform and the greater the supply coverage that they have, the more they're able

Starting point is 00:42:42 to be that first choice for alcohol brands to point their advertising towards is that it's not just your traditional network effect of a DoorDash or an Uber. We also have the the fact that we're selling a highly branded category, which is alcohol. The alcohol brands are some of the largest advertisers in the country. And there's the three-tiered distribution model, a regulatory framework, which basically says that alcohol brands are not allowed to sell direct to consumer. They can't do those traditional channels to be able to understand if I spend a dollar on Bud Light ads on Instagram, what's my conversion?

Starting point is 00:43:14 They have no idea who their customer is. Now, in a world where they're moving, they're advertising from off-premise, events-based marketing towards direct response advertising like every other consumer business, they need an endpoint to that funnel. They need to be able to say, what am I advertising is working or not? How is my market share change when I do? And Drizzly is a direct response advertising channel for them. I encourage you next time you see Bud Light or Bacardi advertised in your Instagram feed, there's usually a shop now button. When you click that shop now button, it oftentimes directs you to Drisley. It's leading you to the platform that has the highest percentage chance of converting you, the

Starting point is 00:43:50 platform that has the most existing users, but most importantly, the platform that has the most existing supply. And that supply is not created equally, right? This is not a category where you just want a pizza. You want your specific product and you want it delivered to you in 40 minutes or less at the right price point. There's tremendous compounding advantages that come from that density of demand that Drisley has built. I love when you go to your website and you're going to scroll through the portfolio section of the site. Every one of them will say the name of the company and then it will say the future of blank. It's always the future of blank. So obviously you're looking towards investing in companies that are going to define not to where we are, but where we're going.

Starting point is 00:44:27 Talk to me about what's embedded in your mind in that possibility that a company is the future of. Like, what are the components of the future that are shared across portfolio companies, even though, you know, we haven't gone through that many of them, but they're all kind of different, right? There are many different industries. What unites them in that phrase, the future of? I would say that we're also quite intentional of using that word. The name of our firm Avenir is French for the future. You have to credit my husband who's French for giving us that name. Thankfully, it's also easy to pronounce in English, which was a challenge for most of the other French names.

Starting point is 00:44:59 What's common across our businesses is that they're run by entrepreneurs who have a vision of how the world is going to change. They see these undeniable, inevitable shifts, these paradigm shifts that are happening in their industry, whether it be technology that's changing the way that a product or service is distributed, whether it's changing the way that those products or services are marketed, whether it's changing business processes. They're fundamentally capturing and riding the wave of these inevitable structural shifts in a market, whether they're driven by technology, whether they're driven by changing consumer preferences, whether they're driven by evolving regulatory dynamics.

Starting point is 00:45:38 These companies are benefiting from these inevitable trends. I think the other thing that's common across our portfolio companies, me is these are what I would say, constructively paranoid operators, right? They're constantly not thinking about how do I disrupt the incumbent, how do I gain share, but also how do I pull up the bridge, the ladder behind me? How do I create more and more barriers to entry? How do I better serve my customer and monetize more and more of the services I can sell that customer by solving more of their problems and having a unique relationship with my customer that's really hard for others to replicate. Yeah, I love that concept. And I love that what unites it is often about the person or team

Starting point is 00:46:18 building it more than the company itself. In your seat, having done, you know, the public hedge fund thing, you've done lots of different roles in the investing industry. With that experience and with what I would call like a supply glut of capital, trying to find a good home, high valuations in the exciting categories like software, how do you think about that playing field and how it's evolved across your career and how that may influence how you try to put capital to work. Well, I have to say the private investment world is a far more attractive place to me than the public investment world. If you think about what happened in the public markets, Julian was very unique in the late 80s, early 90s, with a fundamentally different way to approach investing.

Starting point is 00:47:02 Whereas everyone else was saying, what does Credit Suisse or Barclays say about what the earnings are going to be for this company? And oh, great, is that cheaper, expensive based on one year or out earnings. Julian was saying, hey, great, I'm going to go do the work to meet customers, understand the dynamics of these industries better than anyone else, to do the heavy research-driven fundamentals-based analysis that others weren't willing to do and run a concentrated portfolio of those best ideas. Lo and behold, what happened is he generated tremendous returns. And much like I said, we have a strong appreciation for the efficiency of capital markets. Much of those returns got competed away. More smart people followed his framework.

Starting point is 00:47:41 More capital was attracted to that strategy. And a lot of the alpha generation potential was competed away by capital and both human and dollars flowing into that strategy. I think what's so interesting about our category is there is no Bloomberg for information. There is no mapped universe per se. And unlike the public markets world where you can put on a position if you pay the market clearing price with an anonymous counterparty in a dark pool, this is all a relationship-driven business.

Starting point is 00:48:08 We have to find companies, these companies that we put. partner with aren't selling to us where it's the private equity model where you're optimizing for the highest price. They're looking for a partner. They're saying, how do we build this together? The founders that we work well with are product-oriented founders who intimately know their end market and their end customer and have a vision for how they can solve more of their problems over time, where we help is helping them think through capital allocations. They traditionally are not investors in their own right. And so we help by having this wonderful purview that we're afforded, which is to look across businesses, across industries, across models, and be able to draw

Starting point is 00:48:44 analogs to be able to say, here's how a specific company took on a similar industry, here's the lessons learned, here are potentially some strategies that we can deploy that could avoid some pitfalls. But ultimately, we think of ourselves as the capital allocation partner. We've helped them think about how do we resource the highest return opportunities in front of the business? How do we sequence that spend? And how do we kind of focus on the opportunities that are most impactful. It's a partnership-driven business. And I think the reason these partners choose us is we're pretty different than the rest of the folks in our industry. Many folks in our industry are there with you in the good times and they're focused on other companies when

Starting point is 00:49:22 you're not breakout, right? They rely on that power law distribution, highly diffused portfolios. We run concentrated eight to ten investments per fund, which means we're the only person close to as contrary as the entrepreneur who has concentrated in one idea. I think they like having someone in the boat with them, that we're willing to roll up our sleeves. We have the time to do that because we benefit from concentration. We benefit from the fact that we can spend more time with any one company. And we're not reliant on outside perspectives on our businesses. We don't fund one round and then wait to be marked up by another firm. When something's working, we want to own as much of it as possible. And that's why you find us lead successive rounds of our companies. We know, we led

Starting point is 00:50:00 latches series B and led every subsequent financing, including anchoring their public offering. We've done the same with Savage. And so they really get a life cycle partner. The reason we're doing this is because we see what they can be in 10, 15 years. A lot of that journey is going to be in the public markets. And we position them to be ready for that. And we're partnering with them through that timeline. What does your relationship with the founders look like?

Starting point is 00:50:24 Like how similar or different is it from team to team? How often are you talking with them? What's the nature of those interactions? What's that like with such a concentrated portfolio, which is very unique? Well, you know, I think there's like a selection bias on both sides. right? The folks that are attracted to us and that we're attracted to are folks who are critical thinkers who want to have their assumptions challenged, who want an active thought partner. And so we're talking to them all the time. I think that's the exciting part about working

Starting point is 00:50:50 with someone like Luke at Latch or like Corey at Drizzly is they call you with their considerations and they don't feel the need to come to you with just a board deck and saying, here's what we're going to do. And we have 100% conviction in this plan. They're saying, here's the alternative we have. Here's what I'm thinking through. How would you deal with this specific issue? It's a virtuous cycle because the more we are understanding of their mental models of their decision frameworks or their motivations, the greater conviction we can have in their ability to accomplish that in-state, which enables us to deploy more capital into those businesses. So it's a very close relationship. I feel very lucky to count these portfolio company CEOs as not just business partners of ours,

Starting point is 00:51:32 but as close friends at this point. Is there anything that we haven't covered kind of a higher conceptual level that you think is really important about the state of investing today, whether that's what matters in a business. We started the conversation talking about business quality and the lessons that you learned there. Is there anything that we haven't covered that you think is interesting that you've learned from your journey? Well, I would just say it's an interesting market that we're living in today where growth is valued quite highly. I mean, that has changed a bit over the past a month or so. I think all growth is not created equally. and I'm surprised at how often investors are willing to overlook fundamentals for growth and for momentum.

Starting point is 00:52:12 That's the opposite of where we play. We're really focused on unit-level economics. The business doesn't have to generate cash flow into aggregate, but they need to be highly profitable on the unit level. However, we define that, whether it be a geography, whether it be a customer, and so forth. And when we see those high internal returns invested capital that we think are scalable over time,

Starting point is 00:52:31 that's where we know we can be successful. If we penetrate that market, if we can generate 30 plus percent operating margins at that in-state, and our entry price implies a one or two times free cash flow, multiple at that in-state, we know we're going to make money, whether the market values, free cash flow at 30 times or 20 times. It's all gravy. I think a lot of people are betting on multiple expansion or at least assuming multiple compression. And I think that that's a dangerous way to invest. If unit level economics that are good is good growth, what is bad growth? In what ways

Starting point is 00:53:05 do you look out for bad or dangerous growth? Is it just the opposite or are there more dimensions? Well, I think businesses that don't have compounding advantages, you could say we're willing to make a investment in marketing, say, in getting a marketplace up and running that might not have a high return on that specific customer you're acquiring, but there's an exponential impact that increasing liquidity in a marketplace may have that could make that an attractive dynamic. That mentality has spread to other areas where there aren't network effects, where there aren't compounding advantages, where folks are just spending on digital acquisition. for growth, but that customer isn't coming and repeating. They're not getting any kind of scale advantage from that. And when the capital markets turn off, those businesses aren't left with anything. They haven't created anything of value. And so I see that a lot in the consumer space, businesses that value growth above all else and are willing to sell dollars for 50 cents or 75 that that historically has not worked out well for folks. Well, this has been such an interesting

Starting point is 00:54:06 conversation. I love the way that you invest. I love the path that you took very organically to get to where you are today and you're focused on literally the name of the firm, the future, right? The reason this is fun is because change is constant and possible. And you get to work with people building these fascinating businesses and all the lessons embedded in them. I have the same closing question for everyone, which is to ask, what is the kindest thing that anyone's ever done for you? Well, I love that you ask this question. And thankfully, it's the one question I was somewhat prepared for. As I was thinking about that question last night, I was thinking a lot about family and my husband and I are in the process of starting a family. And I think about, I would have to say

Starting point is 00:54:42 the kindest thing anyone's ever done for me is the sacrifice my parents made to alternating, pausing their careers to raise my siblings in me. I think about how challenging that decision probably was as someone who was, I imagine equally as ambitious as I was to say, I'm going to put my child's needs ahead of my own ambition. And I think about how impactful. And I think about how that gift of kindness has been on my life. They taught me to be inquisitive, to question why the world is the way it is. They taught me a thirst for learning. But ultimately, they give me the greatest gift of all, which is unconditional love. When you have unconditional love, it's a level of security that is irreplaceable. It allows you to take risks. When I know that my parents, my husband, my family

Starting point is 00:55:29 loves me, I can decide to start a firm at 27 years old and be totally comfortable with the fact that I might fail because at the end of the day, I've already have what matters. And so I really can't thank them enough for setting me up for the life I've been able to lead. No one said it quite that way that unconditional love is the interesting prerequisite or allows for unique risk taking and pursuit of passion. I love that. What a wonderful place to close. Andrew, I've learned a lot in our conversations. I really appreciate your time today. Thanks for coming on. Thanks so much for having me.

Starting point is 00:56:02 This episode was brought to you by Canalyst. In this four-part mini-series, I sit down with Canalyst's new chief product officer, Jeremy Payne, and talk about his background in fundamental data, the role Canales plays in the investment process for its clients, and how Canales products help investors better model and understand companies and their key drivers. In this week's episode, Jeremy and I discuss his career before Canales and the role that data plays in the failure or success of Byside investors. So Jeremy, I think a good place to start would be with your personal background and how that

Starting point is 00:56:33 background intersects with you starting at Canales, specifically what you saw in the business given your interesting career path to this point. Well, once upon a time, I was a young, very well-trained corporate finance professional with an undistinguished track record with a problem. And the problem was I needed to get data for a deal that I was working on to value to Hurricane Door Manufacturers. And it was 7 p.m. on a Friday night. And I had to have an answer by Monday morning.

Starting point is 00:57:06 And I bumped into a friend who worked for a company called Capital IQ, and he was able to give me a subscription over the weekend. And almost magically, I was able to get an answer to the question, what are Hurricane Door Manufacturing companies worth by Monday morning and was ready for my meeting? And I came home from that job and was looking for a job and actually found a job at Capital IQ and worked as a product executive doing tools and data and putting computers and information together in products for the kind of corporate finance and investment management professional that I had been in my brief career. And my mission at Capital AQ and I got there was to take a product that had been built for, corporate finance professionals, leverage bio professionals and M&A bankers, and make it relevant

Starting point is 00:58:02 for investment managers. Because we knew they cared about the same data and the same information. And we had this data for them. We just didn't have the right packaging and product and experience and workflow to leverage that information in a way that resonated for investment managers. We were talking about the core job, if you will, of a by-side investor. And what leads to success or failure and the role that data and information plays in that equation? Can you talk through that concept and describe why panelists might represent another step forward in how that's done for bysiders? So there's a core triangulation that happens at the heart of every investment management process. So that could be things like what was the revenue at the time, what was the expectations,

Starting point is 00:58:56 that Wall Street had for the next period's revenue at that time. And what was the expectation that the investment managers themselves had at that time? Triangulating expectations of others, themselves, the facts in place, and then correlating those facts and expectations with the returns in the corresponding period allows them to see patterns that allow them to make data-driven decisions about where to allocate their capital. And the way that Canalus fits in is by providing one of the most important key ingredients in any investment management process, which is the ground truth reporting that the company themselves is giving out to the market. There's all kinds of times and places where companies are giving information.

Starting point is 00:59:43 That information is coered into a coherent financial model by canalyst analyst with the lens of a real investment analyst and taking all of those disparate, pieces of reporting that occur over different periods of time and finding the element in each individual document. It's actually the same that means the same thing, connecting the dots over time, and literally putting it all in one row in Excel and giving it a label that makes sense. It's actually an incredible value at it. Another aspect of that triangulation is the forward-looking view. The catalyst is able to help the by-side analysts provide themselves. They're own view by giving them a calculator for the company, by taking all of those facts,

Starting point is 01:00:31 Canalist takes one more extra and very important step. That next step to the right of the last time the company told you what's going on is the future. It hasn't happened yet. And what a Canalist model is, is a set of those facts, a subset of them, assumed to be inputs and formulas and relationships that are not random, they're very sophisticated relationships that are driven by the analyst's deep understanding of how the company operates and how it generates value

Starting point is 01:01:05 and how it generates cash, take a subset of those facts, assume those as inputs, and then you can drive the rest of the future. So if there's hundreds of values in the model, you only need to assume a subset of those as inputs, those are the drivers, the rest of the formulas that drive the future of the model, allow a user to take an input for a company, let's say, like Netflix, and see how net new

Starting point is 01:01:33 subscribers in the next quarter impacts their view on earnings per share. So it's not just the facts, it's also a view of the future. If you enjoy this episode, check out join colossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning. You can also sign up for our newsletter, Colossus Weekly, where we condense episodes to the big ideas, quotations, and more, as well as share the best content we find on the internet every week.

Invest Like the Best with Patrick O'Shaughnessy - Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224]

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