David Fialkow - Paint Outside the Lines - [Invest Like the Best, EP. 243]

My guest today is David Fialkow, co-founder of General Catalyst. If you are looking for a dose of fun, charismatic energy from a very unique investor then this is the conversation for you. David has a diverse background not only as an investor but also as a philanthropist and filmmaker. He won an Academy Award for his role as the producer of the 2018 documentary Icarus. During our conversation, David and I dive into what makes a great founder, the importance of storytelling, and the value of effectively convening people within your network. After listening to all of his great stories, I think you’ll see why David has so much fun and success helping founders. Please enjoy my great conversation with David Fialkow. 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 Eight Sleep. Eight Sleep's new Pod Pro Cover is the easiest and fastest way to sleep at your perfect temperature. Simply add the Pod Pro Cover to your current mattress and start sleeping as cool as 55°F or as hot as 110°F. To embrace the future of sleep and get $150 off your new mattress go to eightsleep.com/patrick or use code "Patrick". ------ 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 [00:03:03] - [First question] - How the process started that led to filming Icarus and becoming a VC [00:16:01] - Lessons learned about identifying creativity in potential founders [00:19:26] - What it looks like when a founder doesn’t clearly love their product [00:24:35] - Different aspects of building a successful investment firm [00:28:22] - Features of Ken Chenault that differentiates him from other CEOs [00:30:12] - Applicable lessons for the effective convening of people [00:35:20] - Whether or not he cares about the business model of new companies they back [00:40:57] - The story of Icarus [00:47:24] - What is David drawn to at the moment [00:51:13] - Key ingredients required to tell a powerful and convincing story [00:53:16] - The kindest thing anyone has ever done for him

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

• 0:00Patrick O'Shaughnessy?

  I know firsthand how complex the tech stack is for asset management firms. And seemingly every new tool and data source makes the problem even worse, adding more complexity, more headcount and more risk. RidgeLine offers a better way forward. One unified platform that automates away the complexity across portfolio accounting, reconciliation, reporting, trading, compliance and more, all at scale. RidgeLine is revolutionizing investment management, helping ambitious firms scale faster, operate smarter and stay ahead of the curve. See what RidgeLine can unlock for your firm. Schedule a demo at ridgeline.ai. 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 buy-side analyst who encountered friction sourcing, building and

• 0:43Patrick O'Shaughnessy?

  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, Canalyst's 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 canalyst.com/patrick. That's C-A-N-A-L-Y-S-T.com/patrick. If you're curious to hear more about Canalyst, stay tuned at the end of the episode where I talk to Canalyst customer Brandon Weir from BWCP to discuss Canalyst in more detail. This episode of Invest Like the Best is sponsored by Eight Sleep.

• 1:28Patrick O'Shaughnessy?

  Eight Sleep's new Pod Pro cover is the easiest and fastest way to sleep at your perfect temperature. It pairs dynamic cooling and heating with biometric tracking to offer the most advanced solution on the market. Simply add the Pod Pro cover to your current mattress and start sleeping as cool as 55 degrees or as hot as 110 degrees. It also splits your bed in half so your partner can choose a totally different temperature. I was so impressed after using Eight Sleep that I became an investor. To embrace the future of sleep and get $150 off your new mattress, go to eightsleep.com/patrick or use the code PATRICK.

• 2:06Patrick 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. 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 joincolossus.com.

• 2:33Speaker 01

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

• 2:58Patrick O'Shaughnessy?

  My guest today is David Fialkow, co-founder of General Catalyst. If you're looking for a dose of fun, charismatic energy from a very unique investor, then this is the conversation for you. David has a diverse background, not only as an investor, but also as a philanthropist and filmmaker. He won an Academy Award for his role as the producer of the 2018 documentary Icarus. During our conversation, David and I dive into what makes a great founder, the importance of storytelling, and the value of effectively convening people within your network. After listening to all his great stories, I think you'll see why David has so much fun and success helping founders. Please enjoy my great conversation with David Fialkow.

• 3:35Patrick O'Shaughnessy?

  My sense is this conversation is going to be all over the place. I don't think the entry point matters all that much, but I have to pick one, since I recently watched the documentary and was so interested by it, in how you came to start the process that ended up with Icarus. I start here because I'm sort of fascinated by the human will to win and the ends justifying the means, or vice versa, and what you've learned about people and competition as a result of building Icarus.

• 4:05Speaker 02

  Well, first of all, thank you. It's great to be here with you, Patrick. Icarus is very much in the same combination of venture capital, which is the art of luck, the pivot, backing great people.

• 4:19Speaker 02

  And doing things along the way that make sense based on three main things. Number one, always, always, always deferring to your founder or filmmaker and trusting their instincts on things. Number two, never giving up. Failure is only defined by giving up when we say that there's no more gas in the tank or fuel or legs on a bicycle or something. The third thing is surrounding yourself with people that are going to be super positive. Treat founders, filmmakers with empathy and understand how difficult it is to do it. My background was I was a filmmaker. My wife's a filmmaker. I couldn't make a living coming out of college with a degree in filmmaking.

• 5:03Speaker 02

  So me and my best friend Joel Cutler started a travel company. And that travel company became one of the largest travel companies in the U.S. Then we built it on a very simple premise that Joel came up with, that everybody likes travel, travel's fun, travel's great enjoyment. Why not wait till the last minute and book it? Who really cares whether you go to Aruba or St. Martin or Antigua, or whether you go to London or Paris? So if it's half price or a third price, why not just go where you can afford to go? And we caught the wave of everything at the same time. More leisure time for people, people wanting to travel, obviously the internet. With Joel's idea and a lot of luck and grit, we built a fabulous company that we ended up selling.

• 5:47Speaker 02

  We didn't take venture capital money because the beauty of the travel business is, oh, Shaughnessy books a trip today and pays a thousand dollars. You go away a month from now, we don't have to pay our vendors until a month after you come home. So we get this two months of float. Now that two months of float only works as long as you grow the business. Because if you stop growing, then-

• 6:08Patrick O'Shaughnessy?

  It bites the other direction.

• 6:10Speaker 02

  Right. Well, we got lucky. We sold it after eight years at a time when the business was really growing. And it was a fun business because it was young people and it taught me everything. There's so much about, number one, empower young people. Because we were all young and none of us had any experience. People go, I don't know, try it. Failure was not trying, that the outcome wasn't right. Number two was, we really believed in people coming from the outside. We didn't hire anybody from the travel business. We wanted to recreate the experience. The travel business sucked. Nobody cared about your experience. People who were just booking, they didn't care if you liked your hotel, your flight was on time, the beach was right. We cared deeply. We wanted you to have the best experience of your life.

• 6:55Speaker 02

  Just because you were paying less didn't mean you should have a less experience. On the contrary, you should have a better experience. So we wanted people involved in the business, meaning the people that were our teammates, to be as joy-driven as the people they were sending away. And that experiential energy really flowed and the business did fatally well. And we got lucky. We were young, we got lucky and we ended up selling it. Right around the time we sold it, we had an opportunity to really reflect on what we want to do next. And the company generated a lot of cash and we were always enamored with founder. We were founders, we wanted other founders around us. We had like a hundred thousand feet of office space.

• 7:38Speaker 02

  We had a lot of people around, we were tech-driven. So we came up with this idea while we were running the business. Why don't we seed other companies and let them use our space at National Leisure, which was our travel company, and hatch a bunch of new companies? And when we sold our business, which was a travel business, a payment business, a duty-free business, all rolled up, that all got sold about 20 years ago, the only thing that was left was some money that we made and a bunch of these hatched companies that were now going to be orphans unless we figured out a way to organize. And Joel and I decided to take a break. Joel has Crohn's disease. He had spent a lot of his life with some help from me and others raising money for Crohn's.

• 8:24Speaker 02

  And I came up with this harebrained scheme of building something at Children's Hospital in his honor. And it was so expensive, I went like, wow, I think we're going to go out and raise money from others. And as I was walking home, literally from meeting with the hospital, I went to a taco restaurant with my wife Nina and I was sitting with a bunch of business guys I knew. And I had gotten a little hefty in my last few years of running the business from my lean hockey weight of years ago. And they were commenting, and I made a comment, which I thought was the right comment, which is I'm allowed to weigh double what my wife weighs. She weighed 105, I could weigh 210. So they kind of like challenged me, did I still have the firepower to do something extraordinary athletically?

• 9:10Speaker 02

  So I bet these folks a million dollars that I could do the Hawaiian Ironman in ninety days, qualifying and doing it, if they give a million dollars to the Crohn's and Colitis Foundation. And of course, I had to succeed because there was no option other than to do it. So I did it. I qualified, went to Hawaii, got a million bucks from these clowns.

• 9:29Patrick O'Shaughnessy?

  How painful is completing it?

• 9:31Speaker 02

  Not as painful as it was for them to give me that million dollars.

• 9:36Speaker 02

  But while I was there, Patrick, Joel and I was sitting on a rock. And Joel said to me, and we were a bunch of our buddies, Joel said to me, are we A, B, or C entrepreneurs? I'm like, we're A entrepreneurs. What do you mean? We just sold our business. We had a blast. We did it together. We didn't have any investors. No VCs. How good is that? And Joel made some comments about my leadership style, which he felt was inconsistent. And that we were very fortunate to be able to build a large business and be able to inspire a lot of people in the ways that we did, which is basically delegating authority, which a lot of them thought was a positive thing. We were delegating authority because we didn't know any better. So I said to Joel, I think we're A entrepreneurs. And we went through it.

• 10:21Speaker 02

  We realized how weak we were at leadership, how we were at project management, at finance, and other things. And he said to me, if you really want to be around A entrepreneurs, how are you going to do that? And I said, let's start a venture fund. And he said, we know nothing about investing. We know nothing about technology. And I said, correct. We have no bad habits. We're outsiders. We're total outsiders. And the other thing is, we weren't kids that went to Ivy League schools and worked at Goldman Sachs. So we weren't accustomed, Patrick, to getting gold stars for painting within the lines. We were accustomed to doing things creatively and dynamically outside those. When we started, we just had this idea. Certainly couldn't raise money from the outside.

• 11:06Speaker 02

  The only way that we could raise money was by using our own capital. So our first fund was like small, sixty, seventy million, most of it our own money. A couple of friends of ours gave us money, not because of they believed we'd make them a lot of money, but they believed that we would show them deals they could co-invest in. And I get it, it worked really well, but it worked because we did what we love to do, which is to be part of that founder's journey. We didn't know any better. Here's the problem. The word investor doesn't work in my mind in the venture business. We're builders, we're makers. That's why, you know, I'm a filmmaker by background. Joel was a photographer and a creative person as well. We like being part of the making of the stuff and the creative aspect

• 11:51Speaker 02

  of what it takes to start things from the bottom up and help founders be part of that journey by providing them whatever the heck they need versus being steely eyed investors. And that kind of led me to another analogy. You know, I'm a hockey guy. The thing that makes hockey so difficult is you got to be able to skate and you got to be able to play hockey. Venture capital is a bit like that, but building a tech company is really like that. Not only do you have to be right about the idea, but you got to execute and build the business. And what we found is there was a disconnect so often between one and two.

• 12:33Speaker 02

  One, an innovator's creativity to come up with an idea. The second, which is great, but then if we're really going to be helpful, it isn't providing money. Money is a commodity. What we needed to do is help them build that business. Now, what does it mean? It starts with empathy and then understand. The second thing, and I'm going to get back to it in a second, is about storytelling. You want to get a job, you want to get into college, you want to hire somebody, you want to raise money, you want to sell a business, you want to convince somebody to do something with you or for you, you have to tell a story, Patrick. And that story has to be authentic or else nobody will join you in this odyssey.

• 13:17Speaker 02

  So what we learned, certainly being founders ourselves and then sitting down and having this crazy idea of starting a venture firm, was we had to help at the beginning with empathy for the process, but help in storytelling. Patrick, what exactly is the business that you're trying to build? Great. What do you want to look like? When you shut your eyes, who do you think we're going to sell this to? You know, meaning the product. What kind of people do you want to work with? Patrick, you're a self-proclaimed technical nerd. Great. Let's party with somebody that isn't that way so that the two of you have a collaborative effect on things.

• 13:55Speaker 02

  And we always looked at that odyssey of being a founder, not only through our eyes, because that's of course limited. We only started a few businesses, but through their eyes and how could we be part of that? Sometimes it's protecting them, you know, as we moved on and built our firm. One of the things we found is we found a lot of our time protecting founders from other investors who may have different agendas than us. This is a business where values created, you're an investor, compounding over many, many, many years. So why the hell would you encourage somebody to sell a business or do something crazy? When you really want to be part of something creating value over a very, very long period of time.

• 14:37Speaker 02

  So being part of that journey with a founder means getting to know them really well. It's awful trying to make decisions on the early stage part of the business in particular with somebody that you've met for two hours and you've met him over Zoom or you've met him in some sterile office somewhere. So the things that we try to do is a lot of, we do a lot of collaborations. We do a lot of convenings. We bring people together all the time. And a lot of our, the ones that we bring together, we bring athletes and we bring. Filmmakers, academics, or research people, creative people, and then founders. And we try to have this be kind of a cross pollination of right-brain visions

• 15:19Speaker 02

  that really help our founders, number one, feel like they're not odd to be odd, right? Number one. Number two, they can build a network of people who they can pick up the phone and talk to, who are in different areas of their own creativity or their own journey, and also people that they don't know in their industry that create safety, that you're not always talking to the same people and you get the same echo chamber. So the idea originally behind our firm was to leverage a lot of that. It's self-defining, the people that we want to do things with us, and it's self-defining for the people that join us. Join us both as part of the G C team, part of our investor group,

• 16:02Speaker 02

  and of course, part of our network of entrepreneurs. All of our investors have the same common mission, which is they make money for other people. When you have that defined way to build a mission, it makes it so much easier to make decisions on who you bring into your team and who you end up investing with. It comes also from some things that other people certainly have said to you. If you paint between the lines, you'll never be an outlier. It just doesn't work that way.

• 16:33Patrick O'Shaughnessy?

  Can I ask you a question about that painting the lines thing? So you mentioned creativity as a key ingredient, not just for what you've done. Your background is very atypical, right, to build such a large investment firm? But it's kind of what makes it interesting. What have you learned about identifying real creativity in potential founders? Because that's a renewable resource, I've found. It's not just a moment of inspiration early on and then you build for 10 years. You constantly have to be creative. How do you underwrite that? Like, if you're backing people very early, you don't know much about the business. There is no business, so you have to lean on that creativity, I'm sure, a lot. How do you do that? How have you learned to identify that early?

• 17:10Speaker 02

  Let me be very direct and answer the question in a soundbite. It's only as always a founder that loves their product so much, nothing else matters. They don't hear the other conversations in the room. They certainly don't hear criticism that you're making of it. They don't view the difficulty of the execution as a problem, which is a great thing. Hopefully they address it by bringing in people around them. So there are four things that we get turned on by in our filter. I hate to say it, a checklist, but it's because it's a mental checklist. Number one, does that founder love their product?

• 17:53Speaker 02

  It is willing to do anything to get Patrick and David to use their product. And we'll run through walls to make sure the world, because they believe that the world needs their product more than they need oxygen. Number two, do they know how to sell? And selling means can they storytell? Can they make it clear to others how important this product and this mission is? The third thing is that they absolutely have to have some form of modesty so that they listen to other people. The smartest people in the world are smart because they listen to others. Now, they may not always follow the advice of others, but they listen.

• 18:33Speaker 02

  If we feel that somebody isn't going to listen to us or others who are maybe smarter than us, then it's hard to back them. Because you know, at some point, there's no room for a pivot, which is the major part of where venture capital returns come from. And the second thing is they're not going to take feedback in a way from many people, including people on their own team that's positive. And then the fourth thing is a true north. And that mission that I talked about earlier is deeply important to us because it'll get tested and challenged. Often, there will be interpersonal decisions that that founder will make about their life, their team, investors, their marketplace. It's hard to tell, but you can get a feel for somebody whether they're going to be a stand-up

• 19:15Speaker 02

  person because the expression that's my guiding principle here is adversity does not teach character. It reveals it. We talked about Icarus, but you know, Brian Fogel is one of the greatest founders of all time. He was the director and the character in Icarus. You've got to have that person that you feel that when, when bad shit goes down, wherever it does, they will be in a position of being able to make the right decisions and don't rely upon a rule or some principles written down somewhere. They have a gut instinct about doing the right thing all the time. And those are the four things you kind of look at, Patrick. And I'll tell you, if you do it, it'll be very, very selecting for you as an investor.

• 19:58Patrick O'Shaughnessy?

  There's one on that list that really stands out because I've never heard anyone say it quite this way, which is the first, that they love their product. What does the inverse of that look like? What does it look like when someone clearly doesn't love the product that they're building?

• 20:11Speaker 02

  Meatball question. Perfect. It's somebody that comes in and says they want to do a startup and we're like, great. I don't know, I'm looking at all these different industries. Ashani, he has a really good podcast, maybe I'll do a podcast. Pialco's got a good venture firm. They're focused on the commercial part of this. You want somebody who's commercial, but that's not going to get them to the promised land. So normally what happens is, we can give some examples of this, but people come, they want to have a discussion with us or other firms that is, I got to tell you about what I'm building. And we're like, great. And let's not focus on margins or CAC LTV or any metrics yet.

• 20:56Speaker 02

  Let's just get straight what this product is. Because here's what happens, and this leads to the pivot. When somebody is so obsessed about their product and then they get feedback. If they're good, they don't believe their product is a failure. They believe their creative instinct and their right brain can pivot it to be able to do something else. They never lose track of the fact that this is still their product. They don't say, okay, this is water and nobody liked water and therefore you're a Turkish beer. Here's a great example. So I joined the board five years ago of Boston Beer Company, Sam Adams. Why? Because my neighbor is Jim Cook, the founder.

• 21:36Speaker 02

  And in one of my impulsive moments, which I'll share later, I almost bought a brewery. And Jim said, it's a bad idea. The brewery I was gonna buy and why I was gonna buy it. It was in northern New England and it would have been like a boat anchor. So Jim and I became really good friends over the years. He's just a fabulous founder. He built a good business. About five years ago, Sam Adams was in deep doo doo. It had declining sales and it was trapped between really hip microbrews and the big guys who had gotten really good. So Jim said, hey, it would be great if you could join the board and help me and my team turn the business around. I didn't do much to turn it around, but I watched an unbelievable turnaround.

• 22:21Speaker 02

  This is the story. Jim Cook walks into a board meeting one day and we're looking for a new CEO. Because our CEO, who had been like kind of a co-founder with Jim, was kind of done and done a great job and gotten the company to a point. Now it's time to move on. And Jim says, a lot of you have been talking about how one product is gonna kill the beer business. We had told them that one product that was gonna kill the beer business was tequila. Because no sugar, it's light, it's an up, it's a great experience. And young people started drinking tequila and not drinking as much beer. So Cook takes that away and comes back and says, I have a product that can compete with tequila. Oh, go ahead. What?

• 23:07Speaker 02

  And he pulls out this can that he had made over the weekend, a Red Bull can, you know, a thin cylinder, ten ounce or whatever it is. And it was vile tasting flavored soda water. And he goes, forget about what you think today. Ninety days from now, this will be the biggest product on the market. And he invented with our board member who became CEO, the two of them invented Truly, which went in three years from zero to a billion dollars. Zero to a billion. It took Jim forty years to get to a billion dollars in beer. And in less than three years, Truly's over a billion dollars. What an amazing founder.

• 23:51Speaker 02

  He never said beer is failing. He said, it's just innovative. It's changed. And he used beer malts, which is how he got around a beer company selling it because beer companies can't sell spirit, tequila and vodka. But he built it out of beer malts because that's what great founders do. So it was that love of his product, beer. But what really changed it for him was understanding the taste and needs of other people. So that's the kind of stuff I need to. When we look at a founder, we look at, are they going to be that person that's going to be capable of making those pivots and stuff when they have to? And if you paint between the lines, you get too frustrated. You look at yourselves as a failure. If you went to an Ivy League school and then you went to a business school and you went

• 24:36Speaker 02

  to Goldman Sachs, whatever, your life had been about getting gold stars. I'm not saying that's not a bad life, it's just not the life you and I had. But you tend to look at risk as painful. I don't want to lose a gold star. I don't want to have a bludgeon. We're embarrassed all the time, like, oh, my God. You're going to ask me later, I know about failures. Well, I mean, really, you're going to need me back all week. Keep recording. Because we get this stuff so wrong all the time. And we got to look at it as a learning experience and then we got to do it with empathy and dignity and make sure that the people around us are treatable.

• 25:07Patrick O'Shaughnessy?

  It sounds like a key part of the general catalyst success story has been incredible amount of flexibility and we already talked about creativity. You're an entrepreneur here too, right? It's an investment firm, but you're building the firm over 20 years, 10 billions, one of the larger venture firms for sure out there. To what do you attribute that success? Like, what have been the different aspects of building an investment firm versus all the lessons you've learned building operating firms or watching operating firms get built? Are they different or is it all the same stuff again?

• 25:37Speaker 02

  The part we've done well is build a maker mentality. It totally changes the way you deal with investors, founders, your team, board members, co-investors, everything. It's a myopic focus around that person in the chair, building his or her business, and everybody's got to get aligned around that. I find that I do a lot of battles with other co-investors who don't treat our founders the way they should. Like, for example, it comes to things very tactical, like secondaries. If the business can afford to do it and the team is great and you're in it in the long haul, the founders take some money out. I mean, they go home, they tell their families, everything's going really well, but I can't

• 26:19Speaker 02

  afford a house or life's a mess because financially, yeah, I'm making X amount of money and the VCs are flying in in their private planes and they're busting my, you know, what's about having money to be able to live my life. Sometimes that mentality is, well, if you give an entrepreneur money, they'll lose their hunger. So then I say to the investor, well, somebody gave you money and if you lost your drive? No, of course not. This person loves their product and loves their company so much, why not treat them with dignity? Let them build the kind of life themselves. So sometimes it's basic as that. Sometimes it's also being somebody who people feel is safe to talk to. I've spent a lot of my time in the last 20 years at GC with founders, not talking

• 27:03Speaker 02

  about businesses, but talking about personal stuff, interpersonal relationships, lives, parents, kids, spouses, co-founders, just issues. Be safe. Be somebody that people want to talk to because you have good judgment, but you're safe. That's a big part of what GC is. The third thing is knowing when you need help. We did a really transformative thing three years ago and that we brought in Ken Chenault to help Hamon, Joel and I at the time, really scale and run the firm. People probably scratch their head like, why would you hire or nobody hires Ken Chanel? Like, he hired us, so to speak.

• 27:44Speaker 02

  But why would, why would you bring on board somebody who ran a hundred billion dollar? This is called American Express. Well, number one, we knew him for 20 years and he was a trusted advisor and friend to us and vice versa. When he transitioned, said, hey, you know, I'm gonna leave Amex. Joel and I and Amal got together and we said, this is the guy. This is a guy who can really help us scale. Not because we needed to raise money. That's easy in the venture business, especially top decile or top 5% firms like ours. How do you keep that quality of service to founders? Which is hard and it's our biggest challenge.

• 28:24Speaker 02

  Again, all your top 25, 30 venture firms, where we wanted to play a difference in our differentiation was our ability to be empathetic and really be able to mentor founders. And that's where we needed a guy like Chanel. He had been the consigliere to so many founders, young, old, tech, non-tech. He'd been on, you know, IBM's board. He had been obviously Amex's board for a long time. The lead outside director of Berkshire Hathaway. I mean, the guy's a total rock star, right?

• 28:54Patrick O'Shaughnessy?

  What makes him so good? Like, what is the feature or the features of his mentorship that you watched over that time? That differentiates him from others that do the same thing?

• 29:03Speaker 02

  I can tell you from first-hand experience, he runs a huge company. Has all the accoutrements and trappings when he was American Express. But I could sit down with him and say, this is really not going well. This part or that part, or how do I deal with the situation? He always made it easy for me and others to trust him. He is just a menschy, trustworthy guy. And he's got unbelievable emotional IQ and intuition.

• 29:32Speaker 02

  He can sit there and in a nanosecond say, I get it. Don't feel bad about that. These are the two things you do. The only other person I had ever seen do that was Bill Campbell. Was lucky that I got a chance to meet him last five or six years and spend a lot of time and gaining some mentorship from him. And Ken Chenault was the other guy. I mean, Bill knew the values so well. Ken was just different. Just judgment on how to deal with people, how to deal with every part of your life in a way that was organized. But he also knew how to scale things. He knew how to talk about things and say, if you wanted to be like that big, you gotta get this stuff right early. And very few of our firms, just go back to hockey, you gotta build a great firm and you have to be able to make good investments.

• 30:17Speaker 02

  And I think we were better until Ken came at making the investments than we were building a firm. Cause what had happened is our culture just was myopically focused around this mission of being with founders. And sometimes we probably didn't make the best choices internally on how we were dealing with our own people. And how we were dealing with our own platform and scale. And we were redlining the business a lot, which was good, but not scale.

• 30:44Patrick O'Shaughnessy?

  If you think back to a really key point you said earlier, which is that you do a lot of convening of people. It also seems, and I've certainly found this in my experience, that the best investments don't come from like a competitive process, run over Zoom over two days, but rather just like emerge unexpectedly from relationships that you've cultivated over the long term. And Ken's a great example. What have you learned about effective convening of people? If this is a key ingredient behind the GC story, what lessons could people out there listening draw from your experience?

• 31:13Speaker 02

  Good way to summarize some of these things. Imagine you put a tech fund and let's call him Austin McCourt, who's a founder of data. And when I was trying to get to know him, he didn't want to take any outside money. He had built this thing, the time I met him, he was like twenty eight. He had started in his basement and built it up to a really good business. I had met him through like a friend of a friend of a friend of a friend, actually who asked me to interview somebody at Austin's company to help them get a job in accounting. It led me to say to the person, tell me about the company. And this person then told me about the founder. And I really wanted to meet this young guy, Austin McCord, this business he was building. So I got to know him and I utilized two of my partners, Paul Sagan, who was the CEO of Akamai and Steve Herrod,

• 31:58Speaker 02

  who was the CTO of VMware, who are both partners at G C, to develop a technical relationship with Austin to help him if he allowed us to invest in building the business. That's another thing. Know what you're good at, know what you're not. And Austin and I became great partners and fabulous friends till to this day, even in his new company that he started and hatched at G C. But at the time I met him, I wasn't really good about cloud backup computing. I actually knew so little that when I went to see him, I said, well, you know, I'm really familiar with Barracuda, hoping that it would somehow play a role in what he was thinking of doing as a business. I'm not putting Barracuda down. He looked at me like, what the hell are you talking about?

• 32:43Speaker 02

  That has absolutely nothing to do with what I do. And I only told him a year later, after I made the investment, that was bluffing, that I couldn't really understand what he was talking about, so I just threw a name at him. But I was smart enough, A, to get him the right partner at G C who knew a lot about this stuff, and B, to know what my role would be with him, which would be a great mentor and friend to him. Okay, so now we go back to this scenario of convening. I bring him to one of our convenings. He doesn't know anybody. I have some LPs there. I have a filmmaker, I have an athlete friend of mine, pro athlete friend of mine, and I have a professor from a business school, and I have three other founders. Austin, by far, was the youngest. And I watched this guy, and all he did was ask questions and listen to people.

• 33:30Speaker 02

  He could articulate what he was doing. But then what he really wanted to ask you is how you did it. And get ideas from other people. And he was so curious and so nice about it. Yet so focused around explaining to people why he was asking, what he was doing. And I said, this is the kind of guy you just want to help. He's a good dude. And so those are the things that convenings allow you to do. I did another one, one of our companies, a really good healthcare company. That sells direct products to consumers. Let's call it Row Health.

• 34:10Speaker 02

  Zach is one of the best founders ever. And Zach's journey at GC is fantastic. A great young guy, Peter Boyce, who was an associate at the time, found the company. Hamad helped him from a healthcare point of view. Joel helped him from a subscription point of view. Adam Balkan helped him from a fundraising point of view. I helped him from just some mentorship point of view. I mean, this was a GC scrum. As we seeded the company and started to do a lot more work. My partner Holly looked at an acquisition with him. I mean, I'm just thinking about all the people that touched Row in its growth. And one of the things that we found was that as he pivoted the business.

• 34:54Speaker 02

  He pivoted because he had all of these people around him that were helpful to him. Then I brought him to a convening. At the convening, we introduced him to somebody who was like the perfect person to join his board. Because this guy had regulatory background and was the general counsel of Uber. Named Tony West. You know, he did a great job cleaning up a lot of the stuff that he and Tara had to clear up at Uber. We stayed really close. And then he came to one of my convenings and he met Zach from Row. It wasn't a coincidence that I put the two of them together at this convening. Zach said, my God, that guy's like amazing. He knows everything in the world about scaling technology companies. He's been at Uber, he's worked at Justice Department.

• 35:38Speaker 02

  He certainly knows regulatory environment. And we put the two of them together on the dock in front of my house in Martin's Inyard. Tony's been a board member for the last year and a half, which has been fantastically helpful to Row. So these convenings also can lead to, you know, relationships or partnerships. The best thing it does is it allows people who are myoply focused in their own world, whether it's academic or technical, or being a founder of a business, or a filmmaker, an athlete, or a philanthropist, whatever it is, it allows them to meet people from other places and learn a lot about them.

• 36:12Patrick O'Shaughnessy?

  Maybe we'll call this episode like Paint Outside the Lines. There's this incredible organic nature to kind of everything you've described, that you're not designing the system ahead of time, you're letting it unfold based on people and relationships and makers very organically, which makes me wonder, do you care about business model? Like, the canonical VC, high gross margin software business is obviously done well, but you've talked about film and restaurants and Row and healthcare. Do you care, early on, about the sort of nature of the business model behind the companies that you back?

• 36:44Speaker 02

  I should have began your question by answering it this way. My greatest joy, and the reason why I've been able to do the things that I do, and be able to do them with some degree of success and an extraordinary amount of enjoyment, is the people that have come into my world who do a lot of great things with me. And I, in and of myself, am incredibly mediocre at most things. However, if I have convening power, and I have the ability to surround myself with extraordinary people, I'm the most blessed person in the world. And that's what gives a lot of the things that I've done in my life the throw

• 37:29Speaker 02

  weight, whether it's film, or philanthropy, or general cadence, whatever the capacity to do it. So, directly to answer your question, you would not want me pontificate to you about business models.

• 37:42Speaker 02

  Listen, I know enough to know enough to be helpful, but I can help you get better people than me to work on that stuff with you. And one of the problems is when we all try to assume we're experts and we're not, we're doing a disservice to our customer who's our founder. So what I'm going to say is, hey, if I love this founder, these are the things I can help you. But these are the things I can't. That's why I need to bring in Steve Herter, Montanazia, Joe Culler, or Ken Chanel. You know, or Adam Balkan. When we're in businesses like this, we have access to amazing people, Patrick. Why the hell would anybody try to bluff and pretend they know things? Or try to hamstring a founder by saying, this matters, this and this.

• 38:28Speaker 02

  The best thing we do is say, hey, let's bring a couple of people in who really know. And we as a swarm can be much more effective in helping our founders. So that happens like all the time. So direct answer is, do we care about business models? We do when it matters. A lot of the businesses we do, that doesn't matter. And clearly, that's a decision we make with a handful of us helping a founder. And it totally demystifies the process and it totally de-escalates it. You know, when it's one person helping one person, it's an uncomfortable scenario. When you bring a team of people with you to say, hey, this team is committed, Patrick, to your success. And it's a variety of different people, you feel really good.

• 39:12Patrick O'Shaughnessy?

  It sounds like the strategy is almost, don't try to be an interesting node in the network. Just create more edges of the network. Like be really good at collecting great nodes and knowing when and how to connect them. And great things will happen.

• 39:23Speaker 02

  Because you don't know the journey that you're on with, huh? And you want to be able to provide the throw weight. So as a firm, like, so we started out in Boston. And for the first 10 or 12 years, yeah, we were only in Boston. Then we realized that we couldn't compete. We had a bad scenario where we thought we had a deal with a company. We flew back on the red eye. While we were on the plane, they signed a term sheet with somebody else because we were, and they claimed it was because we weren't local. We then backed this guy Jim Schwartz, who's been a friend of mine and mentor, who's founder of Excel, and said to me one day, well, I mean, if you guys are gonna stay in Boston, you're gonna be a marginal firm. So we moved out to the valley. And three things happened when we moved to the valley. One, we gave one of our brilliant young people, Hamon, and a couple of others, a chance to run their own

• 40:06Speaker 02

  business. And we said, listen, we're connected. We're one firm. Because we have one culture that defines us and keeps us on track with mission and vision. However, we need to run that business out there the way you think it should be run. It's going to be different pricing of deals, different networks, different ecosystems. If people feel you're always checking back with command control, you're dead before you begin. So you're going out there completely deputized. You've been with us for 10 years or eight years. You're the guy, builder team out there, and boom, he really did an amazing job. Had we not done that? And then Joel decided to move to New York.

• 40:44Speaker 02

  So we had basically Boston, New York, and San Francisco set up really well with three founders of the firm. The next thing we did is that allowed us to infuse some culture in different places. But then the next thing we did, which was unique, is we immediately gave people big role in the firm as young people. For a very simple reason. We're a tech venture fund. If we don't believe in young people in our own firm, what message does that send? Now, I'm not being critical of other firms, but God, you've got the best talent in the world sitting in your firm. Don't leave it underneath you. Let it flourish. So we did.

• 41:27Patrick O'Shaughnessy?

  I have to pull the amazing bookend that everyone's been waiting for and tie this back to Icarus.

• 41:32Speaker 02

  Wait, are you saying that this is over?

• 41:34Patrick O'Shaughnessy?

  No, no, no, I'm just, I'm using, I'm using my opportunity to tie off at least one loose end. When I saw the movie, the documentary, what struck me was, again, what we opened with, which is you've told the story of the opposite, right? People that love their product and have the fourth thing you said was North Star. Like they've got, I think of that as almost like ethics or integrity or morals or something like they're doing it for a bigger purpose or a certain way or both. And what struck me about Icarus was like how far people can go doing things the wrong way to achieve an end or an outcome that we think of as good or as a win or whatever. What did you learn there? Like, is this a counter pattern that you can deploy in your investing?

• 42:12Speaker 02

  Let's get back straight. This is a movie that failed in pivot. Brian Fogle was introduced to us by Dan Kogan and this woman, Carolyn Drive, introduced us, two film partners of ours, introduced Jim Schwartz and me to Fogle, who wanted to make a movie, which he described as supersized me for biking, for doping. I'm gonna race one year and we're gonna film it. I'm gonna race a second year on dope and I'm gonna do better and it's gonna be fun. Okay. But here's what happened. Here's what happens. The movie doesn't work. He races undoped and he does really well. He then goes through a year of protocol, this is Fogle, and he dopes and he does worse.

• 42:55Speaker 02

  Now, he does worse for a variety of circumstances, not relevant why, other than maybe he was doped, I don't know, but he didn't do well. So he is sitting there like a founder on the floor in the fetal position in Geneva, Switzerland. I did worse, the movie failed. Well, not exactly. So Jim and I said, listen, we're VCs. This happens all the time. How do we pivot this to give you your next thing? And Brian was not a founder of the tech companies. It wasn't something that he was just correctly taking a headshot on. And over dinner, we said to him, if you were gonna do one thing to do something extraordinary, what the hell would that be?

• 43:39Speaker 02

  He'd go, I'd get up tomorrow morning, I'd go to Moscow and I'd find Grigor Yushchenkov and I'd figure out how he helped the Russians cheat in the Olympics. And we're like, that sounds like a really good pivot. This one's in the rearview mirror, it didn't work, let's go. And we re-upped. We gave him a Series A. We gave him more money. And what happened next is like the guy made one of the greatest films of all time. He, not us. All we did was help him pivot. Now, along the way, yeah, some help in the Justice Department, ended up being important. Jim Schwartz found this great lawyer to help us, you know, with the US judicial system.

• 44:22Speaker 02

  But we never abandoned him. The same thing that Jim and I do with early-stage companies, we did with FOGO. We provided air cover, we provided encouragement and nutrition along the way to keep going. And then when things got really ugly, and they did, we were getting all hacked. The Russians were gonna try to kill Rychenko, you know, it was all this kind of stuff. And we couldn't lose our resolve. We had to tell Brian, listen, hang in there, buddy, we're gonna get you through this. And Brian was a great founder. Oh my. Me and Jim were really great partners. He was fabulous. And I think a lot of it is that we had some experience together doing deals in the VC.

• 45:01Speaker 02

  And I knew that this was a guy who wouldn't crack and would not ever do the wrong thing by Brian or another founder. So that transformation with Brian's vision, and we were there to support it. Now, what also got lucky was you had a character in Rychenko, who's like bright-eyed central casting. I mean, if we were gonna make a feature movie meeting with actors, we'd have to have Rychenko play himself. I mean, the guy's so good at playing himself that, I mean, he's a character and he's dynamo. So everything kind of lined up. The third thing is just luck. Okay, so I use this quote without a connection to factual number. Okay, forty percent of every return is what the market's doing at the time, some number like that.

• 45:46Speaker 02

  You can build the best company in the world, and then in a shitty market, you're gonna get lower things. How lucky could we be, Patrick O'Shaughnessy, that the day the movie premiered at Sundance, the exact day is the day that Trump gets inaugurated, okay? And by the way, we talk about the Collisons, how good are guys are they? John Collison comes to that premiere at Sundance for me. I hope you like the movie. But, he came. Nobody knew what this movie was.

• 46:15Patrick O'Shaughnessy?

  Showing up is big.

• 46:17Speaker 02

  Well, no, no, we couldn't even promote what the movie said. We couldn't say we have prima facie evidence of Russian doping. We would have been laughed out of the world or Rychenko would have been killed or something. So we had to go to Sundance. This woman, Carrie Putnam, deserves a shout out. She ran Sundance. We went to her and we showed her a clip. And she was like, you're kidding me. You have proof that the Russians filmed in the Olympics. I go, we'll show it to you. We'll show it to you. Dan Kogan, one of our producers, said to her, listen, you should see this. And Dan said to her, you gotta let us in so we can play the movie. But we can't promote what's inside the movie. And Carrie is just a very, very, very fine CEO of Sundance, loves filmmakers. Same thing. She's just protecting a founder.

• 47:02Speaker 02

  She goes, you got it. So much so that we didn't have the film printed and finished until 3 a.m. The morning of Sundance because of all the stuff that was going on. And she allowed us to load it in the middle of the night. There's this protocol that a film has to be loaded by 9 p.m. The night before for the whole day so they don't have technical screw ups. And we said to her, this thing's arriving at 3 a.m. We're gonna have to load it then. And she's like, huge believer. And by the way, isn't it great to have all these analogies? So here's a film. It's exactly, she's a VC, a great VC, supportive of her founder. If she hadn't let that movie play at Sundance, it would have never gone on to the prominence of the One of the top docs.

• 47:48Speaker 02

  There's been a lot of great docs made, but it certainly wasn't a very transformative documentary. So that's the story of Icarus.

• 47:54Patrick O'Shaughnessy?

  I love it. And it's just yet another example about none of what we're talking about really is pertains to VC. It's just creative magic and the pursuit of that magic. With that in mind, I'm curious where you sense magic today? Like what parts of the world or what kinds of people are you drawn to here in late 2021? Because the world has changed a lot and it also seems like it's exploding in terms of opportunity and technology and development. It's just an exciting time. So where does your spidey sense pull you in terms of creative magic today?

• 48:24Speaker 02

  One is, you have to build a diverse team today, the likes of which we've never had to do before in our industry. Diverse from geography to ethnicity to creativity. We need to build teams that bring a broad spectrum of thinking and creativity to everything that we do. The likes of it, and that's not just good for responsible innovation. It's good for helping founders build their business in line with that. Couple of things that we've done along that line is we have two fabulous partners at General Catalyst. Ken Chenault, former MX chief, and Ken Fraser, former Merck chief, who joined forces and came up with this program called One Ten,

• 49:06Speaker 02

  which is this program to provide black leadership and that families can earn a family wage a million over the next 10 years and really encourage employers and recruiters and young people and mentors and everybody to collaborate to create this seismic change in the way in which we look at the next generation workforce. Now, everybody has to go to college to earn a family wage and provide for their family quite well. The second thing that we all went hard after is voter rights. And we utilize a lot of our relationships with CEOs, both public and private and everywhere, to really play a role in doing that. Now, why am I bringing that up when you ask me what lies ahead?

• 49:50Speaker 02

  Well, firms like us never had that kind of throwaway where we could actually influence and to take responsibility for trying to influence in a good way our public missions. It's just wrong not to give people an opportunity to earn a family wage. And it's just wrong not to give people the right to vote. And we can do that, not because we can give money and we can donate to politicians. That doesn't work anymore. Our generation of leaders in tech, we have the throwaway to be able to really influence people because people need our businesses. And more importantly, they trust us. So instead of beating them over the head with a stick, use a carrot. They need us. We can be helpful to them. You have people like Gina Raimondo,

• 50:35Speaker 02

  who was the governor of Rhode Island, brilliant governor of Rhode Island, now the Secretary of Commerce. And she's doing an amazing job in areas like cyber and everything around treaties. She has part of the weather and the climate, extraordinary throwaway. She's the one in charge of implementing a lot of the infrastructure stuff. Who better than a governor who was a former VC? We've never had that kind of talent. You have a guy like Marty Walsh, who runs labor. We know him because he was the mayor of Boston, but like absolutely the guy, first of all, he's a really hard ass, tough guy. You wouldn't want to mess with him. But he was able to help companies in Boston really work together because he's just like, hey, let's get our shit together and get stuff done. You got Charlie Baker, who's our governor, who's a Republican, who is the same kind of person.

• 51:20Speaker 02

  We as a firm have access. Mark Warner is the head of intel, Senate intel. Work closely with us and a lot of other VCs and a lot of companies around stuff around cyber. So these are big decisions that we as a firm have to make where it's investment, public policy, public good, and our ability to really, I think, change the way people think about things. And if we don't do that, we lose our opportunity.

• 51:42Patrick O'Shaughnessy?

  So many of today's great lessons are delivered by you via story. You talked earlier about the importance of storytelling. Not everyone can be a natural animated storyteller. Maybe you can get better, but it does seem like some people are naturally good at this. For those that aren't, what comes before a great story? Like, what are the ingredients required to tell a great story? So even if we're not a natural charismatic storyteller, we can still harness that power to, like you said, convince everyone we need to convince, investors, customers, hires, et cetera, to join a specific mission. What's behind a great story?

• 52:16Speaker 02

  Authenticity. A lot of the founders that we talked about, I would be hard pressed to say that they were charismatic. What I would say is they're obsessive about something that they believe in. And, you know, I always marvel. I love sports. I don't own a sports team. I love sports, but I'm always amazed at how.

• 52:41Speaker 02

  Loyal people are to sports teams based on where they live. Nobody could ever be a Yankee fan if, unless they were born in New York. I mean, it's just impossible. I live in Boston, of course. So what happens is people definitely believe in things to the point where they're blinded by obstacles. And that's a really good thing. Let me take your question, extrapolate the answer in the following way. They love it so much. They don't think they're selling you to join their business. They think you're a frigging idiot if you don't. They're not selling you on why you should invest in the business. They're trying to just tell you this is so good. It's you who thinks that you should invest in the business.

• 53:26Speaker 02

  They're just believing so much that they can't imagine why you wouldn't. The third thing is they're not trying to get you as a customer. They are just saying, you're again, like a person, you're an idiot to not use their solution. So what may come off to us as selling, they're just telling you the way they really think about something.

• 53:46Patrick O'Shaughnessy?

  I can imagine how much freaking fun it would be to build a business with you involved in it. I just sense that like a reason that your contribution to GC's success is just that. You just bring this really unique energy and attitude and frankly, profiles is just very different from a lot of other venture investors that I've talked to. And I've loved our conversation. I ask everybody the same closing question. What is the kindest thing that anyone's ever done for you?

• 54:10Speaker 02

  Oh, wow.

• 54:12Speaker 02

  Well, I think the kindest thing anybody's ever done is Nina Singh, who I met when she was 17, when she was a freshman at Carnegie Mellon, but didn't marry me until 10 or 12 years later. She believed in me when there wasn't a lot to believe in. And I think that was like, had to be kindness because it certainly wasn't intelligence. And you know what I mean? And no, no, I listen. I think that. Sometimes the most basic things are the things that matter the most. Being super happily married and having a partner and a friend in life like Nina has been extraordinary. I mean, she's my film partner, too. She's a brilliant filmmaker. I would have never, ever made Icarus,

• 54:55Speaker 02

  or certainly ever won the Academy Award were it not for Nina coaching me on how to do it. I had some skill myself, but I wouldn't have been able to accomplish it at that level. And Nina's ability to keep me and others focused on the social mission of social justice, just an amazing thing. We did the vow with great filmmakers from others. Kareem and Jahan made this film with us. And it's a story about this cult in upstate New York, the NXIVM cult. And the way that Nina does things is she not only produced a film with Kareem and Jahan, but then she made sure that the despicable founder of NXIVM, this guy Keith Rennery, got prosecuted and he's doing 99 years in jail with no parole.

• 55:39Speaker 02

  It wasn't good enough to make a really good series. We had to follow it through to the nth degree because our mission is not making great films, is making great films that tell you something you need to know that leads to action in social justice. And what could we be better than taking a bad hombre and throwing him in the slammer for 99 years? So that kind of purity to mission has been like an incredible guiding principle. So that was one of the kindest things. The second thing is interesting. It's this guy that I brought up twice named Jim Schwartz, who Excel is another venture firm. They're good friends of ours, but they compete with us. I don't think a lot of the decisions that I would have been able to make, I would have made without Jim's guidance and wisdom, even though he didn't have to do it.

• 56:24Speaker 02

  He runs another firm, but he did it. I thought that was amazing and he's also the great partner. What I'm always touched by is I actually, there's so many people that have been helpful to me. I have such a non-Jaded view of the world that way. I would have never, ever been successful, ever, ever been able to do a lot of things I've done. If it weren't for the kindness and generosity of people, sometimes deserving, sometimes I wasn't. But it was through that, and by the way, that's empowered me to try to live my mission of doing the things that you and I have just talked about. Yeah, pay forward. And you know what? It is through the effort of others. I mean, first of all, I have two isms that matter to me. One is adversity does not teach character, reveals it. The other one is no one's spared.

• 57:08Speaker 02

  Everybody has bad shit that goes on in their lives, their marriages, their kids, their friendships, their businesses, everything. Any of us that think that have such a polyana do that that isn't going to happen or hasn't happened is just dead wrong. What you want is the ability to say, hey, this happened, help me and have people around you that have the same empathy. And what that does is it builds up this sense that there's a common good in being able to be there for others. So if I were to take what people have done for me, which answers your question, then say, okay, how do I pay forward and make GC a firm that has at its core, the fact that we need to have empathy and understanding for that journey of founders? It's a pretty good world.

• 57:50Patrick O'Shaughnessy?

  Unbelievable place to end. I love that no one is spared, even though it's obviously means people go through hard times. It's just an incredible reminder and the source of a lot of the kindness that people talk about on this show. So fantastic place to end. David, this is so much fun. Hope to do it again with you soon. Thank you.

• 58:05Speaker 02

  Thank you. Thanks for having me.

• 58:07Patrick O'Shaughnessy?

  This episode was brought to you by Canalist. In this three-part mini-series, 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 Canalist into the investment process since day one. In this week's episode, Brandon and I discuss how he and his team optimize their time and how Canalist plays a critical role in that process. How do you think about the uniqueness of company models that Canalist provides sector to sector? So you mentioned TMT being a focus. I think GAAP accounting is great, but it also isn't perfect as a way to interpret or measure or investigate how a specific company

• 58:52Patrick O'Shaughnessy?

  works. Say a little bit about like company-specific metrics, KPIs, you know, things that matter for one business that might not matter for another and how that factors into modeling.

• 59:01Speaker 03

  So that's the other important part. I've used services in the past that give you sort of a starting place. There's two problems with those usually. One, they don't have hardly anything above sales. And to us, usually in the TMT space in particular, the top line is one of the more important variables. Margins have less controversy, but are obviously important and then which brings us to free cash flow. So when you're using a generic service, sometimes you can get the basic building blocks of what's reported and maybe a queue with no context above for what's maybe reported on conference calls. Canlist adds that extra layer, which is important. But the most important

• 59:43Speaker 03

  part of it is the models live with us. So everything that we change or that we adapt to the things that we need, even if it's not already preloaded, we can add that and the model just simply updates. I used to have to send models away. And when they come back, they're stripped. Anything that I've added, any sales that I've done, anything has been a problem. Now, the models sit here with us. And the reason it's important is because those models lead to our investment templates, our investment spreadsheets. Those investment spreadsheets are the things in which we pitch our stocks off of in our internal meetings, which then flow into our rankings. Our rankings are what create discussions

• 1:00:24Speaker 03

  about what in the world's going on. So you put a number into a model with Canlist and it stays on my system and goes all the way through to price target changes. I do it somewhere else and it has to go send off, the links break, it comes back, and all the work that we've done updating is gone. So how do we focus our attention on what is the most valuable stuff that we can do with the least amount of friction? And that's the important part. When you're using the Canlist system, there's no friction. And it allows us to maintain our process and almost like we just added a team member.

• 1:00:58Patrick O'Shaughnessy?

  Where do you see the most opportunity today in the coverage universe that you care about? And what's unique about how those businesses look in terms of their financial statements and the levers that you think are important to underwrite and understand as an investor?

• 1:01:14Speaker 03

  I'll take that a slightly different way, but I'll get back to the original question. The thing that's most interesting to us, and this is kind of reshaped versus when we started. Again, we started really small and have been fortunate enough to grow to a few hundred million. But what has changed in the last 12 to 18 months is the number of companies that have come public, whether that's IPOs, direct listings, all of these types of things are a big tax on the sell side. And they don't have enough time and energy to cover these things. And so if you think about If your goal is to find something that is less well-known, undiscovered, something that has massive amounts of innovation, and your variant perspective could be simply knowing more about that company

• 1:01:57Speaker 03

  and actually being able to model it on a timely basis, that's where you have to have these types of partners. I would say the world from two years ago has changed dramatically in the sense that there are so many more companies. The sell side has not gotten bigger. If anything, it's getting smaller. The resources that they have to be able to help managers is not good, but it has gone down somewhat. So what I think is going to happen, if you think about active management and you think about the number of ideas, we'll probably shift more of our capital into small and midcaps over time, where we have a balance between small, medium, and large. I didn't think that was something that was going to happen. You know, two, three years ago, people would say, you know, the number of companies are just disappearing. What is the role of active management? You can buy a few indexes.

• 1:02:42Speaker 03

  I think, given the valuation, given that the stock market just continues to grind higher, some of the best places to go out and look are some of these more undiscovered things that are newer, both on the long and the short side. There's a lot of stuff that came to the market that has no real meaning, no real value. So that, I would say, has been a real big change in the number of types of companies that we're going to have to use for financial modeling. And I will tell you, when you're looking at things that have limited history, that's where a place like Canals can come in. They'll be able to scrape that, they'll be able to go back, find historical stuff. And really, what we're trying to do to sift through all of these, we have to get some baseline level of knowledge.

• 1:03:27Speaker 03

  And you can't do that building out your own models. It would, it would simply be prohibitive.

• 1:03:33Patrick O'Shaughnessy?

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