Mitchell Green - Lessons from Cold Calling 10,000 Companies - [Invest Like the Best, EP.464]

My guest today is Mitchell Green. Mitchell Green is the co-founder and managing partner of Lead Edge Capital, a growth equity firm that has spent 15 years building one of the most disciplined investment machines in the business. Unlike most firms chasing power law outcomes, Lead Edge is designed to deliver consistent returns by talking to thousands of companies a year, applying a rigorous eight-point criteria to filter down to a handful of investments, and leveraging a uniquely constructed LP base of world-class executives and entrepreneurs. In this conversation, Mitchell walks through every component of the machine, from how they source and evaluate companies to how they think about selling, building culture, and staying competitive in a world being reshaped by AI. For the full show notes, transcript, and links to mentioned content, check out the episode page ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠here⁠⁠⁠⁠⁠. ----- Become a Colossus member to get our quarterly print magazine and private audio experience, including exclusive profiles and early access to select episodes. Subscribe at ⁠colossus.com/subscribe⁠. ----- ⁠Ramp’s⁠ mission is to help companies manage their spend in a way that reduces expenses and frees up time for teams to work on more valuable projects. Go to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠ramp.com/invest⁠⁠ to sign up for free and get a $250 welcome bonus. ----- Trusted by thousands of businesses, ⁠Vanta⁠ continuously monitors your security posture and streamlines audits so you can win enterprise deals and build customer trust without the traditional overhead. Visit ⁠vanta.com/invest⁠. ----- ⁠WorkOS⁠ is a developer platform that enables SaaS companies to quickly add enterprise features to their applications. Visit⁠⁠ ⁠WorkOS.com⁠⁠⁠ to transform your application into an enterprise-ready solution in minutes, not months. ----- Rogo is the AI platform for finance. They're building agents for Wall Street that are trained to understand how bankers and investors actually do work: from diligence and modeling, to turning analysis into deliverables. To learn more, visit rogo.ai/invest. ----- ⁠Ridgeline⁠ has built a complete, real-time, modern operating system for investment managers. It handles trading, portfolio management, compliance, customer reporting, and much more through an all-in-one real-time cloud platform. Visit⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ridgelineapps.com⁠. ----- Editing and post-production work for this episode was provided by The Podcast Consultant (⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://thepodcastconsultant.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠). Timestamps: (00:00:00) Welcome to Invest Like the Best (00:00:53) Episode Intro: Mitchell Green (00:02:01) Cold Calling 10,000 Companies (00:03:54) Building the Lead Edge Machine (00:06:15) Lead Edge’s LP Profile (00:09:22) Hitting Doubles and Triples (00:11:39) Knowing When to Sell (00:15:08) Lead Edge’s Eight Buying Criteria (00:18:12) The Opportunity in Enterprise Software (00:24:54) Using Criteria for Filtering, Not Prediction (00:27:11) Building Relationships with Entrepreneurs (00:29:16) Improving the Investment Machine at Scale (00:31:59) Lead Edge’s Culture (00:35:08) Mitchell’s Schedule (00:36:37) The Mount Rushmore of Investment Machines (00:38:40) The AI Readiness Score (00:40:50) Overhyped, Frothy Markets (00:42:16 When AI Will be a Good Opportunity (00:44:29) Lessons from Competitive Skiing (00:47:33) Starting a Fund & Keeping Score (00:49:15) The Kindest Thing

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Patrick O'Shaughnessy?

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• 0:42Patrick O'Shaughnessy?

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• 1:30Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper, check out Colossus, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus, along with all of our podcasts, at colossus.com.

• 1:54Speaker 01

  Patrick O'Neal is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc.

• 2:22Patrick O'Shaughnessy?

  My guest today is Mitchell Greap, the founder of Lead Edge Capital. When I think about Lead Edge, I sort of think about this giant money machine that Mitchell and his two partners have designed over the last 15-plus years to make remarkably consistent investment returns for their clients. They have all sorts of unique aspects to the machine that they built, whether that's their collection of LPs, their eight-point criteria for how they select companies, the way they do cold calls, the way they construct their portfolio. This is just a totally different way of approaching markets. They're trying to hit singles and doubles and deliver very consistent returns. Mitchell says it's really important in life to be memorable. That's just a great, simple thing that you can do. I think you'll find, listening to Mitchell today and him talk about his entire machine and the firm that he's built, that he himself is extremely memorable.

• 3:07Patrick O'Shaughnessy?

  I hope you enjoy learning about his business.

• 3:11Patrick O'Shaughnessy?

  So the first time that I heard about Lead Edge Capital was the very famous list of what companies report, starting with cash profits. And then if they don't have cash profits and you go down this very funny list.

• 3:22Speaker 02

  Hierarchy of bullshit.

• 3:24Patrick O'Shaughnessy?

  And the bottom one is the place that's voted the best place to work in New York City or something.

• 3:29Speaker 02

  Absolutely.

• 3:29Patrick O'Shaughnessy?

  Where did that list come from? Why did you put that together?

• 3:31Speaker 02

  We've always found that the best way to communicate with our audiences, which is entrepreneurs and also our LPs, our clients effectively, is to like write a quarter of the letter about a different topic. And I started my career cold calling companies and that's the way we source deals. But when you start your career talking to, I think Brian and I probably spoke to like 10,000 companies.

• 3:56Speaker 02

  And if you want to know it's a good company, just.

• 3:58Patrick O'Shaughnessy?

  Call 10,000.

• 3:58Speaker 02

  Call 10,000 of them. You'll figure out really quick. It's a pretty good pattern recognition. Until our head of PR comms came in a few years ago, we had actually never posted any of these things online. We joked that we sent this letter to some people in the VC community, one of which is like our buddy at Entrist and Horowitz, and they posted it online for us. We just thought, I think it's like a. Very simple way, like in a world where people spout off total bullshit all the time and like you see everything in decks. This is just a good way to distill it.

• 4:29Patrick O'Shaughnessy?

  Talk to me about the 10,000 calls. What did you learn calling that many companies?

• 4:33Speaker 02

  You learn to be very disciplined, actually. And you learn that most things are actually just noise and to figure out what makes a lead edge company and then try to ignore everything else. And you learn a lot about like responsiveness of people and more responsive CEOs tend to be better CEOs. I think another thing you learn that's really important for young people. If you tell an entrepreneur that you're gonna actually do something, then actually do it. Well, I think that's actually true of like your life. There are so many people that say they'll do things, they just never do them. And so if you're known as a firm and a person that actually does what you say you're gonna do, it goes a long way. So if you tell an entrepreneur, hey, I know somebody at Adobe. Do you want an intro? Cause it looks like it'll be helpful for your business.

• 5:18Speaker 02

  And then here she says, I'd love to. Well, then guess what? Follow up with that. Do what you say you're gonna do.

• 5:22Patrick O'Shaughnessy?

  Can you describe what seems to me like, I would call it a machine that is Lead Edge? Much more than most investment firms where a lot of great investors will tell you, there's a lot of art, everything's different. Lead Edge feels to me like unbelievably well constructed as a machine to produce returns.

• 5:40Speaker 02

  Yeah.

• 5:41Patrick O'Shaughnessy?

  Before we go into all the component aspects of the machine, describe the machine itself at a high level before I get off on a tangent.

• 5:48Speaker 02

  We run this place like it's a software company. My background was at Bessemer. I worked for somebody that was extremely disciplined. It was building a cold client program. Partner Brian worked at Bessemer. We were the first two cold cars and my other partner, Neemay, worked at Insight. And I think Insight, Jafar was on recently, is one of the best software investment or technology investment machines on the planet. So we've like modeled ourselves on that. To build a good investment firm that stands the test of time, if you want to go build the next TA associates or General Lanick or Bessemer or Sequoia, you just have to be like extremely rigorous. And so our number one KPI that we run this place by is what is our gross dollar retention for LPs?

• 6:32Speaker 02

  We want 95% gross dollar retention because the only way you can get that is one, have good investment returns. And great client services. So how do you, through long periods of time, across people that will come and go, generate world-class returns? Is you need to have a process. And the process for us starts with 18, 22 to 24-year-olds that talk to about 9,000 companies a year. You get those 9,000 companies. How do you figure out which ones to work on? So then you need this framework to guide these 18 people to like, well, it's going to be an interesting company. Because in the investment business, we have one asset. It's time and it's precious.

• 7:17Speaker 02

  And so like, how do you guide people to say no quick? And so we built this framework that we really took from coming out of Bessemer. And so they helped build the Bessemer five. We took the Bessemer five, turned it into the Lead Edge eight, and it's like drives everything we do. Now, when we find the company, we're then super creative. We'll buy 10%, 80% LPs out of a 20-year-old fund, buy employee secondary, fund somebody's CV. We don't care what the way is.

• 7:44Patrick O'Shaughnessy?

  If I think about the two sides being the LPs and the companies that you invest in, I'll come back to the eight criteria. The LP story that you have is also quite distinct and different. Can you describe that in a lot of detail?

• 7:54Speaker 02

  Our LP base is all world-class execs and entrepreneurs. Right now, we do have some big institutions, but 95% of our capital is all these world-class execs and entrepreneurs. And we use these LPs throughout the entire investment lifecycle. It literally starts with sourcing. If a company won't call us back, we'll email our LPs. Two, let's say it's like an automotive software company. We'll have Rick Wagner, the former CEO of GM. He was a long-time investor. We will send them the CEO a note. If you're like an automotive software CEO and a former CEO at General Motors, call us, they're way more likely to take an email than my knucklehead email on them or a 22-year-old email on them. Then for diligence, we'll say, hey, you're a healthcare software company. You're 25 million in revenue. Maybe you say like biotech or pharmaceutical software.

• 8:39Speaker 02

  It's like, oh, I see Pfizer's a customer. How big is it? 2 million bucks. Could be bigger. Oh, it could be 10 million. I'll meet the former CEO. And then I'll call up Ian Reed and be like, hey, Ian.

• 8:50Speaker 02

  Can you really talk to this company? They'd love to talk to you. But can you tell us what you think? And then if it's super interesting, could you call Pfizer and back channel it? And then you might say to the entrepreneur, hey, I do want to see BioGen as a customer. Would you want to meet the former CEO? So then you call up George. You're like, hey, George, I found this company. I mean, it's happened at our criteria. Then post-investment, we literally send emails to our LPs. They're like, hey, Toast is looking for intros to these restaurants. Do you know anybody? And it turns out all these people invest in funds and never get asked for help. That's how we do it and how we leverage them. But it's not actually why we did it. It would be a lot easier to go have 20 giant institutions, right? You have 50 to 300 million dollar checks versus me spending a huge amount of my time running around the world all the time, spending time with these people.

• 9:32Speaker 02

  Because if you want 95% retention, that's what you need to do because they're your clients. The reason we did it is because I knew that the returns in this sector, in the tech investment sector, flow to the top 10% of funds. They just do. It probably is the same in real estate. It probably is the same as industrial buyouts. But like, I knew in the venture world that it definitely flowed to that. And I had the pleasure of working for one of these firms, best of venture partners. So when I was starting Lead Edge, I was like, why in God's name is anybody going to take my money? If he's going to ski, but that isn't going to be very helpful. But I said, you know what? Had I been the global head of HR at Procter and Gamble and my partner had been the global

• 10:13Speaker 02

  head of HR at Microsoft and the other one had been the head of HR at Nike, when I called a workday 80 times at Bestmar and Dave Zephal, but by the end was like, I'll hire you as a salesperson. I'm not taking your guys' money. If I had been like a woke-off HR exec, he would have engaged with me. Because he would have known that I could have introduced you to those companies. Like, I have tons of other HR execs. I know these people. In a world that's super crowded and undifferentiated, and I think it's exponentially the case more today, even than what it was 15 years ago, it just like differentiates us. And we do what we say we're going to do.

• 10:44Patrick O'Shaughnessy?

  How many LPs do you have?

• 10:46Speaker 02

  Probably like 800. 95% by number are these executives. Yeah.

• 10:50Patrick O'Shaughnessy?

  If you think about the level of returns versus the consistency of returns, how much does one matter versus the other for this 95% gross retention?

• 10:59Speaker 02

  I think consistency is more important. On a per-deal basis.

• 11:04Speaker 02

  We're trying to make a two to five X in three to seven years. That's like a 25 net IRR, if you just actually map it on a curve. Put it into a fund, we want to generate you two to two and a quarter X nets with 20 net IRRs. Some of those deals aren't going to have the five Xs, some of them might be point seven Xs. Our downsides have been very low. I think we've only left all of our money in one deal ever. And that's because of the kind of criteria we look for in a company, what our average company looks like. And the fact that very few of our companies have any debt on them. Now, I'm trying to make a two to two and a quarter X net, which is more like a two and a half X gross. However, if something is a really big investment in the fund, and we do not run funds with like 100, 150 companies in them.

• 11:50Speaker 02

  We run funds with 20 investments in them. So if we've made something a seven, 10, 12, 15% position, and that goes eight, 10, 12 X, that's how you can throw X net a fund.

• 12:00Patrick O'Shaughnessy?

  Yeah. And so because you really lose money, does that mean you also almost never hit some like giant grand slam?

• 12:07Speaker 02

  Correct. We're like Cal Ripken, doubles and triples. We're not Sammy Sosa or like Mark McGuire. It's all about hitting doubles and triples. And if you do that with very little leverage in the portfolio, 90% of our companies or 85% of our companies are like recurring revenue. So if you invest today and know what revenues are in July, that's a pretty good way to invest. 50, 60% of our companies are like profitable businesses. You may get it wrong. You may back the wrong team. You may overestimate the size of the market, but I think 70% of the time we own the pref, your downside's one X. Now, sometimes you need to recut the deal with the entrepreneur or the management team. So you're making slightly less than that. But if you can avoid zeros and turn the zeros into like point eight Xs or point one Xs, it massively helps return.

• 12:53Speaker 02

  We'll sell. Probably a third of our exits have been secondaries. We will buy secondaries, we will also sell. We constantly underwrite. We've been referred to as traders, hedge fund guys. And we're like, no, no, we're just trying to actually make money. Because this company is about to be a living dead and you're going to be in this thing for the next decade.

• 13:07Patrick O'Shaughnessy?

  Maybe to spend a minute before we go through the buy criteria, talking about selling more. What is the process that you run to be able to sell well?

• 13:14Speaker 02

  We have a diverse committee. There's three of us, myself, Brian Eme, been here all since Fund One. We have a disposition, buddy. Same thing. We think a lot of firms do a really, really good job on the buy. Very, very few firms do a very good job on the sell, like knowing when to sell, pressuring to sell. And I would tell you that the private equity funds tend to do a much better job on the sell than most venture growth guys. Hedge funds, if you do most public equities or long only funds, you constantly can buy and sell. The three of us meet once, twice a month and just walk through the portfolio and just talk about it. Like, hey, there's a round going down in this company. Should we sell? How can we try to position this company for a sale over the next 12 months? The fastest

• 13:58Speaker 02

  way to get fired at lead edge is have a company and not tell us when there's a liquidity opportunity, or just something's about to happen before it happens.

• 14:06Patrick O'Shaughnessy?

  What does the holding period end up being on average then?

• 14:08Speaker 02

  I bet our average holds are three and a half to four years, probably. Everybody gets all excited by these 2015, 2016, 2017, 2018 returns. Like our 15 and 18 returns look very good. But it's just multiple expansion and we sold. That's it. If you think you're gonna make a 2X in four years and you make a 4X in two years, it's amazing what it does to net IRR. People forget the reverse happened in 2021. Nobody's 20 and 21 funds. I think the venture growth ecosystem gets a bad rap, but it's gonna be every alternative asset. Their 20 and 21 funds are gonna be awful relative to earlier funds because people thought

• 14:48Speaker 02

  they were gonna make a 4X in two years and are instead making a 1.6X in eight years. And so like, that's gonna drive, that's gonna have huge impacts on the industry.

• 14:59Patrick O'Shaughnessy?

  What is the most interesting thing about the skill of selling and making the transaction happen? Like presumably it's easiest to sell in private markets when a lot of other people are really excited about buying. You can't just hit sell like in public markets.

• 15:12Speaker 02

  Correct.

• 15:12Patrick O'Shaughnessy?

  Maybe in like a bad, medium, good, there's different kinds of outcomes that you'd be selling into? Or most of your sales into everyone else is excited and you're less excited?

• 15:22Speaker 02

  It can be everything in between, but if a company goes public, it's just hit a 2 to 5X in 3 to 7 years. And then sell. So you're like, the company goes public, you're at like a 3.3X in 18 months or 24 months. You're like, annihilate a 12% or 20% net IRR. It's a great company, but we constantly are underwriting like what's the forward net return from here? We made like a 3X in 18 months. That's like an IPO. In a secondary sale, it's about underwriting the forward IRR in Toast, which is one of our biggest investments, which we put like 12% of our fund three into. And we'd always get crap. Our fund three was like a $290 million fund. And then we put like 36 million bucks into it.

• 16:06Speaker 02

  And before the IPO, we had sold 180 million bucks. I mean, I think we'd make 350 to 400 in it total. People are like, why are you selling? You don't believe in us? We're like, no, no, all these other knuckleheads that invested alongside us, none of them put 12% of their fund in it. And by the way, somebody is paying us a price in the secondary markets that we think is just lunacy. We sold like in the secondary markets like 40 or 50 bucks in Toast. The stock today is 30 bucks. We think it's cheap, but it's just, by the way, we sold like six years ago. And so it's constantly underwriting forward IRR.

• 16:38Patrick O'Shaughnessy?

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• 17:19Patrick O'Shaughnessy?

  Firms are moving off legacy technology and onto RidgeLine because of how far ahead RidgeLine's AI features are compared to anything else in investment management software. I've been hearing from a lot of investment managers about AI and they fall roughly into two camps, with some unsure where to even start and others convinced that they can build their own order management system over a weekend. The reality is that running an investment firm will always require governance, controls and a single source of truth for your data. And no amount of AI enthusiasm changes that requirement. Ridge line is built on exactly that foundation, which is why I believe that the firms that come out ahead in the AI era will be the ones running on Ridge line's unified platform. If you're serious about your firm's AI strategy, Ridge line should be part of that conversation,

• 18:02Patrick O'Shaughnessy?

  and you can request a demo at ridgeline.ai. Okay, now I get to talk about the eight buying criteria. I don't know if you want to tick them off or give us some highlights or.

• 18:11Speaker 02

  Okay, some highlights. So there's eight criteria. 10 million plus in revenue. Why? Do you have like product market fit? Are you growing? Because we don't have some startups. Are you growing like 25% a year? Returns to gross. We don't use leverage. Do you have 70% plus gross margins? Why? Because at the end of the day, you trade on multiples for earnings. Revenue multiples are just shorthand math for what will the EBITDA multiples or earnings multiples when you don't grow that fast. There's a reason that Facebook gives away electronics in the vending machines and Dell charges for cokes. It's just like one has 80% gross margins and one has 15% gross margins. And we think that just drives at the end of the day earnings. Are you recurring? It's like a heck of a lot easier

• 18:54Speaker 02

  to invest knowing what revenues will be in July than they are today. Are you capital efficient? This metric is probably kept us out of the most trouble. It's like our version of return on equity. I mean, I think it's Warren Buffett would think we're idiots, but are your revenues today greater than your historical cash burn? So what do I do about that? There's 20 revenue. Have you burned to 80? Like every other tech company.

• 19:17Patrick O'Shaughnessy?

  Cumulatively.

• 19:18Speaker 02

  Cumulatively, yeah. Have you burned 80 since inception? Or have you burned 10 since inception? We're looking for like this one to one ratio. In a world where capital is a commodity and capital is everywhere, if you can build a business that's growing nicely while burning less than your revenues, you've got a pretty good business. We don't have startups. If you invest in startups or 2 million dollar revenue companies, then obviously it's harder. Are you profitable at the bottom line? Do you have any customer concentration? I just don't want to wake up and find out 40% of my revenues like disappeared because some customer decided they don't want to work here.

• 19:49Patrick O'Shaughnessy?

  I want to talk about the price you're willing to pay for companies and how you would plot yourself on the so much of this sounds like a private equity strategy, but you mentioned toast and it's not like the high growth rate.

• 20:00Speaker 02

  Toast was 25 million of revenue growing 150% a year. And it was, we paid like 500 million bucks. It was like 20 times revenue. People are like, that's crazy. Not when it went from 10 to 25. So we just try to build a forward model. And you're like, look, you can pay as high as prices you want. You just gotta be right on your exit. You gotta be right on your multiple. How people got in a bunch of trouble in 2020 and 2021. I think how they're gonna get in trouble today and all this AI stuff is they just assume the exit multiple is 20 to 25 times. That's insanity. Because when your exit multiple collapses, no. So you can pay 20 or 25 times revenues. And if you're right, like some of our companies have been, then it's fantastic. But you can also be wrong, like some of our companies have been, and you look like an idiot.

• 20:46Speaker 02

  I think investing in OpenAI a hundred billion is a little insane personally, but like, I don't know. If it goes on to do a trillion dollars of earnings, yeah, I was gonna be very wrong. I should have invested. It's almost like shorthand where if you're like, if this company grows and doesn't de-sell much for 18 months, am I in the money? And can I make a decent return for what I'm paying? And if the answer is, oh, am I even in the money in 18 months or 24 months? Yeah, you're paying way too high a price.

• 21:10Patrick O'Shaughnessy?

  So right now, there's this seismic thing. You can look at the constellation and the constellation software's stock price or something as the perfect visual indicator of what's been going on, which is

• 21:19Speaker 02

  Looks like a ski slope.

• 21:20Patrick O'Shaughnessy?

  This intense skepticism of the market that boring, traditional, high-gross-margin software businesses are worth like much at all. But I'm curious how you process this moment where I'm sure a lot of the companies you're looking at are software companies that have a lot of the components that make people fearful of the similar kinds of companies in public markets.

• 21:40Speaker 02

  Our belief, for right or wrong, is that the competitive advantage of software company has never been about R and D. We're not building semiconductor chips. We're not building biotech and pharma companies. This isn't that. It's to build like Chamber of Commerce software. You two could build this. My mother couldn't, but my brother could, no problem, because he's an engineer. Who could Microsoft? Any of our companies in our portfolio. If Microsoft took 500 people and gave them a month. Each one of our companies could be out of business, but they just don't care a lot at Chamber of Commerce market. They don't care about the price optimization market for manufacturing companies. They don't care about the tax, the tax software market for a very specific niche product. So the software companies are really about like distribution, sales and marketing, customer success, client services.

• 22:24Speaker 02

  We believe that it is the incumbents game to lose in software today. I'll give you a couple of examples. Workday has like 98 or 99% gross dollar retention. It grows 10, 15% a year. Oh, it only goes 10% a year. I'm sorry, it's like 10 billion of revenue. It only took like 20 years to get there and it does like 3 billion of free cash flow. Exxon or your hospital system or Warburg Pincus or KKR or Procter and Gamble probably spent three to five years implementing the software. If you think they're gonna like start building their own HR software, you're out of your mind. Now, the GUI and how you access it is gonna be far different, but actually they already have the customer relationships. And the only reason they built it is because Dave Duffield and Neil realized 20 years ago

• 23:09Speaker 02

  that Oracle and SAP had really crappy products. They have thousands of engineers that are trying to build the product much better and are gonna use Workday versus Mitchell Green's cousin vibe coding his way to build Workday. The flip side, why did Coupa get built? And the reason that it was able to be built is SAP bought Arriba. They just left it for debt. So they built this big business. They took it public and now it's been sold to Tomorabo. So what I actually worry about, Tomorabo or any of these big private equity funds, if they're putting a bunch of debt on it, it's not growing that fast anymore. If they're putting a bunch of debt on it. And then what they do is they, they're like, oh yeah, we drive all our companies to like rule of 50 businesses. Now, do they end up cutting a bunch of people in R and D and sales and marketing and product that if you were being run by an entrepreneur with no leverage,

• 23:53Speaker 02

  you would have kept? And is now, I worry that a bunch of these private equity owned assets that are over levered are ripe for disruption versus independent software companies that are focused on growth, that are trying to innovate. And I like to remind people that if you look at e-commerce at 99 and 2000, everybody thought every big box retailer was going out of business. But if you look at the top 50 largest e-commerce companies in the United States, Amazon is number one. Two through 10 are Walmart, Home Depot, Lowe's, Macy's, Target. I mean, Saks is a crappy company. Their online business is actually pretty good. Neiman Marcus, same thing. A lot of the incumbents will win. Now again, Montgomery Ward, Kmart, Sears, Webos for either like over levered, didn't innovate. So like for us, that's what we're constantly thinking about.

• 24:39Patrick O'Shaughnessy?

  Does that mean that right now feels like an especially opportune time for your style? Because entry multiples are lower.

• 24:45Speaker 02

  I think the best risk suggested returns right now are in public software names. By the way, Warren Buffett says buy when everybody is fearful and sell when everybody's super excited. People hate software. When we bought a bunch of our ByteDance stock two years ago, when everybody hated China. I mean, Alibaba has doubled off its lows and doesn't grow and trades at 15 times earnings.

• 25:06Patrick O'Shaughnessy?

  If you think about the CV, the very specialist type buys that you'll do, can you explain an example of one of those?

• 25:12Speaker 02

  We like to use the house analogy. You walked down the street, go into apartment building. My apartment needs to have these six things. You can go in the front door and you can lead the primary round and put money in the balance sheet. Or you can buy the whole business. You can go in the side door and buy an early investor or early employee. But maybe that's not available. So we'll go through the basement window with a pickaxe and buy like a derivative. Cause if you run a business and this can of Pepsi owns 30% of your business. And I go to the glass that is an investor in the Canada Pepsi's fund. And that is nearly half the LPs. And I literally buy that out and you own 30% and I buy half the fund. I just bought 15% of your company. It's the same game plan. It's just a derivative. Do you have as much control? No. Do you have as much insight? No. But you trade off price for access. We made a big investment in Zoom.

• 25:57Speaker 02

  So we couldn't go into the front door. The company didn't have money. We sure as heck weren't buying the entire business. You couldn't buy secondary. There was secondary to buy. You couldn't buy it because Sequoia would roll for you. They're smart. They're not dumb. They're like, why would we let these knuckleheads in? We'll fake the stock and make two to three times our money. And the company was one that took a long time to get funded and like wasn't backed by Sequoia. They wanted it was backed by a bunch of random Chinese people on Chinese funds. It was actually secondary buy, but you couldn't because they're over. So we're like, huh. Why don't we go to this fund that like has stock? Their LPs have been in this thing for 10 years. Like maybe their LPs want to sell and we can do it one of two ways. We'll just buy your position in the fund and we'll know exactly how much, we'll know exactly how much Zoom we have to do it. Or why don't you create like a new vehicle? Any LP that wants to sell, we'll step into their shoes.

• 26:42Speaker 02

  Well, if you own 2% of Zoom and half the LPs want to sell, and I then step in those shoes, I now own 1% of Zoom. And if I say to you, listen, we get to vote them like we own them. They used to hold it. The company gets an M and A offer and you get to vote. You have to call us. Day 181 of the IPO after lockup, you gotta give us the stock. We just bought the position. In a world where LPs and GPs are desperate for liquidity, that part of our business is absolutely booming. And that part of our business is headed by Tim Beamer, with some of my partners, who was actually a Notre Dame alum as well.

• 27:13Patrick O'Shaughnessy?

  If I think about the dollars deployed last year over the next year, how much of it is direct capital on the balance sheet? Secondaries, something creative like what you just described?

• 27:23Speaker 02

  70% is creative on the balance sheet. 70% is special sits or like secondary. We will evaluate in an IC, a public position, a controlled buyout, a minority deal or a special sit. You could get four different things in one week. And literally, we underwrite the same return. But today, the opportunity is in. We are a market drawdown away from it exploding in value. I like exploding in stuff to do.

• 27:52Patrick O'Shaughnessy?

  The hard part, it seems like, is finding a company that has six of the eight criteria that you can also buy at a multiple that you're excited about for the forward return. What percent of companies of the 9,000 or whatever meet all eight criteria?

• 28:06Speaker 02

  About like no correlation in how it performs either. If we do like an eight criteria deal versus like a five criteria deal, there's like actually no correlation to like it was a better deal.

• 28:13Patrick O'Shaughnessy?

  What about like four, three?

• 28:14Speaker 02

  We've never looked at it because we, what we try to do is if you say it must meet eight criteria, 9,000 companies becomes 90.

• 28:21Patrick O'Shaughnessy?

  Okay.

• 28:22Speaker 02

  To do five or seven deals a year, it just doesn't work. And so for us, what we say is it just like must meet five. That's about a 10% yield. We're trying to get to a set of companies that we can then actually do work on. So you have 900 companies. That meet five or more criteria. You diligence on about 150 to 175 to do five to seven deals a year. And you're like, well, why not more? I'd love to, but like, we're cold calling entrepreneurs. They're like, oh, I'm sorry. I want to sell my business tomorrow. You just happened to call me on this day. No, the sales cycles can be a decade. And it's about staying in touch as an entrepreneur because we're not the only ones calling them. There's great firms like Summit or TA or Insight or Bessemer or Battery and the great firms. And so it's like, well, ask the entrepreneur, how do they need help? Try to tease information out of them. Oh, you sell into like the consumer space.

• 29:07Speaker 02

  You want to meet the former CEO, Kolya Pemalov? And you're doing that to try to build a relationship with somebody.

• 29:12Patrick O'Shaughnessy?

  If five criteria companies don't outperform eight criteria companies, doesn't that imply their criteria aren't predictive? So then why have their criteria?

• 29:19Speaker 02

  Because you need to set a framework for what to focus on and what not to focus on.

• 29:24Patrick O'Shaughnessy?

  So they're not predictive necessarily?

• 29:25Speaker 02

  It's not predictive, but it's getting us to a small enough pool. It's like knowing your strike zone. My partner, who's a big baseball fan, he's the baseball analogy. Like Ted Williams knew in the hitting zone exactly where to swing and what his probability is for it swinging the ball. Like, yes, you can hit a ball two inches above home plate and it could be a grand slam and it's hit the ball the far as you've ever hit it. But if you do that over an entire career, your entire career won't be very long. And so it just enables us to know like what pitches to swing at. Our biggest mistakes have honestly been not swinging at the pitches when they were in our strike zone. And I think that's what we've learned over the last 15 years to get more comfortable. And like when it's in our strike zone, swing at it.

• 30:09Patrick O'Shaughnessy?

  How do you train these young people to be able to get all this information to know whether or not it's an eight point score or whatever? Out of an entrepreneur? What is the art of getting someone on the phone and then actually getting them to tell you the information that you need?

• 30:22Speaker 02

  It is incredible what people will tell you on the phone. People are like, listen, you just like call people and they talk. People love to talk. It's investigative journalism with sales. We tend to hire people that are former athletes. But like getting a C or a D on a test is not your biggest failure. Dropping the ball at the Rose Bowl or not making the Olympic team, that's a failure. And so you're looking for people that are insanely persistent.

• 30:51Speaker 02

  People are really inquisitive. And then it's just, hey, Patrick, pretend you're toast. We're doing work on the restaurant point of sale system space. I read a bunch of articles. Sounds like you're kicking butt. Oh, by the way, I just talked to like Square and Clover and we'd love to talk to you on the phone. And oh, by the way, I'm sure you're getting bombarded by other people. But we're different than a lot of firms. A lot of our capital comes from world-class execs. Oh, by the way, one of our LPs, the former CEO Wendy's. We'd be happy to talk to them if you don't make these people. Huh. Sure, love to chat. By the way, we used to get the cold call people. When Brian and I were doing this, literally cold call people. And you feel like the person who called you at 6:00 PM 20 years ago, that you like slammed the phone down on. Today, it's like, you guys get to send emails to people. Give me a break.

• 31:36Speaker 02

  We actually try to now encourage some of the analysts to start calling people. The biggest issue is it's hard to get people's cell phone numbers versus work phones. And it's just, once you get the person on the phone, you just have to show knowledge. That's where, by the way, AI is incredible. It's like you give every analyst and associate, you give them the power of knowledge and you can sound super smart. And you won't get everything. It's like, hey, just on the game, you have like 80 employees. So what do you like 10 million revenue, 15 million revenue? Oh, I see like your employee cost going like 80% a year. What are you growing like 150%? Eh, not that fast. Or what, like 100%? Yeah, around there. So it's trying to get numbers.

• 32:13Patrick O'Shaughnessy?

  If you think about this machine, so we've got this very unique LP base. We do 9,000 calls, five to seven investments per year.

• 32:20Speaker 02

  We just raised our severance fund. It was three and a half billion.

• 32:22Patrick O'Shaughnessy?

  Okay, so three and a half billion dollar fund, two to two and a half percent net MOICs to your investors. So that's the machine. Where do you feel the most tempted to go tinker on the machine for the next decade? How do you hope the machine improves?

• 32:37Speaker 02

  As the firm gets bigger, how do you build a culture of teaching people to still be creative, the scrappy hustlers? That's the most important thing. How do we get creative and do CVs? We were doing CVs when nobody wanted to do CVs. We didn't know they were called CVs. We just thought it was paying somebody a profit share. It's continuing to innovate on that. What's really interesting is the secondary markets now for some of these names are so liquid. So actually you almost don't even have to underwrite to this thing going public. It's like, can it just get big enough with enough escape velocity where I can then sell out?

• 33:11Patrick O'Shaughnessy?

  If you think about all the investments you made the last five years or something, how often are you personally excited about the company and its product?

• 33:18Speaker 02

  Frankly, this is what drives me nuts about a lot of people in the venture capital ecosystem is they think they're actually changing the world, which they are, but they should tell everybody about it. And they're like doing God's greatest gift to mankind. Like, we don't think that. We love helping entrepreneurs. Like, that is actually what gets me excited and gets us up in the morning. Helping an entrepreneur try to bend the curve and make that customer intro and help find that great CFO, the audit chair or whatever. We love making customer intros. That's what gets us the most excited. And I think we are still actually just scratching the surface on how we can leverage our LPs.

• 33:50Patrick O'Shaughnessy?

  How often do you control the business?

• 33:52Speaker 02

  We are in a control position about a third of the time.

• 33:55Patrick O'Shaughnessy?

  When that's the case, how different is that?

• 33:58Speaker 02

  It hopefully should be no different at all, but there's less knuckleheads around the table. There's less people around the table. And what's really interesting is when you have a lot of different people around the table, you can have a lot of different competing interests. And so it's about building consensus. And you have people that are in one cost. That's why there's all these 2020, 21s companies have it sold. There's these late stage guys that are like, oh, just get me out. I own the profit. I'll make a one X today or I'll make a one X in a decade. But we don't go into companies and say, we're replacing the internal management. This is not what we do. When we invest in a business and when we exit, it's something like 75% of the time, the person who was running the business when we invest is still involved in the company.

• 34:41Speaker 02

  It may not be running it, but it's like back people who just want to build awesome businesses and great companies. And it's like, listen, if I'm not the right CEO, well, then make me the chairman of the board or make me the chief customer officer or make me the chief product officer, whatever. That's what's really important.

• 34:56Patrick O'Shaughnessy?

  I want to go back to the culture thing, the lead edge culture, I mean. What have you learned about culture in the many years now that you've been doing this? Especially given this is the thing that you want to keep nurturing?

• 35:05Speaker 02

  I didn't think I appreciated how much culture comes from the top. Follow-ups, send handwritten thank you notes. I've sent handwritten thank you notes to everybody I meet. Almost everybody, every entrepreneur, every company, guess who also does now, the 22 year old analysts. And we track it and report on it. If you just treat people the way you want to be treated, like that just flows. We built a culture of treat LPs like you. Yourself want to be treated. People appreciate that. It comes from the top. The intellectual honesty comes from my partner, Nime. A lot of the creativity comes from my partner, Brian. Now, of course, as you get to be eighty five, ninety people at a firm, we've built like a real training program, which is a result of a lot of work, Nime and Brian and our COO, Suzie's done and that team and the recruiting team.

• 35:48Speaker 02

  We didn't have weekly IC meetings before, three or four years ago. Why? Because IC was every of us. We talk every day. And so it's just like building processes in place.

• 35:57Patrick O'Shaughnessy?

  Can you talk about this crazy one on one thing you do with every employee?

• 36:00Speaker 02

  I got the idea from Tom Barnes at Excel Care. He's built a true machine at Excel Care. I asked him, what do you think something you do that like really helps the firm? He's like, interview everybody once a year. So we start with like a survey and then you sit down with every employee.

• 36:15Patrick O'Shaughnessy?

  You personally do.

• 36:16Speaker 02

  I personally do. Sit down with every other partner, every VP, every associate, the accounting person on the back end, every receptionist and be like, what do you like about your job? First, give me everything you do. Green, red, yellow. Green you love, red you hate. Let's figure out what you hate and why. And if there's things you hate, well, then let's figure out other people that may be able to do it. Or how can we make your job easier? Okay, that's the first bucket. Second bucket, if you were me running Lead Edge, what would you change? Three, what's something we can do to make your job easier? What you learn is incredible. You get a bunch of really good ideas every year. It actually drives my two partners nuts because sometimes they're like, that's amazing. Do it. And then they're like, come on, we need to have build consensus. I'm like, no, we don't need to build consensus on some of these things.

• 37:01Patrick O'Shaughnessy?

  Is there anything else that you do in the culture that you feel carries that much freight?

• 37:05Speaker 02

  Being the good person is not that hard, frankly, in a world that's insanely competitive. If being the nice guy gets you the callback and being the helpful person, then do it all day long. And then it's another really important thing about running this place is I can't be the bottle. I can't know every LP. And so like, if you're a twenty five year old or twenty three year old associate here and you have to go to Seattle next weekend for a wedding, I'll pay your trip if you stay on Monday and go meet a bunch of LPs. But you're twenty three years old. 9% of firms on this planet wouldn't put 23 year olds in front of LPs. I'm like, if you're smart enough to work here, you're smart enough to meet this LP. I don't care. And people love that. The 23 year olds associates love it, which helps us get great people. But then also the LP loves it too.

• 37:51Speaker 02

  Because nobody, oh, my son is your age. Would you mind talking to him? Or, hey, you went to Notre Dame? Oh, my son plays lacrosse. There's like thinking of going there. Would you talk to him and be like, oh, but actually, no, talk to my partner, Tim, because he played Notre Dame lacrosse. You just build real relationships with people.

• 38:06Patrick O'Shaughnessy?

  If you think about the average month for you and the major slices of the pie are time with LPs, time with companies. I'm so curious, it's actually kind of hard to guess. Maybe there's different buckets than those three LPs, companies, investments, internal. What does yours look like?

• 38:24Speaker 02

  And mine's, by the way, very different than Brian and Ema's. And this is by design. I was involved a little bit with fundraising, obviously. I probably spend 60% of my time with LPs.

• 38:34Patrick O'Shaughnessy?

  Wow.

• 38:35Speaker 02

  Now, again, that could be getting somebody to help a company though, too. Or coordinating with the team of people with us, like, hey, let's figure out a way to get into Exxon. And then I would say 25, 30% of my time is investing related, which could be reading memos, helping people win deals. That's frankly all I want to help. I'm like, if we lose a deal because I didn't meet the company, I might say I can help us win, but we got to at least put our best foot forward. And then probably 15, 20% is operational. The operation stuff's come down because one of our partners, Suzie, who lives in Greenwich, used to be an investment partner. A few years ago, she became our COO. So that's like my time. Nima probably spends 90% of his time investing, 10% of his time on everything else, which is what he should do. I'm running the IC.

• 39:18Speaker 02

  My partner, Brian, probably spends 60% of his time investing. And probably 20, 20 on LPs and operations. It's very clear to people that spend time with Brian, Ema and I, that we like play to our strengths and weaknesses.

• 39:35Patrick O'Shaughnessy?

  You mentioned Tom Barnes is someone that you've learned from. If you had to like create a Rushmore of other investment machines that you most respect, who is the Rushmore?

• 39:44Speaker 02

  Insight, TA, and probably Excel K K. I think Devon. Tripwood, the guys, Lieberman at Insight have just built like a factory. You know how you know a good software company is if you talk to 30,000 companies a year. It's an absolute factory. It's process. And so I think they're like amazing at it. TA is one of the pioneered code calling. Insights obviously saved two to itself. I would guess Insights growth rate in their portfolio between 2001 and today is actually pretty similar. TA's has definitely come down. They're more private equity like, discipline and process. I can get the sense that TA is very good at selling too. And then Excel, Excel Care has built like an incredible value creation game. And I think actually as well, I think there's a lot of like talk about value creation.

• 40:26Speaker 02

  I don't do much, but I get the sense that these guys are like very good at actually helping companies and trying to bend the needle.

• 40:34Patrick O'Shaughnessy?

  What have we missed about what makes the machine tick that you think is really important?

• 40:42Speaker 02

  I would have said that the three of us who run the machine are all very, very different and we play to our strengths. And I don't think that should be underestimated. And I think that's what makes the machine like, we literally negotiate carry economics for the three of us in 10 minutes. There's firms you hear about that get into month long fights over carry. We all highly respect each other and know what we're each really good at. Just a focus on intellectual honesty that I think a lot of firms just don't have. Like if you go to our investment community meetings, our investment committee is the three of us. Everybody that's basically VP now gets to come. But if you sit in the room and listen to Brian and Ema, I talk about a deal, you would think the three of us hate each other. Or you might think we're Israeli because it was just like a joke in Silicon Valley.

• 41:26Speaker 02

  If you listen to like Israeli board meeting from the outside, you're like, these people hate each other. Like how they like, no, that's how they talk. So it's like, no, it's like, let's debate the merits of this deal.

• 41:34Patrick O'Shaughnessy?

  Can you riff a little bit more on just all the ways that you're excited and fearful about AI? Both in the investment process at Lead Edge for running Lead Edge, the business and for the companies that you invest in?

• 41:46Speaker 02

  I'm the most fearful for what I don't know. AI is going to change the world and it's going to do it in ways that nobody can think about, just like the internet did. And in 2009, 90, 2000, we guessed out here, we wouldn't have mentioned social media. Today it's $3 trillion of value. Now, I'm the most fearful, whether it comes to companies and processes for that. It's like, what don't we know? What are we missing? What am I the most excited about for us? AI in the long term will create the biggest productivity game of the last 7,500 years. I don't know if it'll be like electricity, but like it'll be pretty damn close. That's really exciting. But like, people get too excited about, oh, we're going to go like build the next piece of workday, or we're going to go build better call center software. You're going to see industries that we're not even thinking about. If they're thinking about what's going to be possible, it's going to happen. That's really exciting.

• 42:31Speaker 02

  It's going to be the age of entrepreneurism. People are going to be able to build awesome businesses. What I worry about, whether it's internally at Lead Edge or at our portfolio companies, is do we have the right people in place so that we don't get disrupted? Because you constantly want to be, I joke, you want to hire a bunch of young people. The people who are young people aren't going to be able to find jobs. It's like, really, young people are the ones that are going to figure out AI more than the 60-year-old or 55-year-old. And so it's, we actually rank, we take all of our portfolio companies and we're saying, what's your AI readiness score? And then it's, okay, this company's like really high? This company's pretty low? Huh. We should connect those entrepreneurs together to figure out what they're doing. What goes into that score? What's your data look like? Is it structured in a way that you're going to be able to leverage AI? Are you iterating?

• 43:15Speaker 02

  How many AI products have you come out with? What's your AI revenues on new products? How much more product releases are you able to release? It's not, did your engineering comp stay flat or go down? I for one strongly believe that if you think in 2020, if your budget in 2024 for 2026 wants to have 150 software engineers, you should still have 150 software engineers. Because those software engineers can be exponentially more productive and they can then create more products that your sales team can then go sell. Who do you compete with? We would be against Insight, FTV, JMI, Battery, Decimers, where they do like bootstrap-ish type stuff. Sometimes we compete against Meritech and IDP and rocket ship companies in Silicon Valley are freaking awesome. I was not paying 100 times revenues for.

• 44:00Speaker 02

  That's the problem right now. There's like too much money. Matt Kohler said it best. It's like they back these giant internet companies when distribution was loose and capital was tight. It's like the first happened. So capital's everywhere, but like four companies control distribution. So good luck going to build a giant internet company. And right now, there's just too much money chasing, at least in Silicon Valley, do things.

• 44:21Patrick O'Shaughnessy?

  So decompose and expand on that a little bit. So I guess the question is your view on the state of markets and technology markets in general.

• 44:29Speaker 02

  Overhyped, overfrothed. And I believe this AI capex bubble will end badly. It's like the telecom bubble all over again. It will be very interesting if Apple may look like the really smart one at all this at the end of the day. We've seen, but I think people are just going to overspend. I'm convinced that people invested in all these AI companies, all these DCs like have to portray the view that software is going to be dead because they have to justify how much money they're going to spend. If you start to run these assumptions on like how much money is going into these companies and what that means for how much earnings you have to drive and what that means for like how much power you need to generate. It just doesn't work. Where are the nuclear power plants coming up? And it just doesn't work. But that presents the opportunity. That's when you're going to buy it. That's when you're going to buy these companies.

• 45:10Patrick O'Shaughnessy?

  The counter argument would be in telecom, it was all dark fiber in AI, it's all burning GPUs. And yes, the capex is crazy, but everything still feels mega undersupplied. I'm just curious how you think about when the opportunities will present itself for an investor.

• 45:27Speaker 02

  My fundamental belief is that the models will commoditize. And that companies like Google and Facebook and Amazon and Apple have a competitive cost advantage. Companies like Amazon and Microsoft and Google have more data to train a model than these new model companies will ever have. And then, oh, by the way, if you were all these Chinese models or European models, a bunch of these things cost a fraction of the cost to run and you can run them locally. Especially companies outside the US, like why would you pay that amount for OpenAI tokens or fantabic opens? When you can just run DeepSeek or one of these other 10 models. I think we worry the most about legalization. I have no clue when this will stop. It will probably go longer than people think. In 99 and 2000, people also thought we were in a bubble.

• 46:12Speaker 02

  People think we're in a bubble now and it will just stop. Is it one of these monster IPOs happening? And it just doesn't go like people think it does. I think this anthropic round was kind of like an IPO. We're trying to hit doubles and triples. A lot of these companies we struggle with. They're either going to be 200 Xs or 100 Xs or zeros. That's the struggle for us.

• 46:30Patrick O'Shaughnessy?

  What kind of company in the AI center of the heat map? I know you're probably not investing in any of them because of the multiples or whatever. What kinds of companies are the most interesting to you just as an enthusiast?

• 46:42Speaker 02

  I think it's fascinating, some of the stuff that's being done in infrastructure, software. And actually agents appear to consume more resources than actually people. Some of these consumption based models, the growth of companies. By dumb luck, we were very early investors in Clickhouse, which is a database company. We were early investors in Grafana Labs, an infrastructure company that competes with like data. I think data ducks run like high twenties, 30% a year at scale. It's those types of companies that I think we find super interesting. I find them fascinating. I really struggle with the violations, but the growth rates are like we've never seen with very good economics. You see how much money a company like Clickhouse has raised. What they've burned is very little compared to what you might otherwise think.

• 47:23Patrick O'Shaughnessy?

  What do you think is the most surprising thing about you? You have a good sense of you, how you operate, persistence, enthusiasm, energy, process. What do you think if I spent 10 hours with you, I would be most surprised about?

• 47:36Speaker 02

  Probably how driven I am and how much I truly love what I do. And like, I just put my like heart and soul into everything I do, whether it's like racing cars, which I race cars competitively. I was a national ranked ski racer or how I run the day. It's like I probably sleep five hours a night, four hours a night. It's because I love what I do. I'm insanely competitive. If you spent 10 hours with me, you'd be like, oh my God, this guy is the most persistent competitive person I've ever met.

• 47:59Patrick O'Shaughnessy?

  Were you born that way?

• 48:00Speaker 02

  Yeah, I think I was born that way.

• 48:01Patrick O'Shaughnessy?

  Was it enhanced through formative early experience?

• 48:03Speaker 02

  Ski racing, skiing, growing up as a kid, 100%.

• 48:06Patrick O'Shaughnessy?

  Can you make that tangible for us? Like, what was it like?

• 48:08Speaker 02

  Process, do these things and you'll get better. Do these things on video in a GS course and constantly analyze video and do these things the next run and change this. And you fell, get up and go do it 10 more times. I grew up on a ski hill. Five hundred feet. I mean, Lindsey Vonn, the one of the best skiers in the world. She grew up skiing on five hundred feet Buck Hill in Minnesota and doing laps from four P M. to ten P M. at night. Just repetitive. Michaela Schiffer, who's one of the best female skiers in the world, views it as her time on snow is like limited. When you get off the chairlift, everything is a drill, constantly be trying to improve. I think that's it. Elite Edge, what you would find in me is constantly trying to improve. Which surprised me the most, actually, if you had to say like, huh, you started the firm fifteen, twenty years ago.

• 48:51Speaker 02

  I think I've been able to recruit and maintain, motivate and build a really good team. I mean, very good to pick really good partners that treat other people really well and that feeds on itself.

• 49:04Patrick O'Shaughnessy?

  Is there anything else from skiing, I'm not a skier, that you find visceral and helpful? As an analogy for how to do things elsewhere other than reps and practice?

• 49:15Speaker 02

  Scott Booth, who ran Eastern, I asked him why he hired me, and this was early oh eight. He said to me, because when things get scary, you're gonna wanna buy. And I didn't know what he meant, because he's like, you're going down a hill at eighty miles an hour. This isn't scary. This is like nothing. You're like, you can make a decision to go in down the hill at eighty miles an hour and what to do and what not to do and on at the fall. In the fall, the way it happened, this isn't scary. Let's buy. It's eventually gonna go up. Ski racing helped me really understand a very fine line and risk adjusted and risk return behavior. I just think being an athlete, whether you play basketball, whether you play hockey, whether you play golf. I think athletes just have a work ethic. If you're trying to find it in young people and have a drive.

• 50:00Speaker 02

  There are athletes that have incredible athleticism, but also have incredible work ethic like Michael Jordan. Those are the best of the best. Then you have people. Like Steve Kerr, who were not very good athletically, but had a workout like Michael Jordan, they could be good. But then you have wasted talent, which is like Xander Robins of the world, where they were amazing athletes, but they like didn't have a drive. And I think the same can apply to investing.

• 50:27Patrick O'Shaughnessy?

  Why did you choose to start the firm? Cause you were quite young when you did it. How would you translate that experience into advice for someone listening that is thinking about starting a fund to decide whether or not they should do it?

• 50:37Speaker 02

  Just go do it. Do you want to be an entrepreneur? My partner Brian's like, we started a firm because nobody was going to like hire your ass. And because you know what? You couldn't work for anybody. I've always wanted to be an entrepreneur. I wanted to make a lot of money and be like really, really successful. It's always tripped for me. I always wanted to be solely focused on it. And if you wanted to generate generational wealth or build something, you need to be an entrepreneur. Yes, if we build Blackstone, everybody who's here will make an insane amount of money because it was 90 people. One of my partners, Zach, is very young. I mean, he's 30 years old and he's a partner. Because he joined here and he took a bet when the firm was tiny. I just encourage people, if you want to do it your own way, there's no better time than now.

• 51:19Speaker 02

  What are you waiting for? I actually think it's easier to leave when you're 27, 25 than when you're 45 and have three kids. I had nothing to lose. If it failed, I was going to just go work. I guess it works for everybody.

• 51:28Patrick O'Shaughnessy?

  Once you made lots of money, do you still care?

• 51:30Speaker 02

  A hundred percent.

• 51:31Patrick O'Shaughnessy?

  Why?

• 51:31Speaker 02

  Keep score every day.

• 51:32Patrick O'Shaughnessy?

  Because it's score?

• 51:33Speaker 02

  It's a score. It's because I want to win. People like Ken Griffin and Steve Cohen are mentors to LPs of ours. It's incredible how hard those people work. Now again, maybe these are N of two people. Or if you look at some of these tech entrepreneurs, like Elon Musk or Alex Karp from Palantir, or Matt Prince from ClubFlare, or like George Kurtz from CrowdStrike, like these people are incredibly driven, hardworking people that live and breathe what they do. And so, yeah, I mean, people keep score. It's not work for me. This is fun. I travel constantly to meet companies, to meet LPs, to meet entrepreneurs, to like meet bankers. And it's not work. It's fun. Until people my schedule and they like cry. I'm like, no, it's not work. It's fun.

• 52:09Patrick O'Shaughnessy?

  It's pretty amazing what you built. A very unique model, incredibly fun. Willing your heart to just walk us through it all. I had so much fun doing this. When I do these interviews, I ask everyone the same closing question. What's the kindest thing that anyone's ever done for you?

• 52:21Speaker 02

  Pete Willmott, he's passed away, was the former CEO of FedEx. And he was a Williams alum. I started a company in college and he was the first person that ever believed me. I was like 19 years old and he became an investor with us. And the company completely failed. When I was trying to get my first job, then when he got my job at Bestinwer, he was my reference. And he basically told the person they were insane if they didn't hire me because I was the most persistent person he never met. So that's probably the kindest thing I've ever done.

• 52:50Patrick O'Shaughnessy?

  I learned so much today about building something unique. Thanks so much for your time.

• 52:53Speaker 02

  Thanks so much, I'm young.

• 52:56Patrick O'Shaughnessy?

  If you enjoyed this episode, visit colossus.com. You'll find every episode of this podcast complete with hand edited transcripts. You can also subscribe to Colossus, our quarterly print, digital and private audio publication, featuring in-depth profiles of the founders, investors and companies that we admire most. Learn more at colossus.com/subscribe.

• 53:35Patrick O'Shaughnessy?

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• 54:15Patrick O'Shaughnessy?

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