Lydia Jett - Investing in E-commerce - [Invest Like the Best, EP.282]

My guest today is Lydia Jett, Managing Partner of SoftBank Investment Advisers. Lydia leads the team’s consumer, internet, and e-commerce investments and has worked with many of the most significant consumer platforms in the world, including as a board member of Coupang and Flipkart. We cover all aspects of e-commerce and explore Lydia’s evolution as an investor alongside Masa Son at SoftBank. Please enjoy my conversation with Lydia Jett. For the full show notes, transcript, and links to mentioned content, check out the episode page here. ----- This episode is brought to you by Tegus. Tegus streamlines the investment research process so you can get up to speed and find answers to critical questions on companies faster and more efficiently. The Tegus platform surfaces the hard-to-get qualitative insights, gives instant access to critical public financial data through BamSEC, and helps you set up customized expert calls. It’s all done on a single, modern SaaS platform that offers 360-degree insight into any public or private company. As a listener, you can take Tegus for a free test drive by visiting tegus.co/patrick. And until 2023 every Tegus license comes with complimentary access to BamSec by Tegus. ----- Today's episode is brought to you by Brex, the integrated financial platform trusted by the world's most innovative entrepreneurs and fastest-growing companies. With Brex, you can move money fast for instant impact with high-limit corporate cards, payments, venture debt, and spend management software all in one place. Ready to accelerate your business? Learn more at brex.com/best. ----- Invest Like the Best is a property of Colossus, LLC. 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 [00:02:34] - [First question] - What curiosity thread she’s been pulling on thus far in her career [00:05:17] - The biggest felt differences doing things one way for a decade and changing now [00:07:08] - Learning about tailwinds and what the predominant ones are that exist today [00:10:44] - Competitive frontiers that exist today in e-commerce [00:12:14] - What drives companies that grow faster than their competitors [00:13:15] - What areas the world’s most innovative e-commerce companies are focused on [00:16:38] - Unique characteristics that they select for in ecommerce CEOs and founders [00:19:03] - Upside down approaches to e-commerce that aren’t common in America yet [00:23:05] - Lessons learned about business models that don’t work in e-commerce [00:27:47] - What western investors should know about Coupang [00:30:12] - Everything she’s learned about vertical integration [00:33:01] - Everything she’s learned and cares about in regards to margins [00:37:17] - The most extreme version of efficiency gain she’s seen deployed [00:41:27] - The role the size of assets plays at SoftBank [00:47:42] - Focusing on efficiency and smart allocation first before trying to scale [00:50:33] - Companies as products that investors buy and defining what great looks like [00:53:16] - The danger of premature optimization around a set of KPIs [00:55:46] - How important the specific founder is for their given e-commerce company [00:58:18] - Why e-commerce companies tend to start from a worse place than offline ones [00:59:45] - Ways that she’s changed from working alongside Masayoshi Son for a year [01:03:31] - Who comes most to mind as a great investor [01:05:23] - The kindest thing that anyone has ever done for her

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

• 0:00Patrick O'Shaughnessy?

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• 0:45Patrick O'Shaughnessy?

  answers to critical questions on companies faster and more efficiently. The Tegus platform surfaces the hard to get qualitative insights, gives instant access to critical public financial data through BAMSEC, and helps you set up customized expert calls. It's all done on a single, modern SaaS platform that offers 360-degree insight into any public or private company. As a listener, you can take Tegus for a free test drive by visiting tegus.co/patrick. And until 2023, every Tegus license comes with complimentary access to BAMSEC by Tegus, which makes it easy to search and analyze public company filings and transcripts. Today's episode is sponsored by Brex, the integrated financial platform trusted by the world's most innovative entrepreneurs and fastest-growing companies.

• 1:30Patrick O'Shaughnessy?

  With Brex, you can move money fast for instant impact with high-limit corporate cards, payments, venture debt, and spend management software, all in one place. Ready to accelerate your business? Learn more at brex.com/best. That's B-R-E-X.com/best. 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.

• 2:16Speaker 01

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

• 2:41Patrick O'Shaughnessy?

  My guest today is Lydia Jett, Managing Partner of SoftBank Investment Advisers. Lydia leads the team's consumer internet and e-commerce investments and has worked with many of the most significant consumer platforms in the world, including as a board member of Coupon and Flipkart. We cover all aspects of e-commerce and explore Lydia's evolution as an investor alongside Masasan at SoftBank. Please enjoy my conversation with Lydia Jett.

• 3:07Patrick O'Shaughnessy?

  Lydia, I've been really looking forward to doing this with you for a few months now. I know we've moved it around once or twice. Maybe to begin, it would be helpful to just sort of introduce you to the audience. You've got a really interesting set of background in growth equity now with SoftBank. Maybe you could describe what has united every major career stop that you've had so far? Or another way of asking the question is, what curiosity thread have you been pulling on thus far in your career?

• 3:32Speaker 02

  First, thank you for having me. I started listening to this a couple of years ago and have found it just to be incredibly informative as to how people think and the random walks we've been on. I'll address the question in terms of what linear path has driven where I am with a little bit more of an admission that it's been a little bit of a random walk. I've spent my entire career in finance that was haphazard. I graduated from college knowing nothing and having no particular connections and really struggled to figure out how to land in a place that felt fulfilling. It took me a year post-college to land, but I ended up at JP Morgan right in the back half of the last crisis back in 2002. And I felt really lucky to be there. I was on the capital market side of the business focused on debt capital markets and really

• 4:16Speaker 02

  understanding capital structure and risk and how do companies optimize how they structure and fund their businesses. And after a couple of years, I had the opportunity to go lean into the investing world and launched into investing in 2005 and have been here ever since. I spent about a decade focused on more private equity style investing that really is understanding the risk factors of the business because fundamental growth of the underlying assets isn't big enough to support big misses relative to the debt that you have on the balance sheet. I take a step back and I look at that period of time and it was 100-page decks talking about all the potential risks that businesses might run into and how we get comfortable that we have mediated those risks.

• 4:56Speaker 02

  In 2015, when I leapt over to join the SoftBank platform, first as a member of the SoftBank Group Investing Team, which was seven of us launching the very first growth equity efforts. In many ways, I felt like a wild place that I just couldn't understand. I'd had a decade teaching me that you had to be really disciplined and focused on downside. And all of a sudden, I ended up in an organization where you really had to do the opposite, which was just make sure that you had tailwinds driving your business and then identify the couple of big things that had to go right to win. And that transition took a while, I will admit. I think I called my husband my first night at SoftBank and I said, "I'm not sure I can do this. The methodology, the style of thinking is just so different from how I've grown up and where my head sits."

• 5:40Speaker 02

  And over the last seven years at SoftBank, I've really been pulled in that direction and can see the beauty of the optimistic thinking and the identification of what really matters.

• 5:49Patrick O'Shaughnessy?

  I love the idea of shifting from what could go wrong to what could go right. In the actual day-to-day process of those two different extremes, highlight for us the things that are most different. The brand itself, in my mind, is the sort of what could go right, make huge bets on massive potential outcomes, even if some people are saying it's a little bit silly. We'll get into what makes SoftBank so unique later, but what are the biggest felt differences for you of 10 years doing it one way and now, you know, seven, eight years doing it the other way?

• 6:18Speaker 02

  I just think there is such a crystallization of a couple of things that really matter. And I'll never forget Maso really distilling the fact that it is tailwinds that fundamentally provide protection for businesses. So we should only ever be investing in businesses with tailwinds. So he's sort of iconic for talking about what are the big fundamental technology changes? Those are tailwinds we're talking about. We spend a lot of time talking about market position and what sustains market position. It's why I've spent a lot of my career thinking about how do you actually define a moat and what does that look like around a business? How do you keep your market position in a volatile, changing market with a lot of cash around you? And this has not always been something we've been great at, but are we making sure that we are funding business models that are fundamentally improving

• 7:02Speaker 02

  through automation and technology as opposed to just decaying the economic curve of what businesses have been on? I think a lot about fintech or the financial services industry is one where you've just had a big, broad decay of fee streams into these organizations, which is what technology has brought. I've tried to focus a little bit more on making sure that companies can actually extract some of the economics to their own balance sheet as opposed to passing it all back to customers. So I bucketed into the three things. Are you on the curve of growth? Have you identified your position in market? And are you fundamentally improving your business model over time? Are the three areas that I spend a lot of time on in sort of broad, abstract terms?

• 7:41Patrick O'Shaughnessy?

  How do you learn about tailwinds? And I guess I'm curious what you think the predominant tailwinds are today that maybe even specifically the businesses you're involved with are riding, but even more generally, like if you're looking at a business today, what are the major tailwinds that you think are sustainable? I'd love to go a little bit deeper on each of these three dimensions, starting with tailwinds.

• 7:58Speaker 02

  At SoftBank, I've really focused my career on e-commerce because I fundamentally believe that it is a beautiful economic flywheel, that the consumer globally today is not well-served by a really fragmented, long tail of offline retail, and that the economic pact we're making with each other That we are transitioning into an online world does drive great efficiencies. How do I think about getting more products to consumers and longer tail of SKUs at a lower set of prices? I think Masa has historically really been very focused on technology improving efficiency and therefore driving down the total cost of producing goods. The economic impact has certainly accreted enterprise value as we've seen across the technology sector.

• 8:42Speaker 02

  When we spent time over the years debating whether or not we should be investing in companies at valuations in countries that didn't have public market cap that would support those valuations, we kept coming back to, although there are no companies bigger than banks and mineral companies today, but we do believe the transition of value will be clear because the consumer benefit is so much greater. We're willing to make those fundamental bets that the technology companies should be bigger than what we've seen in traditional industry before.

• 9:11Patrick O'Shaughnessy?

  How far along do you think that e-commerce transition is? And I'm especially interested maybe by geography and where you think the biggest remaining opportunities are because it seems like, obviously, it's a huge trend. There are huge businesses in the category, some of the best-known companies in the world. I want to dig into competitive dynamics, but how far along is this transition? Like, how much room left to go is there?

• 9:30Speaker 02

  I tend to be very, very bullish on this topic. It is incredibly dependent on the specific economies that we operate in. When I first started working on e-commerce assets at SoftBank, I had this really naive perspective that you could just take models that worked in the US or in China and transplant them to India, Korea, Indonesia, and you'd see very similar curves. And I realized really quickly the obvious statement I'm about to make, which is that countries are very different from each other and are driven by different factors. You know, I think we can all agree that we expect upward penetration to continue, even though their rates are dramatically different today. If you look at China, a US, which have very meaningful penetration today, Korea comes

• 10:13Speaker 02

  up next, India, Indonesia, very low on the list, Russia, very low on the list. Across the board, I do believe the economic benefit to the consumer is significant enough it should continue to drive penetration. There's lots of different factors that overlay into this. I look at Korea as a very under-retailed geography. I look at the US as one where we have big dispersion across big geographic swaths of land and have very different experiences in terms of access to goods. I think the question to me is not are we done, but how much more value can we continue to add? I don't see a stopping point realistically. And I don't think you see traditional retailers seeing a stopping point. Walmart was actually one of my first customers when I started my career in banking.

• 10:56Speaker 02

  It was the first corporate I worked with. And they were the big fundamental retailer that was innovating around the box structure. But it's really exciting to see how much they're doing today in terms of thinking about how do they bring digital to a customer base. I think we're so far away from our conclusion here. To be precise about it is sort of impossible for anyone to do with any confidence.

• 11:17Patrick O'Shaughnessy?

  Derek Vischer at Benchmark has this beautiful idea of what he calls a competitive frontier. So for any given industry, there being a couple of variables or battlefields, however you want to think about it, that sort of determine or sort winners from losers in a certain space. What do you think the competitive frontiers are today in e-commerce? Sort of variables on which, you know, one firm will beat another?

• 11:38Speaker 02

  Experience has been the very obvious one. It is really hard to compete against speed. I think that is generally true across every region I look at. But I think if you start to dive down into micro levels, there are economies which are much more value driven. I would argue India, Indonesia have been much more value driven. I think it's one of the beautiful aspects of e-commerce that I've seen evolve over the last couple of years as you've started to bring in much lower cost assortment into geographies. So how do you actually bring down that cost for customers and allow a higher quality of living? I think the really obvious ones that we've seen have been speed, they've been cost of product, and those have been big curves that have compacted very fast.

• 12:20Speaker 02

  It's hard to build these operationally intensive businesses where you're repeating pretty rote actions, millions if not billions of times in a specific year. We are very thoughtful about the fact that we're not trying to over engineer the complexity of what we're doing, but how do you strip it down to a very base level to make sure that we're really nailing that customer value proposition from speed as well as increased value on assortment?

• 12:46Patrick O'Shaughnessy?

  And maybe what's behind speed? If you just focus on that dimension, what drives those that are faster? Why are they faster?

• 12:54Speaker 02

  I think that is very dependent on markets that you sit in specifically. In economies like the United States, you have an established set of supply chain operators. You've got your FedEx and your UPS, your USPS to provide a lot of last mile. You have your three PLs, which do allow the fulfillment for your long tail e-commerce assets. The question that we have been asking is how do you start to integrate more of that supply chain and drive through technology in a way that can just shave some of the handover between these separate operators can shave time off a transaction. You know, I think our best example of that has been Korea, where you have a fully integrated supply chain in the context of coupon. You'd have the same, very similar setup in India with Flipkart and with Amazon India.

• 13:38Speaker 02

  You don't yet have that in the United States. You don't have it to the same degree in other established economies that have more traditional existing footprints already standing up.

• 13:47Patrick O'Shaughnessy?

  Speed is a fascinating one. It's like hard to argue that it's an advantage and it seems to have been one of the key advantages for technology companies in general. Alex Rampell has this great idea of sources incumbents being about whether the startup can achieve scale and distribution before the incumbent can achieve innovation. Who can surpass the other one faster? In what areas do you think there is the most innovation today then in e-commerce? I guess I've been conditioned to just think like in Amazonian terms, better, cheaper, faster are the dimensions that matter of online retail. What do you think the areas that the most innovative companies are focused on?

• 14:20Speaker 02

  There's no question that that's right and it has provided the model for the rest of the world in terms of how we think about what matters. But I do think, excitingly for all of us, what we saw in the pandemic was Amazon not capable of fulfilling that promise that they've been really good at fulfilling. It provided a really nice opportunity for others to step in and make significant investments. I was listening to your interview with Toby from Shopify recently and thinking about the investment he's made and trying to be that full stack provider to e-commerce players. Walmart stepping in and thinking about how do they use their fulfillment differently? I think this is a less obvious point in time that Amazon is going to be everything to

• 15:01Speaker 02

  everyone and I think it is a more interesting time to think about how you can innovate. I think one of those areas we've been watching really closely and I still sit somewhat on the fence on is live and social commerce innovation that's happened across the Eastern world. I think there's very explicit reasons why that has been so powerful. I think there is a lack of the high-quality physical retailing. There's a lack of trust with existing brands. I think there's a culture of people selling to you in markets that we don't have in the US. So maybe we can suggest all of those things are reasons why live shopping won't come to the US. But on the flip side, I think there is really no question that the engagement levels are much, much higher with video-based content. And so we see that in platforms like TikTok.

• 15:45Speaker 02

  They've just taken off like wildfire. You see that with a younger generation that really prefers to consume content in that video-based format. We recently made an investment in a company called Firework because we believe that there will be a significant transference to video as the format of consumption for commerce in the US. We haven't seen it in meaningful scale yet. We've been watching very closely for it. What we do see when we look at the underlying customers that Firework works with is just a big ramp in conversion factor relative to existing websites. And so what does Firework do? With any individual company, anywhere from the PGA to Muji, the Japanese retailer, to your grocer,

• 16:27Speaker 02

  they allow these partners to integrate video very easily and quickly and affordably into their stack, whether it's web or app-based. The conversion rates that we're seeing are a significant multiple of what they're seeing for the non-video-based purchasing. Do I think we're going to see the incredible velocity of video commerce in the US that you've seen in China? Not to the same degree. I don't think the forcing factors are the same. But I am really excited about the fact that there is a lot of optimization to come when it comes to conversion and engagement, particularly in this point in time where Apple's security changes and Google's security changes are impairing a customer relationship. I'm really excited that we'll be able to make up a lot of that lost round and surpass it from a conversion level when we introduce video.

• 17:11Patrick O'Shaughnessy?

  Are there unique characteristics or attributes of people leading these kinds of businesses relative to all the categories that you've invested in through your career? But if you just think kind of generally of the prototypical qualities of a great CEO, are there things in commerce specifically that you over-select for when considering the founder or management teams?

• 17:30Speaker 02

  I've been thinking a lot about SoftBank and the founders that we tend to back. You know, I have a pretty myopic view. I do our consumer e-commerce investments as opposed to across biotech and enterprise and other categories. But in my world, we certainly do have a bent to a founder that more often than not is an immigrant, does have a wider worldview, perhaps has actually come from China or India and has a more natural tendency to look outward and look at innovation. If you look at the list of companies that we've backed over the last couple of years, it has been a really international cohort of people who are very curious about different trends around the world and trying to think about how to model them to our home country here in the US.

• 18:15Patrick O'Shaughnessy?

  If you had to send some Western investor you cared about, an American investor, let's say, to one country to have their socks blown off, where would you send them?

• 18:24Speaker 02

  It would be hard to argue any place other than China to have your socks blown off. I'm constantly thinking about what a gift it was to join this wild organization in 2015, 2016 time period when the US investor base was really myopically focused on Silicon Valley. That wasn't that long ago, and yet it was pretty strange to be spending time internationally. I think the thing that knocked my socks off was just the scale and velocity of company build that happened in China. When I joined in 2015, we really didn't have a China strategy. We believed that we would accrue the value of China through our position in Alibaba. We thought between Alibaba, Baidu, Tencent, that would be most of the Chinese technology market. And man, were we wrong.

• 19:07Speaker 02

  And so it has been really fun to just watch the scale of innovation on a consumer side stand-up. There are so many examples of how different the scale of ambition and the velocity of build is over in China. I think obviously the last year has been very complex and hairy and has caused a lot of investors to rethink their thesis there. But I do think it is a really beautiful testing ground for really turning everything you know upside down.

• 19:35Patrick O'Shaughnessy?

  Maybe give an example of upside down. I know there's lots of examples here. And I'm also curious what barriers there are to live shopping, or whatever the example is, not getting to the Western Hemisphere for some set of reasons. What are those things that are most upside down that they've tried that's worked that we haven't done yet?

• 19:51Speaker 02

  I'll never forget actually heading to Indonesia in 2015. And I was working with a colleague at SoftBank who had a product background. And he looked at the apps this Indonesian e-commerce company was operating. And he said, man, like, that's a mess. Look how messy it is. So distracting. It's so cluttered. And he's right. From an American perspective, I think we have really veered to a very clean UI in terms of what we build in the US. You've seen the exact opposite in China, in Indonesia, India. You've seen countries really establish a consumer preference in a single landing page that offers them all of the consumer services that we might in the US fill our homepage with.

• 20:32Speaker 02

  So I do think there's a very different aesthetic that was way too easy for us to suggest was the right way. Maybe right for our culture, not right for other cultures. But I think it's a really stark example of just how different these countries are in terms of consumer preferences.

• 20:48Patrick O'Shaughnessy?

  As you're focused on consumer e-commerce online, sounds specific, but I know there's lots of subcategories. What subcategories do you spend the most time in? And maybe this harkens back to the tailwind question specific to this area. What are those sort of subsectors, subcategories, whatever you want to call them, that you find yourself most drawn to or spending the most time on today in 2022?

• 21:09Speaker 02

  I'll just flip back to 2021 because that wasn't that long ago. We spent a lot of time thinking about the least penetrative categories of commerce. And I think this wasn't terribly different from a bunch of the crossover investors who have historically looked at the world in a much more top-down macro-oriented way. We really looked at food and said, we feel like this is an area that has meaningfully taken off in other parts of the world, where the economics of the businesses have been proven in other parts of the world, where we have figured out hybrid, if not fully digital, approaches to food. And the US, we've really only done that in the construct of prepared food delivery, i.e. DoorDash or Uber Eats. So we spent a lot of time in 2021 trying to think about how will food consumption and

• 21:54Speaker 02

  purchasing change in the new forward 10-year economy? We spent a fair amount of time trying to think about e-commerce enablement. I think because we have such strong established, high-quality retailers, because we have such dominant online retail platforms in the US, we haven't really seen as much innovation trying to figure out how do we actually get that next layer of providers in front of customers? We spent a fair amount of time thinking about how do we support innovation, whether that is through helping bring best, next-gen best-breed tools to e-commerce companies to reach customers, so companies like Fabric or Firework, as I mentioned earlier.

• 22:34Speaker 02

  And we spent a fair amount of time thinking about healthcare, and I think that that's a complicated one for me. My parents are actually in the medical field, and I grew up believing healthcare was really complicated and ugly. The incentive systems aren't logical in any rational way. There's not only regulation, of course, but there are pair-provided dynamics that are just messy and hard to find our way around. So we tried to stay away from that pair-provided relationship and think about how do we actually solve fundamental base needs like loneliness in this country? And then we spent a fair amount of time thinking about, is there a new creator economy being scaled up by technology that we could participate in?

• 23:17Speaker 02

  There's a lot of buzz around the concept of a creator economy. There are a lot of companies that have been funded, but I think the big question for us is, is there an economic model that supports a really long-tail fragmented set of creators in an exciting way? And we ended up making a pretty significant investment in that category as well.

• 23:37Patrick O'Shaughnessy?

  Say a bit more about the models that maybe don't work that you've encountered there. I think there's been lots of, I don't mean to go from that phrasing of the question to an example, which is Substack, but this idea of providing a platform toolkit that monetizes by taking a percentage of the commerce that's enabled in much the same way that a volume-based payments company or Shopify or someone else might participate in. The upside of what it enables, I'm just so interested by these kind of relatively low permission or permissionless creator models that monetize and align their success with the success of the creator. The limits to that, you know, do they graduate from that? All the lessons here would be so interesting because it seems like literally everyone wants their version of whatever it is they're building in B commerce shop, a content property, whatever.

• 24:21Patrick O'Shaughnessy?

  Everyone wants to do this, even very established people. So what have you learned about those business models?

• 24:27Speaker 02

  I think it's another great example of something in which we are very much trailing the East. There are large companies in China, in particular, in Southeast Asia, that have really been set up to accommodate providing customers with the trust that they need in brands. And so just taking a big step back, we in the United States have brands that we trust. You trust the retailer that you shop from because you know returns will be processed. You trust the brand that you purchase from because you know the quality of goods will be high. There are celebrities and trusted individuals in America that can stand up and speak to product quality and have for a long time. What we saw developing across Asia, which was a very different model, was this long tail of influencers.

• 25:09Speaker 02

  It was effectively taking people who were just good at sales and putting them in front of consumers with product to authentically speak about the quality of that product. So for a long time, we looked for this in the United States and really struggled to find scaled business models because there are structural reasons why I think it is a little bit less relevant in the US. Where we ultimately got very excited was finding a large scale platform that not only provides the economic wherewithal for creators to build a real business out of utilizing their voice, but also is a very significant partner to some of the biggest retailers in the country. We invested in a company called LTK or Like to Know It, which is a very under the radar, Texas-based company founded by a creator herself and her husband.

• 25:52Speaker 02

  Then they have become some of the biggest distribution partners to retailers like Nordstrom's, big partners to Walmart, big partners to big retailers who are fundamentally thinking about, how do we in a more authentic, trusted way, reach a new consumer base? I actually think it's been the pairing of both those models, the model that you mentioned at the beginning, which is how do you take a small cut, very small cut, almost the infrastructure layer, like fintech assets have established. From creators that allows them to build their own small businesses, become economically viable on their own, but to also be a distribution partner to retailers in a way that provides advertising budget as well to work with. It's through matching both sides that we've found an economic model that we're very excited about.

• 26:31Patrick O'Shaughnessy?

  Does that functionally turn into or start as a marketplace? Can I think about this if I'm Nordstrom, let's say, that I get to go to this marketplace and sort of pick and sort through a number of people that I might want to have these partnerships with? And then I rely on them to do it in whatever channel they do it in. Is that kind of conceptually right?

• 26:48Speaker 02

  When I started my career, the media outlets in America were pretty consolidated. It was your traditional offline TV terrestrial radio. You had big consolidated reach that maybe as myopically as could get down to a city level through some sort of regional network. What these new networks allow is for you to actually quantify and qualify what you're looking for in the influencer you work with. These networks allow you to come to LTK and say, I'm looking for a voice from the South, someone in this age set of parameters, someone of this demographic, looking for that individual who really resonates into a specific audience base.

• 27:27Speaker 02

  They will then work with those influencers to get their product in front of that influencer's own owned base of consumers. And so those own bases of consumers, of course, come through big social platforms, but also reside on the LTK app as well.

• 27:40Patrick O'Shaughnessy?

  For some reason Cameo is popping to mind of something sort of as an analog. Obviously it's producing something very different. Is that roughly what it feels like? Cameo's challenge, of course, is to like sign up great supply over and over again. Is that conceptually a useful analog?

• 27:53Speaker 02

  I think it's a really interesting analog. Now Cameo, of course, is a one-to-one model, to my understanding, where they're producing content on a singular basis for a singular fan that has purchased it. The question we keep coming back to for scalability is how do you reach a broader audience than a one-to-one model? Or LTK, you are, that influencer is speaking to their entire network of audience. I think similar, but slightly different in terms of less targeted on individual basis.

• 28:19Patrick O'Shaughnessy?

  What should Western investors know and understand about Coupang?

• 28:23Speaker 02

  It's such an interesting reflection as I look back at the course of our time with Coupon.

• 28:31Speaker 02

  When I got involved with Kupong, we had just sold Flipkart to Walmart. And that journey had been taken to an end much faster than I anticipated. But I learned how much I really loved that model of owning the entire customer experience in a way that previously had not been shown by competitors in market. When I spent time with Kupong, they'd actually met a lot of Western investors. And I think most Western investors had passed on the opportunity with the fundamental belief that Korea just wasn't big enough. It's why you see Kupong today talking about how big Korea is because they had heard, they'd learned over and over, that's what Western investors care about. Western investors also tend to look at a pretty developed economy where you have

• 29:16Speaker 02

  meaningful commerce penetration, e-commerce penetration, and you have some large conglomerates, some large retailers. But my experience with Kupong was just this beautiful unwrapping of all of the nuances why Korea doesn't look the way Western investors expect them to look like. So the big offline retailers aren't retailers in the form of a Walmart. They're not making one people purchasing with purchasing power and long assortment. They're more like real estate companies that are leasing space to small merchants. You have a really under-retailed economy with a very limited SKU count with very high prices, which is almost just a perfect setup for e-commerce. I believe that Korean e-commerce penetration should be higher than it will be in other

• 29:59Speaker 02

  parts of the world because the offline experience is not sufficient to support a competitive product. Then you turn to the online world and there are a handful of e-commerce marketplaces that look akin to an eBay in terms of the experience where it is a long tail of assortment listed by merchants and they don't handle the fulfillment experience. That is fundamentally a subpar experience to a fully owned channel like Kupong has built and invested and developed in, developed for a large number of years. I'm a believer that I think this company will continue to compound market share because it is offering much faster speed with much larger assortment with better pricing than I think Western companies experience. As they look at other economies around the world and try and pattern match, which is what we're all trying to do.

• 30:44Patrick O'Shaughnessy?

  Can you tell me like everything you've learned about vertical integration in this world? Because it's just so damn interesting that we're talking to Toby recently at Shopify about Shopify fulfillment network, which is obviously just like a crazy hard thing to build. And we talked about how hard it was to build, but that almost it's an imperative. If ultimately you're serving merchants and enabling commerce, you kind of have to control maybe down to the person that's dropping the package, you know, at the front door, if you really want to make it better. And it just seems like a lot of the people, whether it's coupon, Amazon, now Shopify, like some of these monsters are all realizing that more and more vertical integration might make sense. What have you learned about all of this? Because it affects the business model, it affects margins. I'd just love to hear your lessons.

• 31:28Speaker 02

  The vertical integration that coupon has pulled off, I put it that way because this is not an organic build that I think could have, of course, was an organic build, but one that was pre-funded very significantly by SoftBank. We had $3 billion of capital put into the ground on the thesis, that it was the right thesis and it was worth making that upfront capital investment into it. I don't think you can do it successfully unless you throw all of your attention and focus as an organization against it, because it is so hard to do. I think we're going to see a lot of examples of companies in the Western world where they are building fulfillment and logistic networks from the ground up, but haven't figured out the efficiency required to operate them.

• 32:11Speaker 02

  And that is something that coupon is just exceptional at. They really drive towards efficiency first before they scale as opposed to scale, and then try and figure out how to push efficiency through a big organization, which is next to impossible. I think the benefits of that vertical integration are exceptionally clear because it has allowed them to be very creative and innovative in terms of how they think about utilizing the advantage they have. We like to talk about some pretty simple advantages, but how do you rethink packaging in a way that increases density? That you can get into the form factor of a van? How do you eliminate the context of needing boxes? How do you think about a returns network? You know, I think these are all really interesting applications that continue to improve density and therefore economics of your business

• 32:56Speaker 02

  that require just an explicit focus on rethinking aspects of your business that's very hard to do when you're not spending your full attention focused on it. As we have been trying to think about how do we mimic some of the examples of that in the US, we have found it really hard to do if we're focused on a specific point, if we're focused on just last mile delivery, if we're focused on just sortation, if we're focused on just fulfillment. It really is that integration that allows you to rethink form factor, allows you to rethink experience that is pretty radically different. And that just requires a big capital efficiency and a big capital investment, both at the same time.

• 33:34Patrick O'Shaughnessy?

  What's everything that you care about or have learned about? And this could be gross margins, it could be operating margin, I don't really care. It just seems like margins is such a key component of a successfully scaled up e-commerce business. What have you learned about margins?

• 33:49Speaker 02

  I actually love this pivot that we're in now from a market that was focused on growth to one that's focused on margin because I think we have made a mistake, those of us in capital provider seats over the last handful of years, in focusing companies too much on revenue growth. Because in that process, you end up building large companies that are very inefficient and it is incredibly hard to move backwards and improve margins from there. It just requires too much of a cultural shift. It requires a personnel shift. Just take a step back and think about how do we orient ourselves with these operationally intensive businesses? It is first and foremost, can we prove out margins on small scale? So can we prove it out in a specific geography? Can we prove it out against one specific customer? What does that margin base look like?

• 34:34Speaker 02

  Because fundamentally, it should only get better from there as opposed to worse. I think when we look at businesses and we say the economics don't make sense today, but we can improve them by layering on adjacencies and other services. We're setting ourselves up structurally for a lot of pain. We have to prove out that core business model works and that's where we spend a lot of time looking at contribution margin.

• 34:57Patrick O'Shaughnessy?

  Not just in e-commerce, but in just so many businesses. As you hear this thing of when we get to X or Y, our margins will be Z. The whole strategy is we're going to mature into higher margins. And then very often that just doesn't happen or it takes longer or they don't quite get to where they were projected. And sort of the whole investment decision was riding on this steady state eventual margins. How do you evaluate a younger company and its potential to drive margins? Understanding that they're going to be worse at the beginning and they're going to get better over time. How do you even begin to like wrap your head around? How something might work, even if it's a really young company?

• 35:33Speaker 02

  Maybe I would ask, does anything ever happen unintentionally? Just as a starting point, I could give you a large number of companies, arguably all the companies we've invested in, where we have had to improve margins over time, where the fundamental unlock came through improving margins. And I am a believer that with scale amassed, you have more power to extract margins. That sort of undeniable truth that that should be true. The question is, how do you make that true? We have had to make big bets. I think coupon was a very obvious big bet. Flipkart was a very obvious big bet of companies where the unit economics were not positive at our time of investment. And we had to believe the operating efficiency would get better to support positive unit economics.

• 36:18Speaker 02

  And I think what we were ultimately surprised by, and maybe this is obvious in retrospect, as you amassed scale, your negotiating power gets better. In combination with the operational efficiencies, which are core to the heart and lifeblood of these companies, has actually been a bigger lever in getting that unit economics positive position that you need to be in. This is a funny job because you are making bets about things that do not exist today. Generally speaking, I find myself getting irritated when people say they look for big TAM. I can't even think of a big consumer company that had a big established TAM when it got started. It doesn't logically make sense. If there was a big TAM, nobody would have eaten it. You know, I look at the great list of consumer companies around the world, they all lived

• 37:01Speaker 02

  the experience of investors telling them the TAM was too small. I think the question that we spend a lot more time thinking about is, what would have to be true? What levers do you have to be able to pull to either improve a customer experience by a factor of five or 10 times? Because a consumer isn't going to stick with you because you're marginally better. So how do you make it significantly better? Or how do you meaningfully change the economic value proposition? Think about those two factors in the what do you have to believe landscape of what really matters back to where we started this conversation. Those are the big bets that we end up making and then tracking very closely. But I will tell you, in every great investment, the underlying drivers and how they have

• 37:43Speaker 02

  operated have not mapped to the forecast that we built at investments. We've been surprised in every case.

• 37:50Patrick O'Shaughnessy?

  I love the example you give of the van and how that could drive weird efficiencies of package sizing or things like that. What is the most extreme or insane version of an efficiency gain or pickup that you've seen any company employ in your history?

• 38:05Speaker 02

  I like to frame these in terms of when you look at a P and L and you look at unit economics, which is something we spend a lot of time looking at. We think about what are the really big buckets in any particular set of unit economics, which is basically your P and L stripped down to a unit basis. If you asked me, what is the most extreme pickup I've ever seen, it has been in extracting further margin on product. It's just negotiating leverage when you gain scale. That's because the businesses I work with fundamentally, their COGS end up being the majority of their cost structure. The second level efficiencies are always those operating efficiencies of how do we actually take a dramatically unit economics negative business because we are subscale in six regions that we have determined

• 38:49Speaker 02

  have the ultimate ability to become scalable. And we've decided these are our six hubs that we've got to get to scale and then we're going to rationalize along the way. I think those wins are very hard fought because they are on a unit level. It's every day you're dealing with the crisis of human capital and inflation of not having people show up to work with COVID. You're dealing with these crises every day. And so they're not the big needle movers that negotiating a new contract is a big immediate needle mover. In my world, there are actually very few things that kind of blow your mind because something happened. It is the cost, the hard won cost of every day getting incrementally better in very small ways and then getting to look back at a 48 month period and say,

• 39:30Speaker 02

  wow, look at how radically different my business is than it was. But I don't know that they'll blow your mind in terms of the unit variables.

• 39:39Patrick O'Shaughnessy?

  Having talked to a lot of founders that have met with SoftBank and even with Masasa specifically, one thing you always hear is a consistent piece of feedback for companies SoftBank invested in and didn't is you're not thinking big enough. Such a fascinating thing because usually these companies are thinking pretty big and moving pretty fast. I know this again hearkens back to the tailwind concept, but is the external perception of SoftBank, which I would sort of sum up by that, think bigger, think longer, think more. Is that right? Is that brand that sort of, you know, slides that sometimes people will make fun of Masa for putting up, which are like overly simplistic and often hilarious and, you know, the golden goose laying the golden eggs or something like this. How much does that square with reality inside of SoftBank versus being sort of an oversimplified take on something much more nuanced inside?

• 40:25Speaker 02

  The first thing I'd say is I've had the advantage of working on three different investment platforms and have been in this world for a very long time. There are so many ways to build a great company and SoftBank is just not the right fit for the vast majority of companies. And I don't think venture capital necessarily makes sense for the vast majority of companies. So knowing who you are and what you're targeting and having a clear visual of who you want to be is important because once you jump on this venture capital ride, once you jump on a SoftBank ride, you're committing to something very different. You're narrowing your set of options. I do think that perspective is broadly speaking right.

• 41:05Speaker 02

  I think that Masa has this incredible ability to clarify and to boil things down to a very base level. And that's why we all get to kind of chuckle when we look at the slides because they're so simplified. The thesis is right. He really believes in an aggressive style of build, one that moves faster than other traditional sources might tell you to move. That's obviously not going to work for every business. It's not going to work for every business that we've built. But I think it is instinctually aligned with how do we generate returns as a fund? And you can't build a fund of this diversified set of companies without believing that you're going to generate more than two to three times return on each individual company.

• 41:48Speaker 02

  It very much is core to how he has built his own business in terms of enormous. Ambition and aggressive style of build, but also in terms of how do we think about driving returns for our LPs?

• 41:59Patrick O'Shaughnessy?

  One of the things I saw you talk about, and I think it was like a 2018 interview, something around then, you made this reference to maybe having a $6 billion pool of capital, and then that became $100 billion pool of capital. It's sort of staggering to think about deploying that much money into companies that are relatively young. Just tell me what you've learned about that size, the pros, the cons. The cynic would say can't possibly deploy that much money at high rates of return in young companies. Obviously, you just outlined why it's a very specific kind of company that becomes a SoftBank back company. What role the size of assets, just raw assets, play in your life relative to your expectations coming into SoftBank?

• 42:37Speaker 02

  First thing I'd say is we've learned a lot. I've lived in three pretty explicitly different SoftBanks. I lived in SoftBank Group before the Vision Fund was started, and our strategy was actually much the same as it was for Vision Fund One. Let's just establish clear market leaders and let's aggressively capitalize them to continue their pace. In Vision Fund One, we were writing $1 billion checks into companies. We were just writing them very, very infrequently. And I think our asset selection was probably pretty good then. I think it was astonishing to the outside world to understand how you could put $1 billion into a company, just astonishing. When we launched Vision Fund One and had $100 billion, it allowed us to continue the same

• 43:21Speaker 02

  strategy, but increase the velocity of the number of companies that we were investing in. And I think that just, I don't know if that terrified people or made people want to laugh until they couldn't laugh any further. There was a fundamental belief that probably, by the way, is largely correct. Too much capital causes a lack of discipline, which causes fragile businesses. It causes bloat. It causes a lack of focus that keeps you from reaching the end of your journey. There were so many lessons learned by the entire technology investor ecosystem over a long period of time that supported that you couldn't put this much capital to work in the technology industry. And Vision Fund One was really hard for people to comprehend. In Vision Fund One, we backed north of eighty companies and had an average check

• 44:03Speaker 02

  size of six hundred million dollars. And I just don't think that the world understood at that point in time that companies could absorb this much money. We can talk later about absorbing it smart, but I think just can companies take that much money? I think what was really astonishing to see for me, almost the watershed moment, was when Ally, Ant Financial raised fourteen billion dollars back in 2018. That was the first time I'd seen a list of investors that was more than a page long, could write a two hundred million dollar check that really didn't exist in sixteen, seventeen, when we launched the Vision Fund. So the world's got really excited by the concept of technology being bigger than we thought it would ever be and being able to put this much capital to work. And I think a lot of different factions got excited to put money

• 44:48Speaker 02

  to work. You had the crossover funds start to come to being public markets oriented investors who started to go into the private world. You had corporate investors, you had LPs, you had the launch of individual investors and syndicates and SPVs. Felt like everyone was coming into this market. The last couple of years have basically been the Vision Fund in distributed form, meaning we were all playing what Vision Fund One did together, but with hundreds of players around the world. What were my lessons from that period of time over the last seven years? There have been so many lessons, and I hope that we're all paying attention and we're all learning and listening along the way. It is really hard to put a check of that size into an early-stage company. There are just

• 45:33Speaker 02

  so few companies that are set up to absorb and smartly deploy it. I think the original instinct is to just go as fast as you can to think about expansion. But the core reality is smart capital allocation matters a lot, and it's really hard to do that if you haven't even built up a strategic finance function within the business that isn't partnered with the CEO. As I look back at Vision Fund One, there were many instances of companies that were overcapitalized and therefore weren't good deployers of capital. I think we learned that it's really hard to put debt on the balance sheet of a fast-growing early-stage business. Their businesses are still too volatile, and to ask them to subscribe to a set of covenants. Most likely is going to put you in a situation where you have a default on your side.

• 46:15Speaker 02

  We learned about asset-heavy businesses or capital consumptive businesses. When we launched Vision Fund One, we asked ourselves the question, historically, venture has never been able to fund capital consumptive businesses, but why not? Look how much money we have. Should we test the laws of physics on that? So we backed some companies that were very capital intensive and realized really quickly without very strong operational controls, it is a beautiful way to consume a lot of capital fast. I think in retrospect, so many of these lessons are very obvious. I think we did feel the need to test the bounds of what was right because a market was constrained versus what is just fundamentally right. And hopefully, we've learned a lot of lessons. I do think a lot of our investments were very spot on.

• 47:00Speaker 02

  We've talked a little bit about Kupong and about the fact you couldn't build that business unless you were willing to pre-fund in equity the entire infrastructure build that no bank would touch. We haven't talked about Fanatics, which was one of our first investments in the Vision Fund, where we put almost $900 million into the company. And that is an extraordinary, mature management team that has built an extraordinary set of assets and a real mode around that business. There is a long list of companies that have been very strong performers. I think that is a validation of a lot of the core strategy. It's important to talk about the mistakes. It's important to talk about what we got wrong and try and figure out how not to replicate it. I think maybe that's more important than talking about what we got right in a sense.

• 47:43Speaker 02

  But I do think a lot of things we did get right, and they were fundamentally questions about how do we attack industries with capital that people have written off, either because the market is too small, the TAM is too small. How do we get the structural things right and make sure we have a disciplined enough team that we're really thinking smartly about capital allocation with that capital?

• 48:08Patrick O'Shaughnessy?

  You said something earlier that was so interesting, which is that a common mistake is building the scale and then trying to drive efficiency when it should be the other way around. Is that the cleanest way to sum up the lesson of digesting that much capital? That you need to focus on efficiency first and smart capital allocation first and then go for scale versus if you're Uber, try to open every city all at once before perfecting the model of a city to city? Is that kind of like the core lesson, do you think?

• 48:34Speaker 02

  I think Uber is an extraordinary example that is going to be very, very hard to replicate. People love to use examples of Uber, Alibaba, or Amazon. But the reality is a very special set of circumstances and time that allowed those companies. And in a market awash in capital, it's just a different environment than Alibaba was in, or Amazon was in, than Uber was in, that their orientation or their launch. So I have seen so many companies get big before they have figured out operational discipline and then realize too late that there is just no time to course correct. I really am a believer that you need to invest as a founder. You need to invest in a really smart, financially oriented, right-hand person

• 49:18Speaker 02

  who can help you see around corners on that capital allocation, who can help you understand your balance sheet. So often, as I sit around board meetings with founders who are these beautiful visionary optimists, surrounded by their venture capitalists who are beautiful visionary optimists, no one knows how to read a balance sheet. No one's paying any attention to the balance sheet of these businesses. I think it is incredibly important to make sure that you have visibility into the financial aspects of your business and are really thinking about capital allocation from the beginning. And that, at its very core, is thinking about operational efficiency. And I think it's a really interesting transition. As I look, this is independent of the market we're in. But what we did with Vision Fund II is we started to invest in earlier-stage assets.

• 50:01Speaker 02

  We said, Vision Fund I, we backed all the big companies in the world, and we'd like more diversification, and we think we can go slightly earlier with smaller checks. So Vision Fund II, our average check size is maybe a quarter of what it was with Vision Fund I, and we were backing Series B companies. And the biggest differential in my mind between the Series B and the Series C companies, the Series B companies had only ever really raised in the past by off the basis of that founder's charisma and their ability to recruit and on the basis of some early inclination of what a market might look like, an early product. But at that point, most of these founders have not really learned that they are making financial contract with those later-stage investors that here is a financial plan they're expected to hit. And it really comes down to an under-investment in that financial aspect

• 50:45Speaker 02

  of your business, understanding that financial aspect of your business. We spend a lot of time talking about how do we work with companies to strengthen their financial organizations to help them understand strategic finance and operational finance because it is understated as you get more mature. And I think it is fundamentally necessary to raise capital from growth investors.

• 51:05Patrick O'Shaughnessy?

  I would love to talk a bit more about this because I think thinking of companies as products that investors and employees buy is a really powerful way to think about a business. Everyone's focused on product and distribution, rightfully so. Obviously, those are the real drivers. Without those, you're definitely not going anywhere. But I think the lesson that founders are learning now as capital becomes a little bit more expensive and scarce is that your company is a product and investors are the buyer in many ways. So what does great look like here? You know, is it hiring a CFO earlier is one thing you could do. But as you dig a layer or two down, what does great look like for those Series B companies that understand this earlier than most? What actions do you consistently see them taking or recommend they take as they think about their later-stage investors?

• 51:49Speaker 02

  And that companies always turn and ask, what specifically are you looking for? What specific metrics do you want us to hit? The reality is there is just very rarely a magic number that we're looking for. We are looking at a company in the context of an overall picture. We're looking at it in the context of The team and product, but really where we as growth equity investors start is in understanding the core economics of the business. So we are always spending time looking at unit economics. We are always spending time looking at cohort retention. We're always spending time looking at how does engagements change over time. I think that requires that your

• 52:29Speaker 02

  organization is collating data and parsing it and starting to think early about what are those things that your growth equity investors are going to be looking for. So you're prepared to have those conversations. So does that mean you have to have a CFO on board versus a VP of Finance? No, but I think it really does mean that you need a strategic finance person. You need someone who can help you think through key KPIs that are going to be the most obvious set of KPIs and help you understand them. You can't just put them together, but you have to have a real view on them. And so that's why I do think of it as a partnership that needs to be invested in early. You know, for every company we work with, we sit down and we say, what are the most

• 53:09Speaker 02

  important levers of this business? How are we tracking them? What is that trajectory look over time? And how are we hitting that trajectory on an actual basis relative to forecast? And that's just an expectation that we have that our businesses are capable of talking through that. Not every business is capable of talking through it at the close of investment, but I think they have to show indications that they are numerically oriented in a way that gives us confidence that they will be able to build a business that will generate the type of returns that will compare to any other asset we look at. Because we have the distinct advantage of being able to look at a lot of different companies and compare them to each other. So you have to help us build confidence that you are going to be a better capital allocator than those around you.

• 53:49Patrick O'Shaughnessy?

  What do you think about the danger of premature optimization around a set of KPIs? Like anything, you start measuring something, you tend to start managing it and the number tends to get better, right? What you don't know is what the hidden costs of that are. Is the product not maturing in the right way at the expense of making this number go up into the right? I'm sure there's no one right general answer here, but how do you think about that delicate balance of it's not yet the time to start optimizing this KPI? We still need to make the product better.

• 54:15Speaker 02

  I think about that all the time because one of the learnings that I've had is that every decision you make as a founder will have an unintended consequence and probably three. The really brittle businesses that get built are those where you aren't paying attention to understand what consequences are coming your way. To the specific question, Business building is messy. Every single business I work with is a mess, including big corporate businesses, including SoftBank, including Amazon, including Google. It's really important to just acknowledge it and say it over and over again. Every business is a mess. And the question is, can you, as a business leader, identify what really matters and focus on making sure what really matters is happening? Are you going to get that wrong? Absolutely.

• 54:59Speaker 02

  I mean, this is a game of learning for all of us. For me, for you as an interviewer, it's for the operators who run businesses. If you form a static view and refuse to input new learnings, then I think you've already made a mistake. I think what we around the table, hopefully as board members are doing, are creating a safe space where you can say, this was what I had conviction in. We went and tested it. This is what we learned and we think it's time to change. And I think it's why it's so important to build a relationship of authenticity and trust, because what I have found is the founders who lean in and share the mistakes and the learnings and how they're changing are the founders that I build the best trust with. And those become the relationships that you get really excited to lean into as an investor. I think that the founders who feel a need to keep static and metric, because that's

• 55:44Speaker 02

  what they told us they would do and aren't comfortable, aren't confident enough to tell me that it was wrong. That's where relationships don't develop in a way that you really need in a down market like this. I would encourage everyone to lean into the radical idea that everything is messy. It is worth really bringing that people, your constituency is around the table with you, your investors, your employees, bringing them around the table, being really authentic and open about what's not working. And then making sure that you focus the attention on what you believe really matters most. And I think that is a good way to correct for all the learnings that we're amassing along the way.

• 56:19Patrick O'Shaughnessy?

  I'm trying to think of a fun way of measuring this. The idea I'm getting at is how important the specific founder is for e-commerce businesses at the stage that you're investing in them. And I always think of the sports analogy of wins above replacement, where if you just put the average, you know, first baseman in place of this great first baseman, how many losses would the team give up or wins would the team give up? Is that number really high? Tony Shu is someone that comes to mind where at DoorDash, where if you took Tony out of the DoorDash story and replaced it with just a very good CEO, it just seems like it wouldn't work at all. He is just exceptional and right for that specific business and opportunity and how it's been built. Is that generally true? Do you think that maybe the leadership is even more important than we all kind of acknowledge that it is?

• 57:03Speaker 02

  I sit in a camp where I think there are very, very few exceptional companies and very few exceptional leaders. I mean, I think if we walk away from this grand experiment with 20 exceptional founders out of a 300 founder portfolio, and if by exceptional, what do I mean? I mean, building a 20, 30, 40 billion dollar company. I think we're all going to feel really good about ourselves because there just aren't that many people on the planet who can both be high enough to set a vision, who can understand the thematics of setting the strategy and where you need to go, but can also dive deep enough to really understand the core drivers of the business. There are so few people who can do that high-low transaction, transition on any given day. When it comes to these really operational businesses, I think you have to be someone

• 57:48Speaker 02

  who can dive deep enough to really understand the core of the business. I think you have to be analytically minded. You have to be able to run an organization with some quantitative framing because the economics of these businesses are so hard. You have to get them to massive scale to make the economics pay out, or something has to change about the economics. I think DoorDash has shown that consumers are willing to pay far more than anyone thought they would for delivered food. I never thought that the consumer demand would stretch as far as it has. So I think that has been extraordinary learning there. But I also think Tony has been just a beautiful operator. You asked, are e-commerce CEOs different? I think they are. You know, I really think you have to be extraordinarily disciplined because you are

• 58:31Speaker 02

  starting from a position of having impaired margins or an impaired economic profile. And the question is, how do you improve your economic profile to just match an offline profile? And then how do you support it getting better? And it means you have to be really focused on a couple of things that matter in your business as opposed to distracted by all of the other adjacencies you could lead into.

• 58:51Patrick O'Shaughnessy?

  What are the major sources of that relative impairment? So why are e-commerce companies versus offline companies starting from a worse place? What drives that difference?

• 59:02Speaker 02

  I don't start from a position that I so often hear in founder pitches about how traditional operators aren't good. I mean, I think we so often hear that insurance companies aren't good, or retailers aren't good, but the reality is, I actually think these companies are extraordinarily good. You know, they've built very, very efficient businesses. Insurance companies have built very quantitatively adept businesses. I start from a position of I think if you try and compare yourself to a Walmart or a Target as a retailer, you're competing against a really strong, efficient organization. And what are the margin profiles on these businesses? You're talking about single-digit margin profiles. When you know you're starting a supposition, once you get past product

• 59:44Speaker 02

  margin and then delivery margin is negative, you have to get to significant scale. You have to find ways to automate your processes in a way that can just get back to parity from a margin profile perspective. And that's why we haven't seen a lot of digital businesses surpass the margin profile of the big offline retailer yet. We're still too human capital intensive. There is not enough automation in these businesses. Now, what these businesses have is growth. They're certainly eating consumer discretionary spend. But I think we all have to work harder to prove that we can have an advantaged economic profile relative to traditional businesses.

• 1:00:18Patrick O'Shaughnessy?

  If I personally spent my time doing investing at the early stages now, went and shadowed Masah for a year, how do you think I would change or come away different? I guess it's another way of asking how you have changed or come away different by virtue of working with him.

• 1:00:33Speaker 02

  It depends on the period of time. Every single one of us, whether we want to acknowledge it or not, are a product of the market environment we're in. It's what's so important for founders today. Almost the first principle I lean into is understand the market you're in because you have to learn how to operate to it. This man has the ability to build very strong conviction in very big ideas. He really doesn't mess around with the small ideas. He doesn't get distracted by details. He builds a big vision that is supported by fundamental economic tailwinds, and he pursues it with a lot of clarity. But the other thing I think that he has, which I think is beautiful, is he can change on a dime and turn and do a 180.

• 1:01:14Speaker 02

  And as I look back at my 10, 12-year career before I joined SoftBank, for most financial institutions, for most investors, you can't do that. You've made a covenant with your LPs. You have defined your strategy. You said, this is who I'm going to be, and I'm going to be this for the next three funds as I come back to raise my next funds. My strategy is what I will do. Organizations tend to be pretty sclerotic. You say, this is who I am. It's how I do what I do. It's why you don't see that much change in venture outside of new entrants. Masah's the opposite. If he believes something is fundamentally changing, he can pivot in a big organization so fast to follow that thematic. And I think it's why In this wild period of upheaval in the capital markets over the last five years, I've been in the capital markets for 20 years.

• 1:01:57Speaker 02

  I've never seen change the way I've seen it in the last five years. It's why SoftBank has been able to continue to stay in the forefront of headlines. Now, we can debate whether headlines are good or bad. Most of these headlines are bad. But it does really help to be able to orient your business as quickly as he is able to orient it with the big fundamental frameworks guiding his decisions. That's the sort of aspect one. I think something else that's beautiful about him is he really does operate in a high-trust environment. This business is so hard in that it takes so long to figure out if anything you're doing is right. The feedback loop is just wild. And most people don't have the luxury of having a long time to prove out what they're doing.

• 1:02:40Speaker 02

  You know, the reality of partnership dynamics around firm dynamics, dynamics with your LPs, is nobody really wants to give you 10 years of doing things that look wrong to everybody else to prove yourself out. I think one of the beautiful things about Masayoshi is he is someone who grants a tremendous amount of trust to the people who work in the investing organization. You know, while there is, of course, accountability in every investment organization, I think he is really supportive of people doing what they believe in. And I think he is the first person to stand up when he makes a mistake and say, "I was wrong." We see it over and over in our earnings calls. We saw it in the case of WeWork, we saw it last quarter. Masayoshi stands up with humility and says, "I was wrong. I'm going to change. Here's what I'm going to do different."

• 1:03:23Speaker 02

  But he really takes personal responsibility and grants trust very freely. And I think it allows organizations, it allows founders to think very big. Nobody is operating from a position of fear. People are operating from a position of optimism and excitement. As I take a step back and I say, despite all the tough headlines we've had over the years, I feel like our brand has been extraordinarily strong with founders. Founders love the concept of SoftBank. They love the ideal of Masa. They love someone who grants trust freely, who really believes in them, who is doing this not to make money, but solely because he wants to work with founders and he wants to build big things. And that is sort of an intoxicating position to be in the middle of.

• 1:04:04Patrick O'Shaughnessy?

  We've talked a lot about certain founders, but you have the benefit of having different styles of investing. When you think about great investors, maybe especially outside of SoftBank, who comes most immediately to mind? And what about them is exceptional to you?

• 1:04:18Speaker 02

  This almost harkens back to the earlier comment. There are so many great ways to make money. The concept of great investor, I think you have to apply pretty broadly. The thing that is striking about the venture capital as a class is it is so much more driven by luck and good fortune than traditional investing is, public market investing, private equity investing. These are very quantitative roles where you are really orienting yourself around math and understanding businesses in quantitative form with an understanding that management teams can be changed in and out when they're not performing it. It is a much more established, expected set of operations. Venture is just so different. You know, the reality is this is a people business.

• 1:05:02Speaker 02

  Big companies that are built are built on the back of tremendous aggregation of talent, of people. And that, in some ways, is very hard to predict. In every way, it's hard to predict. I look at venture capital as a class and I think that the people we term to be great investors often are the people who've been standing the longest. You know, do you have an ability to continue to amass capital to invest? Or have you been around the table for 15 years to be in and out of cycles? Have you been fortunate enough to be on one or two or maybe three journeys that have worked? But there's so much luck involved and patience. You know, I do think the beautiful thing about this industry is the longer you're in it, hopefully the calmer you get because of the reality that the impact you have on these companies

• 1:05:47Speaker 02

  is a lot smaller than you think it is going to be when you enter any of them. And it just needs to be a lot more grace and humility and patience, frankly, in the sector.

• 1:05:56Patrick O'Shaughnessy?

  It's such an interesting place to close, this notion that the longer you spend doing this, the more humble you must become, and that survival is the name of the game. You made my traditional closing question for everyone. What is the kindest thing that anyone's ever done for you?

• 1:06:09Speaker 02

  I find the list on that is really long for most of us, hopefully. I start with my mother, who was just this extraordinarily hard-charging leader in my small town in a way that made it acceptable for me to understand that that was a role that was open to me as well, and to my father, who actually supported her version of events and all of that. I think a more tactical answer that I was thinking about is just the hundreds and hundreds of people who have given me feedback over the years. I was a pretty insecure person growing up. You kind of want to hide. You don't really know what value you have to add. And every person along the way who pulled me aside and gave me feedback,

• 1:06:54Speaker 02

  positive or negative. A lot of positive feedback that made me feel like something I was doing was right, negative feedback that allowed me to learn and pivot. It makes me think all the time about who I am as a leader of my team. And how do you make sure you take time out to give people feedback along the way that just helps them to establish confidence in what they're doing? I am just really thankful to all of the incredible people who have bothered to spend snippets of their time with me to give me feedback in what I'm doing.

• 1:07:24Patrick O'Shaughnessy?

  Olivia, I've learned a lot today. I didn't really know what to expect from me, and I'm not an e-commerce expert by any stretch. But maybe above that, I think you probably meet your own definition of more nuanced, humility, calm, whatever. You know, having been in this for a while, I've really, really enjoyed the conversation and so appreciate your time. Thanks so much for doing this with me.

• 1:07:41Speaker 02

  Thank you.

• 1:07:43Patrick O'Shaughnessy?

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