Invest Like the Best with Patrick O'Shaughnessy - Anthony Pompliano - Full Tilt Investing- [Invest Like the Best, EP.74]

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Starting point is 00:01:39 I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com. Patrick O'Shaunisee is the CEO of O'Shaunicee Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaunsi asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy asset management may maintain positions and the securities discussed in this podcast.

Starting point is 00:02:21 My guest this week is Anthony Pompliana. Pomp began his career in the military and has since been a successful entrepreneur, worked as a head of growth at Facebook, and started full-tilt capital in early stage investing firm in North Carolina. This conversation has three memorable sections. Early on, we discuss the four traits that Pomp looks for in founders, which we cover in detail. These double as traits that are important when hiring anyone. Next, we discuss his unique take on cryptocurrencies, where he is excited about the prospects for tokenized securities. Finally, we explore a unique media company, Barstool Sports, and what makes it such a powerful brand. Please enjoy our somewhat abbreviated discussion and know that we will continue the conversation soon.

Starting point is 00:03:04 Anthony, this is going to be a really fun, wide-ranging conversation, given the diversity of things that you've done in your past. Maybe it would be fun, in this case, to start chronologically. You've got an unusually long military background relative to most people I've had on the podcast, kind of a unique angle or start to a career. Maybe we could just start there by you describing what you were doing. I know you spent some time in the intelligence side of the military, and we'll use that as a way to get into the rest of your career. Absolutely. So I started my career, spent six and a half years in the Army, both in and out of the reserve and active components. Did a deployment overseas to Iraq, I mean, did everything from infantry to route clearance, kind of looking for roadshead bombs, ambushes, and then intelligence support.

Starting point is 00:03:45 So basically when things would go wrong or anything would happen while we were on the ground, with the infantry units gathering intelligence and bringing it back to help the actual intelligence teams piece everything together. So when you first commit, I'm sure it's not as long of a commitment as you spent over there, which implies that you probably recommitted to spend more time. Yeah, so I actually signed most military contracts actually eight years, right? So people who just go active all the way through, they do, I think it's like two or four years active. And then the rest of the remainder of the eight years, they spend on a individual ready reserve, an IRA, which basically means you're out, kind of, unless we really need you. And then we can pull you back. And then after that eight year period, they're completely out. I actually signed initially with the National Guard.

Starting point is 00:04:25 So I signed coming out of high school. I knew I was going to go to school, play football at Bucknell University. And it was a way that I could do the military service plus still go to school. And then after that, I'd figure out, you know, how I wanted to kind of finish out the military service. But during my junior year of college, I actually got deployed. So I was unprotected. I wasn't in ROTC or anything like that. And so literally one day go from a 20-year-old kid, you know, worried about football practice and, you know, parties or, you know, school, whatever, to, I got deployed with a bunch of guys who are, you know, young 30s.

Starting point is 00:04:55 They got families and kids and mortgages. And I'm like, where am I? Right. Both from, like, you know, human perspective. But then also, obviously, you know, you're sitting in the Middle East. the gun and you're like, okay, this is a little bit different. What was your most memorable experience over there? The people. I've never experienced such volatility in the way that a single population looks at you. So then, you know, I've been very fortunate in my life to do a bunch of traveling.

Starting point is 00:05:18 And I think that, you know, most countries either they really like Americans, they don't like Americans, somewhat of a generalization, but there's a sentiment. Iraq was one of these places where there was people who absolutely loved us and looked at us as liberators and, you know, they could not be more happy for us to be there. And literally on the same. street, there's a 14-year-old kid who's looking at you, and it's just hate. And you're like, look, this kid would literally hurt me if he had the opportunity. And so I think it was very telling. To me, I was 20, right, when I went, turned 21 when I was there. And you just get to see, I think, the human perspective and how it can change based on their individual experiences. And so you start

Starting point is 00:05:53 talking to these people and you realize, like, why does that 14-year-old kid hate you? Well, like, some, I don't know, a roadside bomb went off and it was targeted at a U.S. convoy, instead of killed his dad or his uncle. And like, I think back and I'm like, if somebody came to my country and that happened to me, I probably, like, this kid is actually handling it pretty well, right? And so, you know, I think that when you start to really understand the intricacies and complexities of war and geopolitics and, you know, all the stuff, it's, it's not as simple, I think, is kind of, you know, the headline of a newspaper. And so when you see that, it's just really eye-opening. What was the transition like out of the military and maybe what the seeds were for your investment

Starting point is 00:06:31 philosophy or your interest in business and investment. So I was very fortunate. A lot of the guys that I went with, we were there during a time of like pretty heavy combat and all the stuff. I was there 2008, 2009. A lot of people kind of the 2006 or 2010 era, PTSD is rampant, you know, all this stuff. When I came back, I actually went back and finished school. And so I went from a military unit, which was all male, very kind of macho, very, you know, violence driven to a football team that's all male, you know, very macho, very violence driven, just without weapons. And so I, you know, I credit a lot to, you know, opportunity I had to go back and finish school, play football to kind of softening the transition a little bit and making it a little bit easier compared to guys who had to go back and they're immediately working a nine to five job and no one can relate to them. And just it's difficult. And so I think that when you pull that out to investing, you know, I think a lot of my friends would say my philosophy and outlook on life changed a lot. When you see that type of environment, we literally can die tomorrow. And it sounds. It sounds very cliche, but you just want to live life to have as much fun and kind of the fullest.

Starting point is 00:07:36 And then two is we live in a global world. And so I actually think that people who don't have the ability to travel are at a huge disadvantage when it comes to life in general, but really investing, especially as the borders of our nations matter less and less to the global markets. And so that experience at a relatively young age, I think really just kind of was a seared in my mind, like, hey, this is a global world where people have different perspectives and they have different experiences. And so if you need to understand that in order to, you know, succeed on that global scale. Let's talk about the unique thesis that full tilt has, not just thesis in terms of

Starting point is 00:08:10 industries, you know, things like crypto, et cetera, but also sort of the founding ethos of the firm, things like deal economics, things that set the firm apart. Maybe we could start there with the deal economics. Yeah. So when me and my partner started full tilt, we really went back and we said we've never worked at an investment firm before. We've never worked at a venture firm, a private equity firm, anything. We're not conditioned to believe something is true. A lot of people think that's a disadvantage, but if we look at that as an advantage, why don't we actually go look at the data and see what is the right thesis, deployment strategy, all these things that I think people who just grow up in venture specifically, they just take it as kind of gospel. And so what we realized when we looked at

Starting point is 00:08:50 the data was there's a lot of misconceptions. So one of the biggest things was the only thing that matters for the outsized returns is being in the best deals early. So your follow-on decision, your check size, you know, all of these like intricate investment strategies, that can make a good deal great. It can't make a bad deal good. And so if you're just looking at it from a binary perspective, the key is how do we get into the best deals as early as possible? And so from a capital perspective, we start out writing $50,000 to $100,000 checks and we wanted to be in as many deals as possible. But we're investing so early that everyone else was doing diligence on, you know, what is the market, what is the competitors, what is all this stuff. And we'd built

Starting point is 00:09:32 enough companies ourselves where we said, all this is going to change. Literally the team is everything is going to change in this dynamic environment from the product they're building, the market they're in, their competitors, the funding, all of the same. The one thing that is likely to not change is who's running the company. And so we just focus on who is that person and why do they do what they do. How do they make decisions? Are they not going to give up? I mean, that's like one of the easiest, or one of the easiest signals, but also the hardest thing to get at. And so we said, if we just back the right founders, they'll figure everything else out. And if we're there to kind of help when they need help, we've got a higher probability of being successful. And so we started doing that.

Starting point is 00:10:07 And we invested 64 companies in the first fund. It has gone much better than our wildest dreams. And really the way that we measure that is, I think one is just like cash on cash returns. Two is who are we investing alongside or who has followed on? And then how many companies go to zero? And so to date, we are now 18 months in. We've had three of the 64 go to zero. We've had one company that was acquired. Cash on cash returns will take a while to measure, right? So that's always kind of the question mark. But then we've been incredibly fortunate to invest alongside or be followed on by the entries in Horowitz, the founders funds, the lowercase, the NEs of the world. And so I think that for a firm that's sitting in Raleigh, North Carolina, that prides itself on trying not to meet the founders in person before make an investment, I think people are kind of, there's something here that is different because the results are, you know, impressive, I think, to RLPs, etc.

Starting point is 00:10:59 So your results are based on that description going to hinge on your ability to evaluate founders and some of these characteristics. And I'm a quant, so I can never help but try to dimensionalize this stuff and maybe poke at what you believe are the key attributes. So you already mentioned kind of persistence being one. That seems like an obvious one. What are the other attributes you're looking for? And maybe for each one specifically, how do you suss them out? We've spent a ton of time trying to build a actual, like, mathematical way to quantify this stuff. It is incredibly difficult to do.

Starting point is 00:11:28 I always say, I want to build the SAT for founders, but like one that actually shows, you know, the probability of being successful. And so we've got some hacks that we've tried. But ultimately what we're trying to get at is some key characteristics. Persistence is by far the number one indicator of success. We have seen companies that we passed on that we thought the founder was incredibly smart. They end up getting some sort of traction. Something goes wrong.

Starting point is 00:11:49 They give up. Companies down. We would rather invest in someone who's not as smart, not as creative, whatever, but it's not going to give up because at least we've got a shot. Persisness is really important and probably understated by most investors. Two is goes back to this idea of empathy. And empathy really revolves around a whole host of things. So we look at have they had a very wide variety of life experiences, job experiences, have they traveled a lot, somebody who is trying to build technology for a restaurant and has

Starting point is 00:12:18 never worked at a restaurant, it's really hard to wrap your head around how they're going to understand, you know, everyone from the cashier to the waiter to the cook. And so it's not a requirement, but we think that just having that breadth of experience is really important. The third thing is there are communication skills. So life, whether we like it or not, as people in communication, one of the things that we always ask for is I want to see a lot of your previous updates, whether they're to advisors, your internal team, investors, whoever. And it's less about like the substance. And it's much more about are they clearly articulating ideas. How thorough are they? How consistent are they with their updates? Can I see the progression of their thought

Starting point is 00:12:55 process and how they're explaining, we made a projection, we missed it, here's why it happened, you know, all that kind of stuff. So that's the writing aspect. And then frankly, they got to get us excited. And that's like hard to quantify. But like if you're asking an investor for money and you can't get that investor excited about what you're doing. It's hard for that investor to then see how you're going to get potential teammates excited to join the company. Other investors excited to invest customers to become customers. Like that's a key piece. And it's part storytelling.

Starting point is 00:13:24 It's part enthusiasm. It's part just the idea of communicating inevitability, all of these things. And so that one in particular really goes back to the name of the firm. So full tilt capital. I loved it for two reasons. So my part of came out with it. And one is just like everyone thinks of post. And they're like, oh, your early stage investing, you've got this like prey and spray is what everyone would say, right? And so like you're gambling. That's fine. But if you actually look at the definition of the word, it's mass acceleration at top speed. So exactly what we want to do. We want to take things that are not moving and get them as much momentum as quickly as possible because our belief is momentum makes the four key tenets of building a company easier. So this is hiring customers, fundraising, and press. So if those four things become easier because you've built momentum, again, yours increasing probability of being successful.

Starting point is 00:14:09 but you're not guaranteed. And so I think that those are some of the aspects, and there's a whole host more, but it's really just trying to pick at a founder and what makes them tick and how they make these decisions. And ultimately, I told a founder the other day, I said, if investors could, the ideal scenario would be, we would put you through a simulation

Starting point is 00:14:29 and we would see how you would act in all these situations, and then we'd go back to making the decision, like, do we want to be on that ride with you or not? Right. Like, that would be ideal. We can't do that. So instead, questions we ask, things we look at, like we're trying to figure out how you're going to act or, you know, make decisions in those environments moving forward without being able to do the simulation. What I find so interesting about the checklist.

Starting point is 00:14:51 So to recap it, persistence, empathy, communication, salesmanship, basically the four things you ticked off. None of those are taught in school, which is like criminal because here you've got this sort of paradigm of the American dream and entrepreneurial, you know, spirit of the U.S. And the four key ingredients, at least according to you, are things that we don't. don't really formally learn. We have to kind of teach ourselves in the real world. Yeah. And I think you get them through life experiences. So it's a travel is a good one. Yeah. And it's part of it is like, hey, if you don't understand finance, us or somebody else can either teach it to you or we can hire somebody who understands finance. So it's just like those are problems that can be solvable, but I'm not going to change whether

Starting point is 00:15:30 you're persistent or not. I'm not going to be able to do anything to change whether, you know, you have empathy or not. And so it's the, it's trying to understand the non-controllable things. then everything else we can figure out. There's a question I've started to ask people, which, especially given your military background, this is kind of an interesting one, which is the time or times in your life where you feel like you've had the most on the line. So sort of when you've taken the biggest risks, the biggest leap, like every founder is taking a huge leap, right? Feeling very personally exposed. What would the answer be for you in terms of looking back where you felt the most exposed or at risk in a positive sense? Yeah, yeah, yeah. So I think there's probably three

Starting point is 00:16:06 separate times. One, definitely, you know, deploying overseas. You don't even understand what you're, yeah, like you don't even understand what you're doing, really, right? Like you're like going and you've done all this training and all, you know, whatever, but, but that's definitely one. Two, when I went to Facebook, I moved out there. I knew one person. They weren't involved in the tech industry. And I just did it. And I'm so glad that I did because it just like threw myself into an, a completely different environment. I mean, I think it's a testament to the tech industry in general of like, here's a random kid from Raleigh, North Carolina, who moves out working at one of the large tech companies and was able to be accepted into a community and meet all these great people. And just there was no judging.

Starting point is 00:16:45 There was no anything. It was just, hey, you're one of us. And so I think that that was another time where I felt exposed and then very quickly was like, oh, like everything's going to be okay. And then the third one was starting the fund. And with the fund, it was less about what are we going to go do in the conviction and doing it. It was the first time that I took somebody else's money and said, I'm going to go put this on the line and like whether we're successful or not does not only impact me like it impacts you and so I laughed because like the first couple times I talked to you know potential LPs I was like by the way give me a small amount of money as possible right as you get more and more confidence you're like hey this person's not giving me money that's going to like affect their family but that's kind of how I looked out at it at first and so I try to remind myself that like you know when you're making these decisions it's less about like the decision today it's the decision I make can I go back and defend this in a conversation. where I say, I lost your money. Can I look somebody in the eye and say, I lost your money? And I think that changes the way you think about making decisions in a positive way. Right. And so that's kind of an exposure that people get, I think it takes time to get used to. I'm always fascinated by the dichotomy

Starting point is 00:17:47 of skill and luck explaining outcomes in all investing. And there's no doubt that there's a mix and it's a sliding scale and different parts of the market involve different degrees of both. In the venture world, I've always had trouble disentangling these two things. But one thing that I'm sure of is that in the venture world, just like everywhere else, real alpha or real skill-based excess return, we'll call it, comes when you originate, when you do different things, when you've got a different perspective, different information, different analysis, better discipline to stick to the four attributes, for example, that you look for in founders. That's really kind of the only way to earn true differentiated excess return that's based on skill and not luck. So I'm curious today, as you look kind of at

Starting point is 00:18:25 the world and maybe not just technology, you mentioned your industry agnostic, where some of those areas are that you're focusing on where the market maybe isn't paying enough attention or it's paying too much attention. What is the differentiated view that Fultiltilt has today? So one, I think most investors are not willing to admit that there's more luck than skill. I mean, there's been enough academic research. I've seen it, you know, just myself personally, where they'll say, hey, stack rank your portfolio. So you've sourced these, you've vetted them, you made the decision, you're not getting updates, you're on the board, whatever. Stack rank the outcomes of your investment today, unless you how it plays out. They're always.

Starting point is 00:19:00 wrong. And it's just a dynamic environment. And so I've always looked at as a probability game. I just want to put ourselves in a position where we have a higher probability of being successful than less. So that's like more of the framework. And so when we looked at it for our second fund, we are going to exclusively focus on protocols, tokenized securities, and blockchain. And tokenized securities, I think, is the one area that is the most interesting. What convinced us to go ahead and really make the leap 100% into it was we said, look, in five years, do we think people are raising money through price equity and convertible debt or tokenized securities. And I am absolutely convinced that there's going to be tokenized securities. And the reason is

Starting point is 00:19:34 it's a more advantageous mechanism for both the founder and the investor. So if it was more advantageous for either side of that relationship, I don't think we'd have as much conviction, but it actually helps both sides. Can you describe why it's more, I certainly get why it's more advantageous to not dilute themselves for the issuer of the token, but why for the investor? So you get liquidity faster. A lot of times right now, how the deals are, being structured. You're actually getting equity in the business, plus you're getting a token. So there's a pro rata ownership in both. And then it ends up solving a lot of the transferability, the obviously liquidity. And then one of the other pieces that we think is really interesting, or the part that we

Starting point is 00:20:11 think is the most interesting in the crypto space is has nothing to do with decentralization. It has to do with fractional ownership in a global 24-7 marketplace. And so when you look at fractional ownership in that global marketplace, those are things that are not applicable or they don't exist when it comes to convertible debt or priced equity. And so if you've got an emerging industry where more and more of the tech talent is starting to shift their focus, I mean, I think that will continue. And there's this new mechanism for fundraising that provides advantages to investors that we know our problems in the large companies that have been successful today. They're solved. And then from a founder perspective, it's more attractive. Why would people not go

Starting point is 00:20:50 do that? So let's dive into a really like this angle on it, right? I'm frankly, sometimes sick talking crypto just because it's so incredibly ubiquitous. Everybody thinks we're building like the new world order. It's like everybody just relax for a second. And it's kind of overdone. And, you know, I've certainly spent a lot of time on it. But this is a fairly unique angle. So equity, debt, you know, the traditional investing instruments representing legal claim on some, you know, stream of cash flows or residual interest in a business. So when you say tokenized securities, I think what you mean is a token which embedded in the ownership of that is a legal claim on some stream of cash flows or some underlying asset or something. So could you describe in as much detail

Starting point is 00:21:30 as you can very specifically what you think that means and whether or not it will require changes in regulation for that to be realized? So I'll give you two examples. Let's use a business and let's use a piece of real estate. Tokenized security for a business is literally tokenizing a share of the company. So we think that while today there's a bunch of questions around regulation, etc. I think that regulators have been very clear that they do not want to just stomp on this innovation and say like we're going to absolutely ban it, but they're also not going to let the Wild West continue where, you know, there's some pretty obvious scams and stuff going on. And so we think that there will be tightening of regulation for like a net good. And we think that that tokenized

Starting point is 00:22:08 security will look very similar to what shares look like, but just have a couple of new advantages for investors and founders. When you look at real estate, for example, very similar to how crowdfunding works. But again, you're providing a token, fractional ownership, global 24-7 marketplace, but what you're able to get there, let's say it's a income-producing real estate. You can structure it to tokenize the actual equity of the hard asset. You could tokenize only the revenue stream and allow the owner to retain 100% equity, or you could do some mix. And so what we think is this mechanism is so new that the regulators haven't even figured out where are the kind of boundaries and the rules. But what we see is the good actors are going to, you know,

Starting point is 00:22:47 to be able to take a blend of the existing kind of traditional world of fundraising, et cetera, and apply it with this new mechanism. And it's not going to be binary. It's not going to be, hey, do you fundraise privately or do you conduct an ICO? There's going to be this, almost like the center of a Venn diagram. And that is where we believe tokenized securities are going to exist. And we actually think that's going to be the largest asset class when you look at, you know, how capital is deployed five years from now.

Starting point is 00:23:14 And really it's because that's where you're going to get the traditional capital. allocators and the new capital allocators where they can kind of meet in the middle, and then that's where they see, you know, opportunity. I want to come back in a second to how you then play this as an investor, right? So you assume that that outcome is true. Like, what are the types of companies that will benefit from that truth coming to be? But first, I just want to spend a minute on your opinion on liquidity as sort of an idea. So I've always been fascinated by more liquid instruments, let's say the securitization of a very liquid real estate asset or something like that, as an interesting means to bring capital into a sector where it was typically difficult to get capital in before.

Starting point is 00:23:51 Obviously, this would be like an extreme example of that where you can tap previously untappable capital sources. But do you worry that that could be a really vicious double-edged sword where, you know, ETFs seem great, but maybe the fact that like you can trade them so often is actually terrible, right? And maybe part of the VC advantage is that you can't go in and mess it up for 10 years. So how do you think about that? It's the Uber example, right? Everyone's like, you know, I wish my Uber stock was liquid. And then, you know, most investors are like, yeah, I would have sold it at the $2 billion valuation, right?

Starting point is 00:24:20 Because I thought I had a home run. And it continued to increase in value. I personally am a fan of shifting the decision making onto the individual investors. And I think that if you sell early, you trade too much, you whatever, you live and die with your own decisions, rather than there's some subset of people that would have let the Uber valuation reach, you know, $69 billion. and they would have been geniuses and sold at the top, and then, you know, everyone will take a little haircut. Probably not that many of them, but there's some, somebody would have done that. And so I think that it's optimizing for optionality for investors is really important,

Starting point is 00:24:52 but also doing it in a way that fits within legal frameworks that I think most of us agree are good to prevent, you know, the frauds, the scams, all that kind of stuff. And so the nice thing about tokenized securities that stand today is you still, they're accredited investors, right? They're not the, you know, grandma was putting in $100 who, you know, was going to hurt if she loses it. And so I think from a liquidity standpoint, teams are being smart. I'm now starting to see teams who are doing these token sales where the team is locking themselves up for, for six, eight years. And they're asking investors for long lockups as well. And so I think that when you give

Starting point is 00:25:26 optionality, you say, hey, look, you could be liquid day one, but we're going to allow the teams and investors to decide, do they want to self-impose, you know, lockups, et cetera. It ends up just being again a net good for the industry. So then how back to that original question of how you then invest according to this thesis? Are you investing in LLCs? Are you buying tokens? Are you buying safs? Like what is the actual expression of this idea? So we're definitely still figuring it out with everybody else. And part of this is just being honest enough with ourselves of like there's no answer. There's no right answer to how this is going to all play out. But we think that we can help figure it out along with everybody else. Right now we are solely focused on or actually one thing

Starting point is 00:26:03 is important to call out. So we look at this industry in a very, very risk-adjusted way. So I'm a huge fan of Howard Marks. And Howard, you know, I'm a paraphrase. I'm basically says, in order to have top five percent of returns, you have to take such an inordinate amount of risk that you can end up in the bottom 5 percent if you're wrong. And so like if you want to be on the extreme and have the binary outcome of top five, bottom five, like that's great. That's not what we want to do. So we're more than happy to just hit above average returns for, you know, 20, 30, 40 years. And what that ends up doing is it makes you one of the best investors in the world. And so, when you compare that to the mania of crypto today, like there's not very many people who,

Starting point is 00:26:37 I'm cool with a 50% annual return. Like I want the 30,000% ripple return, right, in 2017. So I think for us, we actually are setting the fund up in a very interesting structure where we're incentivizing ourselves with added carried interest for returning capital, the principal investment to LPs on a faster time frame. Interesting. So in the first fund, we charge no management fee. We'll continue to do that moving forward. We think it's really important to just align, you know, our incentives with our investors. We don't make money until they make money, right? And in fact, we don't make money until we've returned their capital and then they start to make money. And so I think here, what we figured out was if we incentivize ourselves to return the principal investment amount in 18, 12,

Starting point is 00:27:17 six months, our investors actually have a very large appetite to give us more and more carried interest. In venture, you can't do that. You can never say to something, I'm going to return your capital in 12 months because it's just not going to happen. When there's liquidity, though, there's the potential to be able to do that. And so we're still kind of working out exactly how that will look, but that's definitely something that both our LPs and us are really excited about. And so I think that when it comes to investing, we really like hard assets. So the tokenizing of all these hard assets, we think is a massive market that is one just beginning and two. There's a very small number of people who understand what I would consider more traditional finance and then also like

Starting point is 00:27:53 this tokenized world. And so again, trying to find like where is there very little competition and just massive market opportunity. So that's one. Two is we've already incubated a, we're now at three mining facilities within the venture fund. And really the thought process there is we don't look at it as a crypto investment. We look at that as a pure real estate investment. So depending on where the price point is,

Starting point is 00:28:17 depending on your electricity costs, etc. These are investments where you're investing in a hard asset. You're able to two, three, four, five X return on an annual basis. There's nowhere else you're going to do that. investing in infrastructure and, you know, real estate. Why would we not want to deploy capital there? And so I think that, again, we just look at it as how do we protect the downside as much as possible and we don't need the 15X?

Starting point is 00:28:40 We're cool with two. How do you think about the commodity risk there? So assuming the cryptocurrencies themselves, in this case, are the commodity being mined. I'd love to hear a little bit about standard American mining. Great name for an interesting company that you've incubated. It's me you could describe how that business is structured. But it seems like that whole thing is predicate, the two X, the three X, whatever, is just predicated on the coins or the things being mine not crashing in value.

Starting point is 00:29:02 So we completely eliminate the risk. We sell into cash immediately. So again, we just look at it as just like if I had a franchise business, I would get a physical location. I would put employees in. I would do some activity and I'd get revenue. We look at this as we get a physical location. Our employees are the machines. They do an activity and we receive revenue. Their revenue is in the form of Bitcoin, Ethereum, and whatever. And we immediately sell into Fiat. And so it's just a cash flow business, which, Every single person who's ever mind will be yelling and screaming when they hear this and they'll say, I can't believe you're doing that.

Starting point is 00:29:33 It appreciated 300% afterwards. That's fine. But again, we don't need the ridiculous returns. We're okay to three-xing. And so I think that's like the short term. The long term is that's race against time. So because you can pay back your initial investment so quickly, you're basically making the decision, can I recoup my investment before the likelihood of a crash?

Starting point is 00:29:55 And so if you said to me right now, hey, that's a five. year payback period, probably not going to pull the trigger on it. If you tell me it's three months, I got a lot more confidence now. Can you describe standard American mining, like what's unique about it and what it does? There's literally nothing unique about it, right, which is kind of the beauty of it. So we take mining hardware. We put it onto energy sources that are free near zero cost, whatever. What are those sources? So right now, two of the facilities are just traditional energy from local grid. One of them is we have a business that my partner runs day to day that, takes whole car tires, puts it through a thermal demanufacturing process, which is a big word for

Starting point is 00:30:33 basically burns it within a cylinder. And it breaks the tire down into carbon, oil, steel, and sin gas. It sells the oil and the steel as a commodity. And then basically creates energy through a turbine. And we self-consume that energy on site and use it to mine cryptocurrency. Fascinating stuff. Yeah, it was, I don't think that was in the plan when they originally built the plant, but, uh, I've seen you right before about the shift from a CPU world to a GPU world. That's something that we haven't really talked a whole lot about on the podcast. Maybe you could explain that idea. I believe that's going to happen, right? Two, I think that the United States is drastically behind many other countries. And three is this shift really today. There is not that many

Starting point is 00:31:17 job requests for GPU farms. GPU being just a, can maybe describe what the fundamental difference is. Yeah. So basically with with the CPU, it's somewhat. of an elementary computational capability, GPU is more complex. It's kind of the very basic definitions. And so with GPU, you can do things like mine cryptocurrency, you can do CGI rendering, you can do AI simulation, you know, all this stuff. And so as the need for more and more complex computational power kind of permeates society, there will be a shift to, obviously the hardware will kind of be built up to fulfill the demand. And so what we think is most of the CPU world is based on today's technologies.

Starting point is 00:31:57 And that's why those farms were built and those data centers were built. As the demand increases on the GPU side, the Googles, the Amazons of the world all the way down to, you know, kind of the local regional data centers are going to have to shift and fulfill that demand. If you look today at how that shift is going, it's going very slowly outside of the crypto world. But in the crypto world, you know, there's 200, 500 megawatt facilities that are building built all over the world.

Starting point is 00:32:23 And so what is nice about... about the GPU-based mining versus the ASIC mining, if you put in a GPU piece of hardware, you don't just have to mine, you know, Ethereum, Zcache, et cetera. You can then use that to do C-G rendering, AI, whatever. So again, it de-risks a lot of the hardware investment. Whereas with an ASIC, like, you're pretty much gonna mine Bitcoin or you're gonna be sitting staring at hardware

Starting point is 00:32:47 that, you know, has very little value. So it's an interesting angle where processing power is all of a sudden this kind of underlying raw element that we need. And part of your thesis is thinking about how to get involved in places where we haven't caught up yet. I think that computing power will be one of the most valuable resources in the world. I think it already is, actually. But when you look at this from a business perspective, I think that's true.

Starting point is 00:33:08 When you look at it from a national defense perspective, it's true. And I think that that trend will not only continue, but it's actually going to accelerate. And so people always talk about data is the new oil. I think computing power is the new steel. And so when you look at, you know, standard American mining, right, it's definitely a tip of the hat to the Rockefellers, the Carnegie's of the world, where it just says, look, this is the infrastructure on which the next 100 years is going to be built. And there is a ton of competition running at data, right? I mean, SoftBank literally has a hundred billion dollars, and that's what they're trying

Starting point is 00:33:38 to do. We think that there is a ton of opportunity and actually a lack of understanding on how to build, own, and maintain the computing power. And, you know, what really ends up happening is when you talk to a tech entrepreneur about, hey, we're going to do a construction project, they throw their hands up and I'm going to write the software code and so like there's just fewer people who want to you know go and do this work and so we like it right because again it's differentiated for sure yeah let's go a completely different direction because of something that you wrote about which I was really interested in which is your thoughts on barstool sports so a brand that probably a lot of people are now familiar with something that I you know even know what this was until six months ago and I kind of can't

Starting point is 00:34:20 stop watching the business. It just seems insane to me. The brand that they built, the way that they think about, the business model, you wrote kind of a long write-up on it. Maybe you could summarize why you're interested in it like I am. And I'll use that kind of in our last section here of our chat to talk about some of the insights and the different ways of doing business that are reflected in a brand like Barstool. Man, Dave and Erica are going to love this. So the thing I wrote said, I think what I said was it'll be the most powerful media brand in the world by 2025. You can, I mean, people, they laughed, right, and, and all of that. But I think that there's a lot of substance behind it because they're doing a number of different, very intricate, nuanced

Starting point is 00:35:00 things that are, you know, incredibly powerful. So one is their revenue model. They make money off physical goods. Well, now BuzzFeed's trying to do that. And everyone else is now trying to do this. Well, they've been doing it for like 12, 15 years, right? That's how they survived. That and events. So I think that's one. It's just like they're not dependent on ad, right? Now, that dependency as they grow larger and larger, like that will be a very real revenue stream for them. But their core business has always been, they literally sell T-shirts. Two is audience. So where everyone else is, I mean, literally we have a debate whether people are creating fake news or not.

Starting point is 00:35:34 They have this rabid, digital first millennial audience that, you know, it's not uncommon for these guys, the individual reporters to tweet and get thousands of pieces of engagement. And that's a tweet. When they tweet their articles, they're driving incredible page views. Like people are showing up in the thousands to events that they have where they're going to be. It's this business that they're a media company, part reality show, part t-shirt salesman, and then they wrap all of that up and they're doing corporate deals with a professional CEO with ESPN. You know, a lot of things that just the blogging community has not previously been able to do. And so I think that it has this really unique mix of content that draws that audience in.

Starting point is 00:36:17 The third thing is it's a lifestyle. So, I mean, they coined a term. Saturdays are for the boys. Sounds incredibly juvenile, right? And yeah, which it is, by the way, right? But it has permeated society. I've got a 21-year-old brother and like, that's the rallying cry of, you know, the college scene all the way up to professional sports athletes, politicians. Like, you know, and they get the videos of these guys saying Saturdays are for the boys.

Starting point is 00:36:43 And so I think that, again, like, they're able to create culture and the people who create culture. end up being in a really powerful position. I think that you can look at like urban hip hop has done this for a long time. And so I think these guys are doing it for a completely different segment of the population. And then I think that the last piece is Erica said this at one point where she doesn't have employees. She has sports figures or sports stars. And so if you look at it as a team, each individual reporter is a star that then has their own audience, has their own products, has their own whatever. no other media company in the world would ever do that one and then two is they look at this as

Starting point is 00:37:20 their personalities so if you think of them more as a reality tv show each person has a personality each one as an audience right like you go through this whole thing and so what they're doing is they're meshing a whole bunch of stuff into a single entity and it's all online so they're filming everything they're writing everything they're you know they have these twitter wars they do all stuff so that's like the core foundation of the business and then when you take all the controversy Because of course, anyone who's doing all of this is so forward thing and so controversial, all stuff where they go and they chain themselves to the NFL offices or, you know, people are blast, you know, yelling at them about how they're sexist. And I laugh and I say, the ESPNs of the world don't realize that they're actually helping them by creating the controversies, right? They did a show with them. They did one episode, then they canceled the show. It's almost Trump-like. Like, they're sucking up all the oxygen in the room. So the best book I read in 2017 was a book, Win Bigley, Scott Adams. Somebody recommended it to me, and I kind of was like, I don't know if I want to, you know, whatever.

Starting point is 00:38:13 But it's like, just read it. And so when I got through this book, I am absolutely convinced that Barstall Sports, Trump, et cetera, what they are doing is they have figured out that we live in a very different world, right? We live in a world where because of the digital first interactions that we have and the sensationalism and all this stuff, that is how you drive eyeballs, attention, all the stuff. Well, if you've been in business for any period of time, you know that if you're able to drive eyeballs, you can, quote, monetize it in some way, whether that becomes president, whether that's make money, whatever. And so I think that they're definitely looking for the controversies. And they've been, you know, fortunate or not unfortunate where there's been no lack of them. And so I think when you look at Barcelona holistically, I don't think that there'll be a $20 billion company that, you know, no one else can compete with from a financial perspective. But I think that they already are close to. definitely in sports, they're the most powerful. Yeah, ESPN has a lot of eyeballs, but ESPN can't get, yeah, they just can't get people.

Starting point is 00:39:10 I mean, here's the example I said to somebody. Barstall Sports gets more people to watch a video of their former CEO, Dave Portnoy, sitting on his couch, videoing himself, like in the selfie view. He just, less there's live streaming, and he'll have 2,000, 10,000, however many people watching. He can get more people to do that than the, you know, multi-billion dollar ESPN does with like a professional. professionally created video that they post on the internet. So like what is power in today's world? Like to me power is really like who can drive eyeballs and have their audience fulfill called actions. I can't think of a better media company than Barstle sports. And so, you know, I shied away when I wrote this thing from saying they already are the most powerful to they will be. And I think that if they can

Starting point is 00:39:56 continue on this path, like I see them as a billion dollar company that, you know, frankly, I just hope they don't sell it too early. Taking those, that idea, that mindset, those lessons and also your experience with the 64 plus, you know, whatever other investments that you've made. And if you had to extract a couple kind of closing thoughts or lessons for, I'll call them more standard businesses, family run businesses, smaller businesses, more bread and butter type things that are operating, maybe you've been around for a long time, but are ambitious and want to grow. What would your closing thoughts be on the lessons that you've learned from the much faster pace, full tilt world? One is definitely just persistence.

Starting point is 00:40:30 I just don't give up, right? You got a shot if you don't give up. So that's, definitely number one. Number two is you don't need to hit home runs every time. Singles and doubles can win games. And so I think that's important. And then I think the third one, and this is like very true across anything you do, it's just the people. So whether you look at the talent at barstool sports, whether you look at Facebook, whether you look at, you know, founders we want to invest in or you look at a family business, I think making sure that you have the best people in the room, again, increases the probability you're going to be successful in whatever you're doing. And I think that gets lost a lot of times because everyone thinks that, you know, the new cool,

Starting point is 00:41:04 revenue source, the new cool business model, whatever is going to save the day. But if you just have the right people in the room, like it's the pizza shop analogy. If you open up a pizza shop, you're not reinventing the wheel. If you just have operational excellence and you put it in the right location, you will be successful. We know people like to eat pizza. We know how that business works. There's thousands of them in the United States. But it just comes down to having the right people in the right process. I think it's the same thing across, you know, all these businesses, whether you're a high tech business, a small business. It's just this is how the winning playbook you just got to go execute it.

Starting point is 00:41:35 So my closing question for everyone is to ask what the kindest thing that anyone's ever done for you is. So it's probably my parents. I grew up in a house. I'm the oldest of five boys. My dad traveled a lot when I was younger. And my mom's a saint, obviously. We're all alive. I'll have our arms and legs.

Starting point is 00:41:50 But I remember many times as a kid where they would do things for us that wasn't, they didn't cost any money, but they would take us somewhere. or they would just spend time with us or do things where, you know, now looking back, like, there's zero chance that they were, like, still happy and sane and calm and, like, all the stuff. But they knew it was important. And so I think those are the memories probably from, you know, growing up that mean the most to me. And it was probably at the times where my parents least wanted to do that. To me, that's, like, the ultimate definition of kindness, right? It's somebody who, like, doesn't need to do something, like, probably doesn't even want to do it,

Starting point is 00:42:26 but they do it anyways for, like, the betterment of somebody else or the enjoyment of somebody else. And so I think that's probably what it is. It's just like I'm so grateful for them having done that. I don't get to see my brothers as much. I don't get to see my family as much. But like we have those memories. And so I think that's probably, you know, what it is, which it's nice to not have to like go that far to kind of, you know, find that.

Starting point is 00:42:46 Well, this has been fun and bum that we're a little short on time. Maybe what it means is that we'll have to do a round two, especially as you start to deploy this fund number two at full tilt. So thanks for your time. Absolutely. Thank you so much. Hey, everyone. Patrick here again.

Starting point is 00:42:58 To find more episodes of Invest like the Best, go to invest. go to investorfieldguide.com forward slash podcast. If you're a book lover, you can also sign up for my book club at investorfieldguide.com forward slash book club. After you sign up, you'll receive a full investor curriculum right away and then three to four suggestions of new books every month. You can also follow me on Twitter at Patrick underscore Oshag, OSHAG. If you enjoy the show, please leave a quick review for us on iTunes, which will help

Starting point is 00:43:27 more people discover Invest like the Best. Thanks so much for listening.

Invest Like the Best with Patrick O'Shaughnessy - Anthony Pompliano - Full Tilt Investing- [Invest Like the Best, EP.74]

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