Invest Like the Best with Patrick O'Shaughnessy - Jay Hoag - Calibrating Market Adoption - [Invest Like the Best, EP. 244]

Episode Date: September 28, 2021

My guest today is Jay Hoag, co-founder of TCV. If you look at Jay’s investment track record, it’s a “who’s who” of tech giants with Airbnb, Netflix, Peloton, Zillow, and a list that does not stop there. Needless to say, Jay has a Hall of Fame career. During our conversation, we talk about his own journey founding TCV, what advice he has for visionaries, and why he sees advantages for private to public crossover investors. Jay has such a wealth of experience that is on display throughout this episode. Please enjoy my conversation with Jay Hoag.   For the full show notes, transcript, and links to the best content to learn more, check out the episode page here. ------   This episode is brought to you by Canalyst. Canalyst is the leading destination for public company data and analysis. If you've been scrambling to keep up with the deluge of IPOs and SPACs these days, Canalyst has models on Robinhood, Marqeta, Grab, and everything in between. Learn more and try Canalyst for yourself at canalyst.com/patrick.   ------   This episode is brought to you by Hall Capital Partners. Hall Capital is always looking for exceptional investment talent at any stage and size, so if you are raising capital or looking for a career change in the San Francisco or New York areas, you should check them out at hallcapital.com or e-mail at [e-mail].    ------   Invest Like the Best is a property of Colossus, Inc. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.    Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more.   Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @patrick_oshag | @JoinColossus   Show Notes [00:03:13] - [First question] - Some of his early key formative experiences that shaped his worldview as an investor [00:06:29] - How much software businesses have changed since he started investing in them [00:08:28] - The key insight that led him to create TCV [00:11:36] - Generating returns by swinging less and raising your average [00:15:06] - Understanding and evaluating a value proposition in its early stages [00:22:08] - What slightly crazy founders look like and why it’s important for a company [00:25:47] - Whether or not we’re in the golden age of content already  [00:28:27] - Why Peloton was rejected so many times before TCV invested in them [00:32:32] - Things founders often need from him and how he helps them succeed [00:36:15] - Lessons learned from investing in public markets versus private ones [00:41:35] - Advice for founders when it comes to conveying their ideas to investors [00:44:55] - The social dimension of interactive and network building content [00:46:18] - How important maintaining a focus in the early days is for a new company [00:48:07] - The most challenging aspect of executing his strategy today [00:50:48] - One of the most emotionally stressful episodes while launching TCV [00:53:44] - Supporting your founders during the good and tough times [00:55:16] - New potential headwinds and tailwinds in the tech space writ large [00:59:14] - Things people might be overlooking today that could be great opportunities later [01:02:58] - Whether or not internet companies are threatened by the crypto boom [01:04:32] - What most has him most excited about the world today [01:06:20] - Advice for company building in the investing world in general  [01:09:48] - The kindest thing anyone has ever done for him

This episode of Invest Like the Best is sponsored by Canalyst. Canalyst is the leading destination for public company data and analysis. Founded by a former byside analyst who encountered friction sourcing, building, and updating models, canalyst is now used by over 400 institutions, including the largest money managers globally, and by a number of guests on the show. With detailed company-specific models and data on virtually every public company, panelists clients are able to ramp up faster, update models instantly, and incorporate the highest quality fundamental data into any workflow. If you're a professional equity investor and haven't talked

to Canalyst recently, you should give them a shout. Learn more and try Canalyst for yourself at canalist.com slash Patrick. That's C-A-N-A-L-Y-S-T dot com slash Patrick. If you're curious to hear more about Canales, stay tuned at the end of the episode where I talked to Canales customer, Brandon Weir, from BWCP to discuss Canales in more detail. This episode is brought to you by Hall Capital Partners. Hall Capital manages more than $40 billion in global multi-asset class portfolios on behalf of endowments, foundations, and high net worth families, with investments managed by distinguished investors, many of whom have been guests on this podcast. Hall Capital is always looking for exceptional investment talent at any stage and size, with particular focus on diverse teams, which they believe better drive decisions and outcomes. If you're raising capital or considering doing so, their team is seeking more great investors, with which to partner across asset classes.

Alternatively, if you're a passionate investor considering a career change, please reach out to Hall Capital to inquire about joining their teams in San Francisco and New York. To learn more, visit Hall Capital.com or email Invest at Hallcapital.com. That's Invest at Hall Capital.com. 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. 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'Shaughnessy asset management may maintain positions and the securities discussed in this podcast. My guest today is Jay Hogue, co-founder of TCV. If you look at Jay's investment track record, it's a who's who of tech giants with Airbnb, Netflix, Peloton, Zillow, and a list that does not stop there. Needless to say, Jay has a Hall of Fame

career. During our conversation, we talk about his own journey founding TCV, what advice he has for visionaries and why he sees advantages for private to public crossover investors. Jay has such a wealth of experience that is on display throughout this episode. Please enjoy my fantastic conversation with Jay Hogue. So Jay, I've been so excited to do this with you. I think the kinds of companies that you have invested in very actively sort of define this era of business and so we'll dive all over the place. I thought an interesting place to begin, though, would be with a couple formative experiences for you in your investing life. And I'll let you guide me how far back we want to go here. But I'm always fascinated by the couple key formative experiences that push the path for

somebody going forward. What does that call to mind? What is sort of the earliest of those experiences that really shaped how you view the world as an investor? I have been doing this for a very along period of time. So going back to the kind of when dinosaurs roam the earth in terms of Technology. Quick background. I started as a research analyst for a division of Citigorp on July 1st of 1982. I started not knowing anything about anything right out of school and was given a choice to cover paper forest products, publishing, or technology. And I think if you were to ask most people at the time, at the time, I made the wrong choice by saying, well, this technology thing seems interesting. I don't really know anything about it. Luck played a huge role. And so that was

one of the key early formations that helped as I stumbled into the business. Expanding on that, technology then was really pretty much in the early days. The PC was getting to go mainstream. It was actually, if you remember way back in time, the onset of the mini computer cycle, industry moved from mainframes to minis to personal computers. As a junior analyst, I was assigned to software. And at the time, that was a really small industry, but that played a huge role in terms of my professional formation. I actually pulled out an old research report, my first one, which I did, I hate to say, I don't recall it as a little typewriter, but it very much might have been, laying out the case for software and how the value in the technology industry was shifting

from hardware to software. And that became pretty well known in the 80s, but that also was a pretty important moment where it was a bit fortuitous. And I chuckle a little bit because today a lot of people talk about software eating the world and with all due respect to the author of that, that's not exactly new news. And so you go back to the 80s, software is actually viewed as, at the time it was called Computer Services. And there was a very well-known Alex Brown conference where you got to see a lot of companies. It was the era of ADP, Microsoft, was not yet public, Oracle was not yet public. Those now may be viewed as legacy software companies, but that was the second. Then I guess the third important formation, my boss at the time,

an individual named Mark Tesler, who was running the tech group, indicated that I would be of no value to him until I had lost money on a recommendation. That just frustrated me to no end. I couldn't believe that was true, but lo and behold, I think it was valuable because one has to step up to the plate and take a number of swings in the investment business, but it is a batting average business. It's not a situation where you are always going to be right and bat a thousand. How much would you say has changed from whenever the first click of understanding was for you that the software business model early on was so powerful through to today? Is it many of the same features of those kinds of technology businesses that excite you today or has it changed a lot over that

period. I'd say for software and for everything in technology, the scale is just changed dramatically. I'll fast forward to the mid-90s, which is when myself and an individual named Rick Kimball started TCB. If you go back to the early 90s, just prior to founding, the entire venture industry in 1991 raised under $2 billion. So think about that for a moment. That was the scale of the entire industry. And TCV's first fund in 1995 was $100 million. And we actually, ironically, assume we would stay small forever. And we were terribly wrong there. And then the other lens to look at is, what was the public technology landscape in 1990?

What did it look like? And it was actually dominated at the time by hardware companies. Well before software started taking a big chunk of the market cap. In 1990, there were only 31 publicly trained. technology companies that had north of a billion dollars in market gap. And then if you went down one tier, there were another 13 that were valued between 500 million and a billion. So a really small, small, small, small set of public companies and not many in the software world. Those two data points hopefully give you a sense of just what's changed. Everything's changed. The scale is enormous.

the investment pace across the industry, the number of industries that have been impacted, exploded. And the surfer markets are several orders of magnitude bigger than they were back then. Was there a founding insider insights around TCV specifically? Like, what was it that caused you to take that first risk in doing something completely on your own building from scratch? So to set the stage a little bit, I have only had two jobs. One was, as I mentioned, I started as a research analyst. It was a division of Citicorp, and it was the Citigorp Investment Management, which was a combination of both institutional money management as well as private high net worth

clients. And I started three years as an analyst and then joined the venture group that was part of that entity in 1985 and was there for another nine years. And the venture group really did three things. we invested in funds, so the prominent venture funds of that era, we invested directly into companies. Much of that deal flow came from those venture funds. And then we also managed small cap public funds. And the last five years at Citigorp, it went through a number of ownership changes, became Chancellor Capital Management. I was running the tech portion of the direct investing and the small cap public.

So the founding tenets of TCV were really three. The view that technology was going to be huge over time, you know, Moore's Law and the drivers of better, faster, cheaper devices combined with great entrepreneurs was going to result in big investment opportunities. Secondly, that the combination of growth stage and the crossover investing, I'll get back to that in a moment, was a great way to play to play. at the time, we've talked a lot about risk reward. I think we should have probably just focused on reward since it's been pretty hard to not have strong returns in technology given the tailwinds.

And then thirdly, the observation that a long-term approach would really pay off, and that may seem obvious, but the insight or the view that these great long-term growth vehicles, entities within technology would provide tremendous returns. And so being patient and let that play out was critically important. So fortunately, I'd had enough of a track record to consider starting TCB. Found my colleague, Rick, and off we went in early 95 on the fundraising trail. But those three tenants remain true today, and I love to talk through examples of technology that proved to be a good one. growth stage in crossover because crossover investing has existed since the late 60s and how we talking about that it was not clearly mainstream at the time and then the long-term orientation when

you come across these unbelievable entrepreneurs who can see something about the future that others can't folks in my experience like rich barden and read hastings and john foley it's a delight to be involved in the journey to help in any way in shape or form but to really take a long-term perspective and not worry about quarters and years, those visions can play out over decades. One of the common themes you hear in technology investing, especially in venture, is this obvious power law dynamic that governs outcomes and that if anything, you want a portfolio with a high loss ratio because a couple massive companies will dominate the returns of your fund. But when I look through your story, it looks kind of different to me.

I mean, just looking at your active investments and past investments, it looks like you've missed a lot less. And I know you've invested often not just at like a seed stage, but at a much later stage. Can you talk me through how you think about that need to swing really hard and miss a lot as a common narrative versus what seems like more consistent picking of some dominant companies that TCV has done? I'll go up to 40,000 feet to start within the investment world and you host all sorts of interesting individuals. I would say across the spectrum, there are many, many, many ways to generate returns, deep value, buyouts with clever use of leverage, cost cutting, and many more. Early stage ventures, we typically have a higher loss rate. What we've always done is growth

stage. And then the original tenant we sold to investors was we're investing, at least in theory, when the technology risk has been eliminated. And what we're really trying to do is calibrate market adoption. That inherently should be a lower risk approach. Sure, you may not get the same multiples on the winners as early stage, but with a lower loss ratio when you put that mix all together. Ironically, I was thinking a lot about current jargon is product market fit. Way back when we started, we talked about were the dogs eating the dog food, which is not a very elegant way to say it, but in a sense, the art of what we do is really try to calibrate that market adoption. And is this company on a growth path that is going to allow them to achieve

scale? And with scale comes all sorts of benefits and create significant competitive modes, etc, etc. Dog eating the dog food is a much less sophisticated term than product market fit, but it basically is effectively the same thing. And so inherently, I think at the growth stage, there should be lower loss rates. All that said, I also think that part of the art is, as we invest across a wide swath of technology companies, really trying to discern which ones will be able to maintain very rapid growth over a long period of time and generate those returns. In some cases, they can return the fund by itself and which aren't. And I would point out that technology has historically have been about a small number of enormous winners.

And I used to say, and lots of losers, I think in the last 10, 15 years, it's really been about a small number of absolutely enormous winners. And then a pretty good set of other companies that have done well. That's sort of the portfolio lens we try to take. And so when we have been fortunate enough to be involved in going way back in time, Expedia, Netflix, Pelotime more recently, Spotify, etc. The secular outlook there is very robust. And as long as the strategic vision of the company is rolling out as envisioned, why would be in a rush for the exit? How do you, when you approach a new company that's kind of at this right sweet spot stage where you

focused, begin to understand the nature of the value prop of the business? I know this is one of the things that you look carefully for and at, understanding what is the deep value proposition? Everyone uses that phrase. What does that mean to you in practice? What does it feel like to evaluate that ahead of an investment? I spend most of my time these days on the consumer side of the world. And so I'm going to mostly address the comments there. Way back in history, one of the benefits of being fairly early was end up originally focusing on software and then over time, semiconductors, and then semiconductors of capital equipment. This is pre-internet, everything across the technology landscape because there was nobody else covering it.

But over the years, as the industry has grown, I think it has forced specialization in the entrepreneur's eyes. And so we had TCB and we have a very large team of investing across the board ended up individually specializing. So my comment is on the consumer side. I have generally described what we're trying to do, and this may sound, generic. And obviously, the proof is in the pudding, and it's easy to outline what we're looking for, but basically looking for magical companies. And I think of it as having five criterion, some of which are hard to know ahead of time. The easy ones are, is there a unique value prop? Is this company providing a three-headed combination of value, convenience, and selection?

And so if you go way back in time using Netflix as an example back in the DVD days, once we rolled out the subscription offering, they had that in spades. It was great value, unlimited rentals per month. It was very convenient. Once you figured out what to queue up, what you wanted to watch, you would get sent those DVDs. You would turn via the mail when you had watched them, et cetera, so you didn't have to leave the comforts of your couch.

And then selection. in the DVD world, Netflix literally had every DVD ever made. That's unique value prop. So as I look at new businesses, center very much in on that. A lot of companies have some of the three or portions of the three or may have the three down the road as they build the business, but it's not often you see all three. The second is on the consumer side is tremendous engagement. And something about the product engages consumers.

And again, this may seem obvious. But if you think about it today, the average Netflix user is estimated to watch two hours per day. The average Spotify premium user is over an hour a day. Gaming, folks at electronic arts and others, have tremendously engaged audiences. And there's lots of, obviously, business benefits from having high engagement. So that's the second. The third, and that's fancy about a lot. But is there a virtuous cycle to the business?

is there some network effect that will both allow the company to accelerate and also to then forward invest and build competitive modes to sustain that rapid growth? The fourth, which is really hard to get at ahead of time, is tremendous execution. The example I use, both companies are successful, but one extraordinarily so and one somewhat so, are Facebook, which we were fortunate to be a private investor in, and Twitter. I'm going to take a little literary license here. Both companies, in a sense, were addressing a similar-sized opportunity. And of course, Twitter had a different approach, but both companies obviously were building engaged audiences and then monetizing it primarily through advertising. There was

superior execution at Facebook, and I know Twitter started later than Facebook did, that has allowed them to grow from, I think, when we invested, it was a little bit billion and a half of revenues in 2010 to 86 billion last year, pretty staggering growth, and achieve a market cap of a trillion dollars, and Twitter has been successful, and not quite as close to the user stats, but build a company worth tens of billions. So 15 to 20x difference in market cap due to superior execution. As we look at new investments, it's really hard to know, but that's an area where we try to get a good sense of the speed of execution because the best companies are constantly innovating and executing at very rapid speed. And then the last, the fifth, is, is this an exceptional visionary CEO who

probably is a little crazy, are they hiring great team members really playing for the long term as opposed to short term and allowing, you know, and in a sense, allowing those, that exact team to execute like hell, back to the fourth point. After almost 40 years of investing, I have lots of different truisms, but one of my favorite lines is the line between visionary genius and bad shit crazy is not always clear. And very thin. Yeah. And again, going back to the folks, I've had the great fortune of investing behind,

and in cases for a very long period of time, actually, folks like Rich Barton, who I know has been on podcast and Reed Hastings, in Rich's case, I met him back in the late 90s, and so have been, met a company called Vacation Spot where he was on the board. we invested at TCV. I described it as, in a sense, Airbnb, but 20 years too early. But we ended up selling it to Expedia. We invested in Expedia one on the board. And then also an early investor in Zillow, where he obviously is founder and CEO.

The five variables are all key. But the fifth one in particular, and again, it's really hard to know ahead of time. But we've been investing with Rich for two decades now. I was fortunate to meet Reed Hastings when we were, I'm a little older, sort of early 30s, and I think he was late 20s, CEO of a company called Pure Software, which at that era was quite successful. That led us to the Netflix involvement where we've been invested for over two decades. My partner Woody Marshall met Daniel Eck of Spotify, probably a decade ago, and we've

getting close to having a decade of involvement there. John Foley, another incredible visionary who the entire world turns, all the time down as an investment. We're only three or four years in a relationship, but hopefully if I'm divided back here in 10 years, that will have played out. These are exceptional folks who, again, are seeing something that others can't. And it's just remarkable to be along for that journey and see as their vision starts to play out. Can we dig in a little bit on that fine line between genius and bad shit crazy and learn a little bit, I think you use the phrase, slightly crazy, not fully crazy. What does that look like once you know it's there? And what does it enable?

Like, why is that feature important? What does it lead to literally that allows these companies to do great things? Almost to a person, the biggest technology successes were thought of as idiotic at the time or going after small prizes, Brian Cheskney at Airbnb. Wait a minute. So you have this, idea where strangers are going to stay in strangers' houses or on their stranger's couches or in a stranger's bedroom while they're still there. Yes, that was an incredibly unique insight, but it was not viewed as logical at the time. Or in the case of read, I'm talking about the transition from DVDs to streaming. Here we are having good success in DVDs. And as a visionary, he's able to see, a future world where DVDs will start to taper off. That was in nobody's consciousness.

And therefore, Netflix, also as a public company, was going to forward and invest in this new digital world. And actually at the time, it wasn't clear whether it would be download or streaming, ended up being streaming. And seeing a future where that would be the dominant form of way that people received their entertainment. at TV or movies. And seeing around corners and see a future that no one else can predict is a unique skill. So as an investor, you hear all sorts of ideas that may seem crazy. If they're too logical, that may not be the exceptional opportunity. But if they're somewhat crazy and you can poke around a little bit to see if it makes sense and if the different trend lines around

cost of compute or cost of storage or consumer behavior will indicate that, yeah, over the next one, two, three, four, five, ten years, the vision of the future will play out and you can't quite see what the offering will look like today. Then that's proven to be where some of the greatest opportunities come from. The other great entrepreneur, which I know has been on your show here, Rich Barton, I'm sure you've heard his spiel about power to the people. but his insight was there is all sorts of data out in different verticals that is behind a wall. So way back in the Expedia days, it was you get on the phone and you call, this is when phones were used, pre-cell phones, you call a travel agent who then goes through all of the different fares and hotel options,

et cetera, and you book a trip that way, be it for business or pleasure. his insight was, well, wait a minute, as compute power is getting more and more powerful, why don't we make that available to the consumer directly? And so Expedia technology advance, and this is really dating myself, was they put what had been on a mainframe-based system in a travel agent's office. They put that search power onto a NT server, Windows NT, for the non-historians and made it available via a website. And that was a huge unlock in that industry. And he's obviously done that in real estate and other areas as well. One of the things just reviewing a lot of the companies you've already mentioned,

but just your track record and your portfolio and the companies with whom you're involved today, it seems like there's going to be a case that you're sort of the best content investor of all time. So many of these businesses either created new medium or new experiences around incredible, wide-ranging content. And it begs a bunch of questions that I have for you around the state of that today. And what feels to me certainly like a saturation point where there's just so much content on so many platforms that every possible taste is suited. Are we at the tail end of that? Are we in the golden era of niche forms of content? Is there a different future that you foresee, whether it be across passively consumed content like Netflix or gaming via EA?

What is your kind of view on the state of the saturation point of content in the world today? I think fundamentally great content will have an audience. And I would point out that the underlying expansion of the ways we engage with content is pretty dramatic. One should not lose side of that and think that we're in the twilight years of content consumption. The reason for that, and again, some of this may be obvious, is the number of devices in the world to view content, listen to content, such as we're hopefully some audience will be doing here, is in the billions. And as many have spoken about with each generation of technology, the industry has moved from hundreds of thousands to millions to tens of millions to billions and out to multiple billions. How do I think about it?

Netflix today has a bit north of 200 million subscribers. Spotify is heading towards that number. And that's a small fraction of the one audience, 4 billion plus smartphones in the world. And that base is growing. So as long as those companies continue to produce great engaging content, I don't think there is any limit to the audience size. in gaming, another example, where we're still early days, I think, in cloud gaming,

but that too should dramatically increase the audience as you move from selling tens of millions of consoles, hundreds of millions of mobile devices, to a world in five years where cloud gaming has dramatically lowered the device cost, and you are looking at multiple billions of potential consumers. One of the things that you mentioned there, though, so interesting and such a fascinating content company in and of itself is the idea that Peloton was told no by like every investor. A friend of mine brought up this interesting point recently, which is can you name any company, any iconic company that didn't at some point have a hard time raising money? And I think Peloton is sort of the extreme version of this. Why was that the case?

Like maybe you could tell us a little bit of a case study here around Peloton. What, when you started engaging with it had been its unique history and being told no so much and why and why it represents such a unique take on some of the themes that you've talked about so far. I love talking about each of these companies and journeys. As I said earlier, many of these great companies start with a concept that is not intuitive to people. And no matter what people like to think, I think there are not a lot of contrarians extent in the world. I also think, though, that different can hold the keys to success. And so on the one hand, I understand why John Foley had such a tough time, because think about, go to 40,000 feet and say, okay, what was going on in fitness over the last 30 years prior to

all the time. A bunch of devices sold in the home that generally didn't get used. Maybe prior generations of videos, fitness via video, VHS tapes going way back to Jane Fonda days. Investors like to be pattern recognizers and sift through, ah, this reminds me of X, Y, Z. And oh, let's look at this segment. The road is littered with dead carcasses of companies that went after home fitness and failed. So that's one lens. Second thing is, John felt very passionately, his vision was to do the following. You need to make your devices. You need to develop your own studio to develop the content so that it gets better every day. Have your incredible instructors who are part of that be very much part of the

fabric of the company to help create a magic experience. He wanted to have stores, so as the company he releases new products, you could experience them in a store. He had a big software effort, obviously. Oh, I know. Something also would seem crazy at time. Let's have our own delivery fleet. So people get an awesome delivery experience of back then Peloton bike and the Tread. And we're going to own the entire ecosystem. And we are going to, as a result, be able to thrive tremendous NPS and great customer satisfaction and back on the engagement level. You know, in the last quarterly call, they talked about 20 workouts per subscription. That's a very engaged audience.

But all of that struck people as, A, it's going to cost quite a bit. B, it's going to be really complex. And what happens if one of those legs on a multi-leg stool doesn't work perfectly, it felt so far outside the box to people that he got turned down repeatedly. Some of the advice he got in the early days, well, you should just sell your software on other people's devices and kind of with all due respect, if you spend much time in hotel gyms or elsewhere, those are not exactly elegant machines that you put your software on. You wanted to control the entire ecosystem.

I think by doing so, it created a magical consumer experience, but it was very very, different from what anybody thought made sense. And he had to seem very crazy. In fact, he was actually a visionary. And then I would also say as an investor, sometimes back in these individuals, you have to be willing to be thought of as an idiot for some period of time. Hopefully, you're right in the end. But the biggest opportunities can be where you are right, but you also stepped in in a contrarian way. What in this case, or even more generally, do you find these people, these visionaries, most need from you?

And this could be as a formal board member. This could be as an investor. It could be as a friend. What repeats itself in terms of needs of these people? That's an ambitious, incredibly ambitious stack that you just laid out. I love the case of Peloton. It just sounds so hard and he did it. What is common amongst what they pull out of you in the ways in which you help them?

I love talking in analogies, and I like talking in sports analogies in particular. Before doing that, I'd say when you stumble across these individuals, by and large, I'm being a little flip, by and large, I just sit on the sidelines and applaud. There are lots of ways, some of the functions that hopefully I and my colleagues play, because again, there are many people part of TCV, is be a strategic sounding board, help on recruiting, sometimes helping super, super, rapid growth companies anticipate the team they will need in the future as opposed to the team they have now or the team that got them here, partner introductions, et cetera. One of the benefits of poking around for a long time in this industry is to some extent,

the Netflix experience led us to Spotify, hey, if an entertainment bundle stream to your various devices makes sense, maybe music has a similar path. And at the time we invested in Spotify, by streaming was not really viewed as a thing, another subscription service, and that led us to Peloton as well. And in those cases, I think one of the ways we can specifically help companies is by using all of the experience building a subscription business to help the next company leverage best practices, a little bit of an industry buzzword. But learn from that, different nuances that a newcomer might not have. I like to think. that one of the key things we at TCB do, in addition to being a strategic partner and assist

in the various ways I said, is to be there in good times and bad. I earlier said I have many truisms, one of which, or two of which are, even when you can see the mountaintop, it doesn't mean the path there is going to be an easy one. And relatedly, almost all great companies go through a desert of disillusionment, where private investors or public investors decide that they're not worthy of sticking with. And you can cite chapter and verse around some of the companies I mentioned previously. Facebook, again, being a great example, where we invested privately, and then at the time of the IPO, as a world shifted to mobile, investors decided, maybe this isn't the greatest company ever. That's where, I think, being a long-term investor and allowing the

vision to play out can be super helpful. Going back to the sports analogy, I grew up in Chicago and like to think of the Jordan-era Chicago Bulls. And if I were to say, well, what does somebody at TCV's role? We backed Michael Jordan. We just want him, this great CEO or her, to do what they do. And if we can set picks, get them the ball. These are various analogies in terms of additional financing, et cetera. Occasionally, when it passed to us, we better hit the basket, hit the shot like Steve Kerr or John Paxson, if you know what I'm talking about in the Bulls history. And it really is to do anything and everything we can to support their greatness.

And again, through thick and thin, because ultimately that's, it's likely to have some bumps along the road. The through thick and thin brings to mind a good opportunity to talk about your investing in public markets. You said earlier, the crossover nature of what you do was been around a long time. It's become very in vogue again for people to be crossover investors, often now going from the public markets down into private markets and doing both. And I think it's just a fascinating strategy. But when you ask around TCV, another thing you hear often is the uncanny ability, it seems, to step in and make big investments in public markets in some of these long-term stories,

especially something like Netflix, at very opportune times. And I'd love to just hear a bit more about that. difficult path once your public becomes very visible because there's a stock price that you can track and you can track collective opinion that way. What have you learned about investing in public markets versus private taking advantage of downturns in great long-term stories? I'll take a trip down memory lane because I think that history is informative. History doesn't always dictate the future, but I do think technology investing is some combination of experience and then a totally new and unique perspective. And that new and unique perspective can come from anywhere within the organization.

And that's part of, you know, as a founder of TCB, that's one of my key goals is to make sure a great idea from a 20-something-year-old or a 30-something-year-old gets to light a day and then we chase it and aren't just dictated by Peloton non-investters. She said, I've seen this movie before. I know how it turns out. So crossover investing, just to give you a little history, I believe, despite some who claimed to have invented it in the 90s, was first practice, at least to my knowledge, by two individuals as Citicorp, my alma mater, Dave Bellad and Chet Sweeter. And my Citigorp days, we were

exercising that same discipline. And when we then fast forward into founding TCV and the C&TCV technology Crossover Ventures, we started as, and then it got short into TCV, thankfully, because technology crossover ventures is a mouthful. We say that crossover literally is our middle lane. Going back to our original founding, I looked at the document recently, and it's not super attracted by modern day standards, but the fundamental view was that by being a private investor, it made us better public market investors. I'll get to that in a moment. And by being a public market investor, it makes us better private investor. And the, Capital allocation is to exercise is to look across the technology landscape, take advantage of all the research and knowledge that we have, and look for the best investments.

Kind of simple, and not be bucketed by either private or public. So as we're talking to large enterprises about what they are buying, where they see the future, as we're tracking across the consumer landscape, all of that knowledge base is helping both the private and public side. The benefit of being a private market investor is often you get very detailed information on trends, on companies, and competitive dynamics that often a public investor doesn't get. So we should have an advantage as we get to know and track and invest in, now some 400 companies privately, and leverage that knowledge to really figure out who are these companies of providing something magical that can become the... someday a $100 billion enterprise value, $500 billion a trillion to join the ranks of the major

technology companies. And we also should benefit from the view that business is not meant to be measured by quarters. And of course, public companies are. By being a long-term investor, again, from the private market routes, one can hopefully shut out the noise. There's lots of chatter, Lots of company reports, quote unquote, bad quarter. It doesn't mean the visions change, doesn't mean the strategy has changed. It doesn't mean the outlook for the company actually has changed. It just meant something didn't happen right at the end of the quarter and sobs were light or a couple of big sales didn't close, et cetera.

So that approach allows us to take a different lens to the public market and say, huh, if we were to buy into this business at this enterprise value and take a five or 10 year view, would we want to own it? And we've done that, knock on wood, with success. We've also had some not great investments. But one of the things you also have to be willing to do is to be wrong near term. You just have to make sure you're right long term. One of our more successful investments was a pipe investment we made in Netflix in 2011,

when the stock had declined 70%. Still pretty early days in streaming. But that was the bet that by shutting out the noise, we had no idea whether exactly what the next quarter was going to bring, but that we wanted to be an incremental shareholder at that point in time. And just like the Netflix IPO, the stock traded down shortly thereafter. And that's actually a little bit of a historical factory. People don't recall that Netflix's stock traded down 15 to 20 percent post IPO and stayed down for six months. That too provided an interesting entry point. There's this common theme of,

of backing a long-term vision and being mindful of and taking advantage of bumps along the road. And my next question is sort of advice for some founders, the visionary founders out there that are earlier in their path, a lot of those types of people listen to the show. And I'm very focused when backing companies on trying to understand that vision of a different future. You've heard a lot of founders talk about that vision. What advice would you give them about articulating that in their early days. It seems like a really key skill to be able to teach investors in the market about how the world's going to be different, why, and how the company is going to affect that outcome. What advice would you give people that are sort of painting that picture early on? I'm sure you've heard

some of the best and some of the worst visions for the future and narratives and pitches. A piece of advice. Look for investors who want to share a vision of what the long-term prize might look like and are not just playing some near-term momentum game. When you have that long-term conviction, don't be shaken from it. Don't adopt more conventional approaches that might reduce risk, but will minimize your ultimate outcome. A newish piece of advice, it has been incredibly, and maybe forever, robust fundraising environment for most companies. Don't always assume that capital will be available. It might be, but think through if capital source is tightened in the future how to make sure that this vision you have for the company, you get to continue to pursue it. And so that

might also get into choosing the right investor group. One other little historical story that I love obviously talking about our companies, but it is worth reflecting to maybe amplify this point how different the world is today. I mentioned we invested in Netflix. First Mass were in 99. And there were a series of up into the right financing at ever higher prices, some capital sources that we introduced. The company

actually filed to go public in March of 2000 as the NASDAQ was deciding to decline 30% and then ultimately peaked the trough down 70%. And the company had not yet achieved cash flow positive.

We're talking early 2001. But to us, it was pretty clearly they were going to. Anyway, there was a, not really an emergency financing, but a financing to help ensure that they would have the cash to get to that point of cash flow break even. There was not a penny available in the world, much less millions of dollars, for a consumer-facing e-commerce company in the spring of 2001. It really was a post-ternet bubble nuclear winter. And fortunately, TCV ended up stepping in, providing that capital, structuring it that there were some other insiders that participated, proved to be a great financial move for

TCV as a firm. But just as importantly, allowed Netflix to survive that nuclear winner and ultimately go on to greatness. And they may not recur for some of these great companies, but if investors decide that formerly great companies heading into the desert of disillusionment, it is worth contemplating that. There's another trend that seems to sort of be emerging. Strava is a good example here of the social dimension of content and effort and the ways in which seems to me some of the most interesting

companies are finding way yes to create great content, but also make it bidirectional or networked versus just one to many like a streaming media company or something. What are your thoughts here? Do you think we'll see a lot more of this and gaming again is an obvious example. Strava, maybe it's an obvious example from your portfolio. What do you think about? the future of interactive content versus one to many content? Might answer a different way. I think the power of online community is enormous. And so companies like Strava that are tapping into that Peloton as well have several

benefits, one of you can increasingly engage that consumer. And coming back more and more and more doesn't necessarily mean more revenue, but it means a locked-in consumer who then also is. is likely telling their friends about the service. And so word of mouth can be an organic growth can be enormous. In addition to those companies, I guarantee there are a new set of phenomenally capable entrepreneurs figuring out how to unlock this enormous and engaged online community for their specific businesses. What have you learned maybe this kind of a piggyback question on the community aspect about focus early on for companies, not trying to be all things to all people

and knowing when to expand. How important in that is that in technology and digital relative to kind of more mainstream businesses? I think clarity of North Star for a company is critically important. So then that gets to focus. At the end of the day, every decision you make, what is the North Star? Again, as a longtime disciple of Reed and Netflix, it was focus, focus, focus, and every meeting, every quarter, every year, people are, why don't you do advertising, why don't you do this? Way back in the day, why doesn't Netflix become a online portal for all things entertainment, sort of similar to what Yahoo was at one point?

I think focus allows companies to properly prioritize. There's a purity of that where they can then go. and execute and not get distracted by the idea of the day. That said, of course, there have been some great pivots where if all a company had done was stick with their current path, they might not be here. It does point out that there are no hard and fast rules. One of my other truisms is the only absolute is there are no absolutes. I think focus just has so many benefits. And again, it helps operating discipline, and it helps, I think, oftentimes making the right strategic decision. And sometimes it means incrementally forward investing against that North Star to go faster and perhaps delay profitability,

but it results in a better future. So much of what you've said and described about what makes company special in the five attributes that you look for, they're just so clean and intuitive. And of course, as you said, the devil is in the details and in your own version of execution from an investment strategy standpoint. But all that considered, it seems like these are things that everyone would love to see in companies, maybe even rooted here in 2021. What is the most challenging aspect of executing that strategy today? Is it competition for more crossover investors? Is it a prices? What do you think of the biggest challenges to getting that strategy done today?

I think there's some base level things that one has to execute against, of course, which is have a big enough presence, and I don't know whether that's brand or just size of fund or size of team where you are seeing sufficient volume of things to be able to then pick the winners and avoid the losers. Pretty simple business, right? If you're not seeing that flow, then you're probably sub-optimizing because you're making decisions on a small reference set. That's sort of table stakes. The way I describe it is we're still in a world where TCB's business and investing generally is a combination of art plus science. We have a team of data scientists who are doing great work. We look at a vast amount of financial data around corridor analysis

and customer acquisition costs, et cetera, et cetera. But you can also get some false positives and whatever the opposite of a false positive is out of that. And so I think our business is a combination of, if that's science, a combination of science plus art. One has to look at patterns and assess how strong is it consumer value prop. It's not you punch a bunch of numbers on a scale one in 10. It pops up.

It's 9.2. And also you have to, for some of these, companies envision. Well, not just what the offering is today, because you assume that it's going to be dramatically different and better in a year's time and two years time and three years time. If you think of the science part in a sense is the easy part, because a lot of people are financially trained, the more challenging, we have a lot of great folks that tease to be doing it, is the art part. It could be as simple as, is this the CEO, one of those rare breeds, the future Michael Jordans, how much magic is there both in the product and then in the product and engineering teams,

what does the roadmap look like where this offering is going to get is compelling today and going to get to become even more compelling over time. In the entire history of investing in these companies at TCV, what pops to mind is the most emotionally stressful episode for you personally? And what did you learn from that episode? There's a couple, I'll answer it more than just investing. Rick and I quit our jobs in 1994, so good solid salaries and bonuses. It took 100% pay cut to go prepare to launch TCV. We gave 188 presentations around the globe to ultimately raise $100 million for TCB1, but there was incredible stress during that point in time. One of the stresses was people didn't like crossover. They wanted to either a private

fund or a public fund. Think about the irony of that. When you're fundraising, particularly your first fund, there's nothing efficient about it. If you say, hey, I'm going to be in Chicago next week and somebody gets back and says, well, I can't be next week. I can meet October 3rd at 930 a.m. You're probably going to make it October 3rd at 930 a.m. And I would also say at one point in the fundraise, so we're sitting there in May of 95, we had circled about $45 million. And we we're stuck. We've been raising for a couple months, and we didn't know if $45 million fund would be viable. And then thank goodness, the folks that's actually the Hulman Group out of Pittsburgh said we would like to see you the Friday before Memorial Day in Pittsburgh, and of course we did.

Offly trudged to see if we could get them as an investor. This was in the era when your presentations were on flip charts, so basically printed out slides, and a slide carousel. And I can still remember we had maybe 20 slides to the presentation. We were flipping them in about eight slides in. It was upside down. Somehow they looked through that and gave us a break. I mean, there's all sorts of stress. The other huge stress period was the build-off the Internet bubble and then the bursting.

And it's hard to describe what was going on at the time. And obviously now all of the fundamental underpinnings of the Internet and technology have played out. but it was still pretty early days. There was such an emphasis on speed that it was just a incredibly stressful time. Literally, if you met a company and they left your office without a term sheet, you might lose the deal. It was enormous FOMO. I remember vividly one of our LPs had a direct investment effort.

They were doing a deal a day. That guy was stressed. Made all sorts of mistakes during that era. We also had some nice investments that were knocked over by the, internet bursting, bubble bursting. And then fortunately, we had a few good ones that allowed us to keep operating. But we had to downsize TCV for a while. And that was incredibly stressful and incredibly hard. When you were obviously working with founders through that period who were all going through crazy stress because of the kind of internet crash and everything, and this is just

even a more general question about getting to know these people. Do you have favorite lines of inquiry or questions that you find to be revealing or powerful when trying to understand a new founder or the mindset of that founder? The lessons I maybe learned from that era and hopefully apply today is as a board member and investor, I try to always be balanced. In phenomenal times, let's not get a little too carried away. And in tough times, let's be supportive because the CEO walks in and shares disappointments with you, why in earth would you be negative? You have to work through it with them. Everyone is doing their best. Some happen to be Michael Jordan and others aren't, but you can't beat up on them.

I think it's important for an investor and a board member to, if there are hard questions to ask, to ask them, but to do so in a professional way. There's lots of ways you can ask a hard question. I've seen lots of bad behavior in our industry over the years. I don't think that's necessarily appropriate. I also think that it's the tough times as an investor that really allow you to differentiate it yourself. It's super easy to be a cheerleader when everything's going well. But I like to view us as a partner with the CEO and help provide solutions, turbulent times, not point out the flaws

because we are in it together. If we zoom back forward to 2021, there's so many cool, interesting things happening. And obviously, you've had your success investing behind change. Like, you've embraced change as an investor. Technology is another way of saying that. But you've been behind significant tailwinds. And I wonder now how you think about new tailwinds and new headwinds to the kinds of businesses that you've backed before. And I'm curious in both categories, like what you see changing about the world today or new in the world today, whether it's related to COVID or otherwise, that are new headwinds or new tailwinds. Doing this for a long period of time. And by the way, when I started on that July 1st of 1982, I should have mentioned this earlier, the Dow Jones Industrial Average was 811.

Just pause that for a moment. So at 34,000 plus, it's been a pretty good tailwind. You know, and that's for the Dow, and obviously technology has outperformed that dramatically. The last 18 months, even for a longtime technology bull, has been amazing. And I will confess, I didn't see playing out exactly this way. If you go back to, obviously, March 2020, and we shouldn't talk about. COVID era without first acknowledging the pandemic and the huge toll it's had on human life and on businesses. And as I thought about market corrections having lived through 1987, 1990, internet bubble and internet bursting, the global financial crisis, I had thought that we would be in for a long,

tough slog, and I was dead wrong in terms of the public markets. But what has been, become even more evident is technology really has been the glue that has allowed us all to operate, to allow businesses to operate, and trends that might have taken years to show themselves were accelerated dramatically, sometimes out of necessity. Zoom, obviously being a classic example. It's true of payments. It's true of many other categories across the landscape. You know, I mean, we're not an investor in DocuSign, but can you imagine going back to signing papers versus DocuSign? And it certainly is true in real estate with Zillow. Things that might have taken multiple years have all been accelerated.

I think those changes are permanent, and it means the size of the price has gotten ever bigger for those segments and for the leadership companies in those segments. I think near term, you have the greatness of technology and all that we've focused on, I hate to say now, as I'm heading into my fifth decade, is just very prominent. And obviously, that's also been reflected in the market cap of some of the best public companies. Near term is a whole bunch of noise. You have companies whose businesses were really technology companies negatively hit by an online travel company

to companies whose businesses were accelerated. I think subscriber businesses, like trying to tease out patterns with what portion of Peloton's business and Netflix businesses was accelerated. And as you work through those comps, There's all sorts of noise in the marketplace on a monthly and quarterly basis, blah, blah, blah. But it doesn't change the long-term secular outlook, which is incredibly positive. You just have to work through that noise.

And I would also say many industries, again, using those as examples, the theater industry, the health club membership industry, physical health clubs. They have a future, certainly, but the prospects for folks who are delivering in Peloton's case, fitness in the home, a phenomenal experience or in the case of Netflix, movies, TV shows via streaming. You have to believe that the strategic landscape has shifted positively in favor of the technology companies. For the five-year anniversary of our show, we had Daniel Icon for a second time, who I've learned so much from, and obviously it sounds like you have two. And I asked him what interesting mistakes he's seen himself make, and one that was so

interesting was like so many, underestimating the scope and scale of the technology opportunity, even just a few years ago when he and I first did a conversation together. And so many of the stories you've told were that same idea that you were investing at a time when others were underestimating or even thinking an opportunity provincial, like a Netflix. Like this is a small or Peloton. This is a small opportunity, not a big one. What do you think people are underestimating today. That seems just so central to a lot of the enormous investing outcomes that you've been a part of is that people sort of thought it was quaint at the start. What do you think people think is quaint today that ultimately could become a dominant trend in the world? One way I think about it actually

is to talk about market caps. And certainly is some school of thought as you think about the big public technology companies that a lot of people own them, they've done super well, blah, blah, blah, and maybe their better days are behind them. And I personally think that it's nonsense. These are the best business models on the face of the earth, talking about Facebook, Google, Microsoft, et cetera. And these are the best business on the face of the earth. They have unbelievable engagement. They have profit margins and cash flow character services that we've just never seen before. and significant user growth ahead of them. One of the common mistakes is, oh, better days behind them,

or in some smaller companies, well, technology company XYZ is worth more than three fiscal counterparts combined. Yeah, maybe they should be because their growth prospects are such. And we'll point out that a lot of the market cap growth is still a pretty new phenomenon, but we should not assume it's over. So I look back, 2005 of the 10 most valuable companies in the world, one was technology. In 2010, it was three. At the end of last year, it was nine, nine of ten.

And the combined market cap went from $300 billion to $9.5 trillion. Part of what we're trying to do is, okay, who will join that group in the next 10 years? Let's focus on that. Let's not get distracted by how last quarter was. I do think fundamentals typically for the best companies move up into the right. Investor psychology can change a lot. It can be a scattergram. Not all that much changes on a quarterly basis. So one of the long lessons and what people may underappreciate is just how much runway the next generation of companies has to go. Daniel Ack and my partner, Woody Marshall's on the board there at Spotify. We were chatting the other day.

And again, it sounded like a historian. When TCV started, it was the year that the first song, was made available to download. The only challenge was it took 90 minutes. That's a long time. And so now what a Spotify offer? Well, it offers 40 million songs available on your handheld device in under a second. Kind of shows you the progress of technology over the years. And the annual talks about it's 100 plus million subs today, 200 plus, but that's a small fraction of the 4 billion smartphone users in the world, well, let's not underestimate a great visionary CEO who invests very heavily in product and delighting their consumers. The story of so many of these companies is related to the internet. They're built on internet

rails. They're enabled by the internet. How do you think about companies enabled by or even threatened by cryptocurrency rails going forward? If the internet's the network of information, if this becomes the network of sort of value or scarcity online, how do you think about this? Is it a new internet? Is it a new set of rails? Is it fools gold? How do you adjust your expectations of the future, given what you see happening in that space today? I think there is obviously some underlying technologies and then there is currency itself, et cetera, et cetera. But I believe we are early days in that whole realm and that there will be some phenomenal companies built. I also think in the current generation of sizable financial technology-oriented companies

has a tremendous amount of runway ahead of it. So we're investors in companies and are not yet household names like New Bank and World Remit and Revolut and Trade Republic. All of these folks on a super simple level, the growing dramatic, they are competing with the established financial services firms who have been around for 20 or 50 or 100 years. And the old line did not, are not belying their consumers. Even before something on the printing of blockchain become mainstream, you're going to see an enormous next generation of companies that will come public and have a lot of runway ahead of them.

What are you most excited about for the future? You have an incredible historical. perspective on what's gotten us from the 90-minute download to the instant access to 40 million songs on your phone. You have such a cool perspective on the arc of history and technology specifically. Were you excited about that arc bending in the future? Like what most has your attention where you're trying to learn the most today? Blockchain certainly is one. This next generation of, in some cases, neobanks or others providing modern day financial services on mobile phone as opposed to out of physical facilities. Talk about a trend that has been around.

It was accelerated dramatically. The other shift to the cloud, the shift to multi-cloud, open source, and all of the DevOps tools, all of the next generation applications, all of that, a whole bunch of exciting companies like Mambu and Redis and Spriker, that are enabling enterprises or small businesses

to take advantage of the cloud and the fact that it dramatically lowers the cost of compute and the cost of storage. And we're still very early days in that as well. And I always get excited about hearing a new pitch when literally just go, oh, that just is unique, incredible insight. And I don't know what one that will happen later today or tomorrow, but that to me is what's just so incredibly exciting about being a technology investor. And I will say, I describe technology as a world's greatest industry, being allowed to invest and participate in it.

There's such a luxury, being surrounded by incredible colleagues at TCV who are teaching me something new every day, is wonderful. And thank God I stumbled across it 40 years ago. I have a selfish second to last question and then my traditional closing question for you. The selfish one is, I just went through the same experience, the stressful experience you described earlier, a very good question. Congress was also for me raising a first venture $100 million fund last year, some ways into deploying that. What advice would you have for me about company building in the investment world? So you built an incredible business in TCV. I meant to ask you earlier whether you were slightly crazy too, like the entrepreneurs that you like to back. But just more generally, what are your thoughts there on

people that want to build businesses, especially those that are investing in these big tailwind technology trends that you've learned from your decades building TCV? I would start with, I probably was more naive than crazy in terms of starting something in 95. But to me, it's just like the companies we invest in. The advice is probably pretty straightforward. A small number of incredible people can do vast amounts of work and reads parlance, surround yourself with stunning colleagues. In today's world, invest as much in tools, technology tools to run the business as opposed to

not and focus on reward, not risk. Three wonderful, awesome pieces of advice. So simple, but I think very effective. I love stunning colleagues. It's one of the coolest phrases and one of the best ideas to come out of Netflix. An obvious idea, but it's very hard to only find and work with stunning colleagues. Like they're by definition hard to find and hard to convince. So some great closing advice there.

I think some people think, well, the downs, but kind of the negative of focusing on talent density and stunning colleagues is, oh, well, that means you're going to be tough on some people. It took me a while to get fully documented into Reed's approach. But just because your firm may not be right for everyone doesn't mean that they can't go find gainful employment elsewhere. But the key observation is, I think there's a true at TCV. The difference between investors is not like, well, somebody's 30% better and is sort of like an engineer,

and therefore, you know, you pay them 30% more. The difference, again, is an order of magnitude. There is something very unique about a great investor. It's not where they went to school. It's not. Are they smart? It's not are they hardworking? There's just a magic there as well.

And so my whole goal at TCV is the more magic we can bring in. incent and retain the better off we are. Good solid work is good solid work, but it's not going to be the differentiator for us. I also think one of the other benefits of stunning colleagues is when you're surrounded by truly stunning colleagues, there's a vibrancy and a dialogue and a debate and great ideas win, and it doesn't matter what somebody's age or title or tenure is. That's where people want to work. That is an added benefit to the approach. One of the lessons I'll take on top of that away from our conversation today is I love the Michael Jordan analogy. The beautiful thing in this arena in business and in investing,

like you can have a Hall of Fame career that lasts a lot longer than a Hall of Fame career in sports. It just excites me and I know a lot of people listening the prospect of applying so many of the lessons you've shared with us today. I think you know my traditional closing question for everybody excited to hear your answer. What is the kindest thing that anyone's ever done for you. There are many on the list. I'm going to probably overanswer the question and I'll try to be brief per. Generally speaking, I have to say my mom is the kindest person, always provided a warm environment to come home from school in. And by the way, this was in outside Chicago and a little town of Wisconsin, and there was nothing technology involved. That support was critical. The second personal one,

is my wife saying yes, 31 years ago. She is the best person I know. And I way overachieved. So that is good. She looked kindly upon me at the time. And then I would say, actually started working when I was 11. There's a woman that hired me, Mrs. Gunnerson, when I was a young kid, to work 20 hours a week, which helped install a good work ethic.

A guy named Dick Strong, who gave me my first office job in 1981 in Milwaukee, the Strong Corneliuson funds at the time. my professor Dave Brofe of Michigan, who as I was kind of wandering aimlessly through my business school career after wandering aimlessly through my undergrad career, got me interested in investments. Well, Jay, I've so enjoyed our conversation. I know you don't do a lot of these. And so I'm really thankful to have had the chance to do it with you for a long chunk of time.

Just love the lessons. The entire career, so exciting to think about the same ideas applied to the future. Thank you so much for your time. I appreciate it. Thanks, Patrick. This episode was brought to you by Canalyst. In this three-part miniseries, I sit down with Brandon Weir, founder and portfolio manager of BWCP, a fundamental-oriented TMT consumer hedge fund manager based in Dallas, Texas.

Here, Brandon's biggest lessons from launching his fund, their unique, blended investment strategy, and how BWCP has integrated Canales into the investment process since day one. In this week's episode, Brandon and I discussed the biggest lessons learned from launching a fund. In closing, thinking about other emerging managers, new managers that are hanging up their own shingle and setting up shop, what other key lessons did you learn about that process relative to your expectations? What was harder, what was easier? What did you have to do that you didn't even think about? There's a lot of lessons. Look, I will say a few things.

One, starting a fun can be a very humbling experience. I had a manager and an allocator tell me early on, if I could tell all new managers one thing, it would be that the world doesn't. need another hedge fund. What makes you different and why do you need to exist? And that's a tough pill to swallow when you're when you're out on the road marketing. I think people really wanted Citadel. So when we left, they love Citadel and they wanted us to replicate Citadel. I will tell you some people have been able to do it, but replicating Citadel is a very tall thing. So the advice I would give is find what you want to do. And what we wanted to do is slightly different. And if the thing that what you want to do is slightly different. In our case, it was a bringing together of the Tiger Cove

and the Highside model with the Citadel model. Be prepared to take a few steps on your own before somebody will underwrite you. And I don't think that it's a negative thing. I think we all get convinced that one or two people, you know, raising $5 billion day one means that the fundraising environment is very good. And I think we all have survivorship bias towards all of the people we look up to, whether it be Ken Griffin or Steve Mandel or all these people who have come before us, those funds started really, really small. And they proved it. And they worked themselves out for a few years. And I think that's probably the biggest lesson. The other one is getting off to a great start. You can never underestimate the power that that has. And that was something that, you know, we were very

fortunate to be able to do. And then the last thing I would say, and I've had a lot of mentors over the past. And they've always said, well, if you want to do something, you're going to have to find something that you love to do. You can't do something that you don't love to do. And I used to think that that was just something that people said that were super successful and that was a nice tagline. But investing is a hard business. And what those allocators mean when they don't think everybody needs to be a hedge fund manager, they mean that. And so if you don't, investing can have its ups and downs. And if you don't love what you do on a day-to-day basis and love building.

building something, you know, from the ground up, you're really going to have trouble. And I think don't underestimate the amount of time it's going to take you to build it. Don't underestimate the amount of money that it's going to cost to build and find the most talented people you can possibly find. I think sometimes new managers fall into a trap of not wanting to hire people they think are a lot smarter than they are. I tell everybody that we hire. I hope that I'm the dumbest person in the room. I want the smartest people around because that's how we'll will become more successful. Well, Brenna, I love your story, love the fusing of styles and also love the fact that the leverage point for Canalyst existed in the early days that it lets you do more

faster. And I think you've made great points about sort of why repetitive processes that are nonetheless important and detail-oriented matter a lot, but the one and a half to two analysts sort of stuck per couple hundred companies per year. That's a real thing. So I think we've done a great job of overviewing your story and also the ways in which it intersects with the Kandalous product. Really appreciate your time and wish you the best of luck in your brand new firm. Thank you, Patrick. Appreciate it. If you enjoy this episode, check out JoinColossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning.

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