Gabe Stengel - Building Investing Superintelligence - [Invest Like the Best, EP.492]

24:03You use ChatGPT individually, you use Copa individually, you use Gemini individually. As soon as these are actually things that consort with a lot of colleagues or in a Slack channel with 100 people have to work across an entire company. Now the compaction problem just scaled exponentially because it's having conversations with 100 different people and needs to be able to coordinate across those things. And so being able to take all of that memory, all those interactions and actually lodge it into the mental model or brain of that agent so that it can be persistent so that it can actually maintain context over the course of a bunch of interactions.

24:34that's something that the models are not great at today. What do you think the major kinds of AI software businesses there are? So we've got companies like a Cognition or a Cursor or something that can grow unbelievably quickly. And I'm especially curious for you to compare this to like the old classification system for software companies. I'm curious how people buy Rogo, what kind of category you would put it in. Is it usage-based? Is it seat-based? Is it something else? Like talk us through the, how people want to buy this stuff and what the emerging models are for AI software business. we are a classic enterprise software business we price per seat right now because our buyers are used to pricing per seat they think of us in a similar category to bloomberg to fact set to capital iq to pitch book and so we have to build a very human business every time you sign a deal it requires an ae and a solutions architect of the sales engineer going in shaking a lot of hands explaining how it works explaining how to integrate it you can't sign one deal where the usage just rises a hundredfold.

25:34I look at how hard it was for Anthropic to sell to us very easy. And the amount that we pay them has risen exponentially without a human loop because it's a token consumption model. There's a lot of industries where riding the coattails of token consumption isn't going to work for enterprise sales. And we're one of those. And so it's actually pretty interesting because we have to build a go to market machine five times faster than most enterprise sales organizations ever have to build. And so I do think there's the category that's just typical enterprise sales, but using AI models as a tailwind to build 100 times better products.

26:07And then there are the token brokers, the token consumption businesses, where you're selling in the parts of enterprise where they're used to buying usage-based tools, Cursor, Factory, Cloud Code, and others. And so you can go much further commercially with fewer people. What's your prediction for how or if that will change in finance? I think that every business needs to go through two different pricing revolutions. You need to move to some sort of usage based and then you need to move to some sort of outcome based. For me, if I can figure out a way to skip the token base, skip the usage base, simplify it for my users and just wait until I can say, hey, Patrick, what if I just charge you for every good investment idea I give you?

26:43Or what if I charge you for the quarterly report you send to LPs that I can do perfectly? Or what if I charge you for every SIM that you create as a banker? I would much rather get there than have to figure out some random way of trying to assign per token. That is something that we're not going to quite agree on because you're going to spend $100 ,000 on tokens and say, well, did I get$100 ,000 of value? And I don't really know. But you know what the value is to you of a good investment idea because you can actually see how much money did I earn? Or you know what the value to you is if you can produce a SIM if you're a bank because you know what you charge these firms to actually sell the business.

27:16Presumably, you can't change your C price on the fly dynamically, at least with the same customer. So how do you Deal with the problem of like, in some ways, misalignment with the customer for your business, where if you do a great job and they use the thing way more, which costs you a lot of money, they become a worse customer. The reality is, is we are 1 % of the way into our product roadmap. 99 % of the innovation for capital markets is in front of us. And so what matters is that we're a good partner. We're a good steward of their AI strategy and they want to work with us in the future. It's so interesting to think about the shape of this in the future.

27:48You said you're 1 % penetrated into the roadmap. Give us a sense of where you think this is all going from your product perspective, not industry-wide. If you have that much of the roadmap ahead of you still, describe that to us. Think about the percentage of all capital markets workflows, investment workflows, investment banking, jobs that are still completely human rate limited and done by human intermediaries. it's kind of similar to other parts of financial services where 15 years ago, 20 years ago, every mortgage that someone got, you went in, you spoke to a banker at a local branch. It felt like a very human decision.

28:25I'm buying a house. I'm taking out a loan. This is important. I need to speak to someone. No one ever thought that you wouldn't want a human in the loop for that. Now, 40 to 50 percent of mortgages are just delivered online by platforms like Rocket Mortgage. I think there's going to be a huge amount of innovation in how companies transact, how companies raise capital, how companies raise debt. I think it'll be easier than it's ever been in 10 or 20 years for someone who's a business owner or someone who works at a company to go online and click a button and try to raise capital the way that someone can go on to Robinhood and click a button and buy an equity.

28:57I think it'll take five minutes for KKR to figure out, can I sell this portfolio company to another sponsor? Not five months. I think you're going to be able to price assets in an order of magnitude less time. And as a result, markets are going to be more transparent, more liquid, more efficient, and there's going to be a whole bunch more activity. I'm going to focus on the specific future of automated risk pricing, for lack of a better simple term. We're three years from now and everything you just said is true, where I can raise single digit millions of dollars of better equity, kind of like filling out an online form and the thing can just price the risk for me and give me an offer.

29:35It's like open door for like everything or something. What do you need to build that you don't already have to enable that sort of capital market future? It's actually a very similar strategy to Bloomberg strategy. Bloomberg strategy was, I'm going to omit a lot of details here, but offer a little bit of data again in the door, build all the analytics and workflows on top that someone would need, and then provide the exchange and the communication platform where you can actually transact in a bunch of asset classes that before it was pretty opaque, Bloomberg Messenger. For us, it's use a little bit of AI to get in the door, build out the full workflows, go from co-pilot chatbot to full autopilot tool so I can make sure that I'm 100 % accurate on your IC memo or on the DDQs that you're doing, and then provide the communication channel between counterparties so that if I have agents that can autopilot do the work, I can actually transact for you.

30:22And the difference between what I need to build in Bloomberg Messenger is I don't need to build the communication channel for humans to transact. I need to build the communication channel for the agents to transact across these businesses, across these investment firms. And so if you think about what is the actual infrastructure that needs to get built, I mean, think about what is the system that would allow a large private equity firm to feel comfortable having an agent negotiate a deal on its behalf, correspond with all the third-party consultants in the transaction, the people doing the QOV, the legal advisors, and so on, and then actually run an auction process where you have a bunch of sponsors providing bids.

30:57There's a huge amount of software to be built out. And I think sometimes we talk about that as looking like an exchange for a lot of these asset classes that are not standardized. Tell us a little bit about the customer base today, Like how much of it is giant banks versus investing firms? It's mostly large banks. And that's very simply because that was my background, right? I worked as an investment banker for just a handful of years doing buy side M &A coverage, which was super interesting. And so we started targeting the banks pretty early on for a few simple reasons. One is the investment banks are kind of the distribution channel for the rest of finance.

31:31A lot of the folks who then end up as great investors started in their first two years as an analyst at Goldman in the TMT program or something of that nature. Two, they have the most seats by far. And so if you can land a bank like Bank of America, you can actually get in the hands of far, far, far more people than if you land the 10 best single portfolio manager, public equities investors who each only have 10 investors. If I think about a Bank of America or something, everyone's kind of wondering how deep into the adoption curve are we for enterprises using AI? You have a biased sample because your customers are using Robo and they're using it a lot.

32:05But give us a sense of where you think we are. It seems really hard to pin down a good answer. I would say the majority of firms are seeing a huge amount of individual productivity, and they're trying to figure out how do we parlay that individual productivity into firm productivity that we can measure. Speak to any individual banker at a bank we're deployed with. Life's great. Oh, they're like, I'm 100 times more efficient than I used to be, right? You'll speak to an MD who will say, Gabe, I sent five pages to a client that before I would have had to go back and forth with an analyst on over three days to create, and I made it in 10 minutes myself.

32:40And these are bankers who haven't done any sort of analysis in 25 years. They haven't actually opened an Excel file in 20 years, and they're able to do it themselves. The problem is, where's that flowing through? Are you winning more deals? Are you actually transacting more? Are you servicing a part of the market that you haven't seen? And this is where it becomes not just an individual productivity tool problem, but a firm strategy problem. Like, what's your plan? Do you want to use this thing to cut costs? Do you want to use this thing to enter parts of the market that before didn't make sense to serve?

33:10You can look at a bank like JP Morgan. JP Morgan just announced that they're going to try and do a lot more M &A work for SMBs, for parts of the market that before they didn't think it made sense to go out and serve because the deal fees were probably too small and so you needed too many people to staff them. Well, now if you have a banker that can be a deal team of one, well, maybe you can enter parts of the market that before just made no sense. So in some sense, the bottleneck at some point will be the creativity of the customer. Like you can provision unlimited capability and you're soon going to be just relying on them figuring out the answer.

33:43It's them figuring out what they want to do, right? If you had a hundred great investors start here tomorrow working for you, how would you channel that productivity? It would take you a while to figure out what's the structure. Do they all work on different things? How much money do I give each of them? What do we attack? Two years ago, the most obvious question in this would have been about accuracy and people to use the word hallucinations, which seems to have dropped out of the conversation. And I can't remember the last time that someone said hallucinations to me. What can you teach us about that problem, ensuring accuracy where accuracy matters a lot to the decimal?

34:15What's the nature of that these days? It's still super important. I think it's actually more important to be auditable than it is to be accurate. And obviously those two things are conflated. but what's really important is that I give you an answer, you know how to use it. And if it's not accurate and you don't know how to check it and it's hard to see where it came from, you can't use it at all, whether it's accurate or not, because you don't trust it. If it's accurate most of the time, but even when it's not, it's very easy to see the assumptions that went in, where the data was pulled from.

34:45It's still actionable and it still saves you time. And then increasingly, as these things go from copilot tools that you're just using for information retrieval to autopilots where you're trusting them, not just to gather the information, but to execute on it, to have agency and actually make an investment decision or send an email, you need to have the full confidence that if you were to go back in and see why it made the decision, you would be able to understand why, because you're going to need to debug it. And the same way that there's going to be individual investors that make horrible decisions and you need to go and see what went wrong.

35:14Was there an incorrect data input? Did someone lie to them? What was going on? You're going to need to do the same thing with agents. And then especially in parts of capital markets that have regulators that look at these things and need to make sure there's no foul play. If you can't explain why you made a decision and the data went in, that's not going to fly. You were talking before about how you have to sell like a normal enterprise sales organization would. You have to grow or can grow many multiples faster than the fastest growing enterprise SaaS companies of the last era. How do you solve that problem?

35:45Like you're very limited by the speed of humans to some degree in enterprise sales. How do you hire enough people fast enough? Like how do you think about being able to grow at the right rate when you don't have the anthropic cognition, API usage growth. It's so easy for them to grow 10x. It's much harder for you. How do you solve that? The core problem we need to solve is how fast can you make a human being productive as a salesperson, but anyone else as a marketer, as an SDR, as a post salesperson, how quickly can they understand our business and help push us forward and push customers forward and help our end users.

36:21And so enablement and training people and constantly retraining people is the fundamental problem that we, and I assume other fast-growing enterprise startups have to deal with. So do you like use AI to build tools? Oh, the internal tools we have are kind of magical. First off, every internal conversation that happens at Rogo is recorded. When anyone starts, we say, hey, just FYI, Patrick, you're always being recorded. It's always being filtered into the company brain. This is not in a kind of big brother situation. It's just everyone you're going to speak to is going to have granola or some meeting transcription running because they need to use it and they need to have excellent recall and they need to compound the knowledge that they have.

36:59And as a result, we just have this huge reservoir of information. And then we have all of these tools that people can use on top to say, oh, you know what, we're deploying with this sort of public equities firm in this sort of market. Have we ever served this kind of data before? Are there use cases that might be helpful? and you can pull in the conversation that a peer of your head three weeks ago, and you never even met that person because they're stationed in APAC. Being able to sponge all that information in and then get it out to people when they need it is the core problem of enablement.

37:25So maybe describe the internal brain. It's called Shrek for some reason, because my engineers thought it would be hilarious to call it Shrek. There's a dashboard where you can see the swamp of everything that people are working on at any given time. But it's connected to all of our different systems. it is very prescriptive about what it knows our company goals are. What are our values? What are the things we want to deliver to clients? What are our North Star metrics? And so it can shape every answer and deliverable that way. And it's both proactive and reactive. Someone can go in and say, I'm trying to get up to speed on how I should talk about model routing and how I should think about the value prop there for a very large institution and what the savings will be.

38:07And it can pull out all that information for you. But it can also say, hey, Patrick, I see on your calendar on Thursday, you're meeting with this sort of private credit firm. Here's all the information you should know, all of the use cases that will resonate. And then all of the types of ROI metrics that firms we've worked with in the past would want to hear. So what's the sales pitch to talent? Let's say there's somebody that if you landed them tomorrow would be transformative because they're so high quality or well-known or whatever. What is the pitch to them to come work at Rogo versus go somewhere else that's exciting right now?

38:40Always depends on the person's motivation. So it's hard to give a generic pitch. But my pitch for Rogo today for talent is AI is going to completely transform the world. The place it is going to be the most interesting is applied AI because that's where AI intersects with humanity. And so the companies that dictate how AI intersects with humans and touches humans are going to do the most interesting, creative engineering and product work in the world. Finance is a domain that is the catalyst for all human progress and innovation. And capital allocation is upstream of the financing of every company, every idea, every economy.

39:16And so if you can make that more efficient, you can supercharge the world. And we're the category leading player who has the best shot on goal to not just be the$100 billion business to do it, but the$500 billion business that completely transforms capital markets. And there's such a depth and a complexity and an amount of interesting problems that's so exciting. And we have a killer group of people that is super smart, hungry, curious, and low ego that's going to do it. Good fucking pitch. Glad I invested. Say more about this capital markets piece. Historically, as markets get more efficient and liquid, their positive impact, in my opinion, grows a lot.

39:54You can chart this through market history, which isn't that long, three, 400 years of like proper markets. What do you think is possible? Like where might this be going and why do you believe that creating more or less friction, I guess, in capital markets can be so powerful? You're always at risk of sounding like the billionaire private equity guy saying that private equity is good for the world when you talk about how finance is good for the world. But I like to think about the origins of high finance. And when you think about a business like J.P. Morgan. Some of the origins are J. Pierpont Morgan helping connect European investors with the entrepreneurs in an emerging market, the United States, to finance railroads and the infrastructure build out and everything that allowed the U.S.

40:40to be a juggernaut economy. And that happened because there were intermediaries who helped connect folks who were risk takers and capital allocators with the folks who were entrepreneurial and wanted to innovate. And that was something that had a profoundly great effect on the world. And now think about all the parts of the economy, all the parts of the U.S. domestically, but also internationally that can't tap into capital markets. Every emerging nation where you would struggle to raise capital, to finance your idea, to raise debt. And then the 300 ,000 American businesses that couldn't even tell you what Goldman Sachs does.

41:14And JP Morgan doesn't have the time to go out and work with them because the business is too small. If you're able to speed up the rate at which entrepreneurs and company founders and individuals can tap into capital markets, you can accelerate all innovation. What are you learning from your peers that are building companies kind of shaped like yours, but in other categories? I am learning how much aggression it takes to grow this quickly. I am learning how much chewing glass it is on a day-to-day basis and how much conviction you need to have in the long-term Tam and Sam to make sure that you don't fuss over all the things that are going completely wrong every single day.

41:56And, you know, I'll call someone like Winston at Harvey and Winston's ability to just not worry about the hundred flesh wounds that are inflicted on him at any given time. And just think about the kind of end state goal of where he's going to be three years from now. And the only two things that matter to get there is pretty amazing. What is the glass like and what is the aggression like? What does that mean? I worked during COVID, so I didn't even get to see what an office looked like. John, my co-founder, and I used to joke that it's a very expensive business school education because we were just doing everything wrong.

42:29Didn't know how to hire, didn't know how to fire, didn't know how to mentor, didn't know how to manage, didn't know how to give feedback, didn't know how to set direction. And a lot of the people problems that arise with scaling quickly feel like eating glass to me anyway. And so when people quit, when you have retention issues, when you spend six months recruiting a candidate, they don't join, that's chewing glass. When you spend a bunch of time working on a product that gets completely washed over by the next model that comes out and makes you feel like an idiot for spending all that time and capacity on something that was the wrong call, chewing glass.

43:00When you get rejected by 40 investors in a row before you're able to raise capital, chewing glass. And my experience of startup building is it's like a roller coaster where you have to feel the extreme highs and feel the extreme lows. And I'm a super emotional guy. And I try not to let the team feel it, but I will feel on top of the world at the high and like everything is cataclysmic at the low. But then if I look back at the journey, the lows get lower, the highs get much higher. And I look back three months ago at the low I was dealing with or the high I was dealing with. I was like, I could do that in my sleep now.

43:34And I think it's just about modulating those things and channeling the emotion to push the business forward, but not letting it distract you. What about aggression? Like that seems kind of like a trope. You've interviewed Pat Grady. Pat Grady was at our board meeting on Wednesday and we presented what was an extremely aggressive plan for next year in terms of hiring goals, commercial goals, product goals. And one of the reasons I love Pat is because he boils everything down into like two bullet points and it's logically infallible. And, you know, he's just like premise one, premise two, this is the result.

44:08And he goes, Gabe, well, if everyone in finance is going to make a buying decision on AI in the next 18 months, and they're definitely going to buy something no matter what, even if you're not there, then the only thing that matters is that you can blitz the market as quickly as possible to make sure that you are there. Given that, do you think this plan is aggressive enough or no? The answer was no. And the reason it wasn't aggressive enough is because I was being soft. And I think the reality is you need to be so, so, so aggressive and underwrite all that risk and know the game that you're playing.

44:39And my goal as a venture-backed business is to increase the tails of the distribution. It's fine if it gets 30 % more likelihood that I fail, if the odds that I become a$100 billion company also increase by 20%. But you actually have to be okay with raising both of those tails at the same time. What's the most emotional low that you've faced? when we were raising our Series A, we didn't have any star investors in our cap table yet, but there was a great investor, David Tisch at Box Group, who was an early pre-seed seed investor who introduced me to a bunch of all-time greats for the Series A. And I thought, wow, I've seen what it does to get a blue chip investor in your cap table, what it does for recruiting talent, becoming more of a black hole for brand and customers and so on.

45:25This is finally the opportunity we're going to have to do that. We'd been building for two and a half years. And David introduced us to 40 investors. And I met with everybody. I met with Sequoia, Kleiner, Benchmark, everybody. And 40 people passed. And it wasn't just like you get the email with the deck and it's not exciting. It was like, oh, this is interesting. Let me meet Gabe. Oh, I kind of like Gabe. Let me spend an hour with him. Oh, Gabe, come to IC. Oh, Gabe, let's go to dinner. Oh, Gabe, come in for the weekend afterwards. You know what? We're going to pass. And it's so personal because at that stage, It has nothing to do with anything but you, right?

45:57It's like being broken up with by 40 girlfriends who like every time you fell in love and then every time they said, eh, not for you. And that was actually Thrive too at the Series A. Thrive spent so much time with me. Went to dinner with Avery and Vince, fell in love with them and the firm because they were awesome and then crushing blow. And luckily Keith Raboy came basically a month after everyone else had rejected us. And Keith was like, Dave, this isn't a contrarian bet. It's basically just Harvey for finance. why would I do it? And I said, Keith, if it's not contrarian, why did every single one of your friends just say it was a bad idea and not believe in me?

46:32Why do you think they didn't believe? For a lot of reasons. I think people underappreciated the TAM in finance, which was silly, but it's partly because I think SF has less intuition for finance because they didn't fund Ion Group or Bloomberg or S &P or Faxed or PitchBook, Morningstar, and so on. And so there actually haven't been great venture-backed businesses in this market. And so there's no intuition for the kind of contours of the market and how large it is. Two is the product was terrible. And so every investor said, oh, I work in finance. Let me use it. Is it going to transform what I do?

47:02And they tried it and it was wrong half the time. They go, this is never going to work. And it's like, guys, you know, we're on the exponential. It's going to work in six months or 12 months or 18 months or whatever it is. I'm going to figure it out. And the final reason was people didn't think I could figure it out. People didn't have enough data points of watching me shoe glass and watching me figure out what the next iteration would be. What do you think changed after that? Because now it's a who's who of Cap Dibble. Well, because I met all these guys very early on and I met them at every single round.

47:30And so every time I said, hey, we're going to do this and they said, yeah, there's no way. And then every time we would do it. And by the way, a lot of the times it would manifest in a different way. You would actually lose the key employee you needed or that actually excellent customer that you thought you were in the land totally dissipated. but we kept figuring out what to do and kept navigating the market. And I think when you're investing in a market like today, especially at Applied AI, where it's so turbulent, so ambiguous, you need to underwrite the founders being able to be extremely dynamic.

47:59Why do you think there aren't more credible financial services competitors? Distribution is really hard to crack. I think it's far more a people problem on building trust and delivering value and working with these institutions than just an engineering and product problem, but then there's an enormously high engineering and product burden to the standard to execute to really crack this market, I think is pretty high. And I was just so lucky that a number of the early people I hired were ex finance and just killers. And we just hired folks from internet work who worked at Goldman or city or Jeffries or Apollo or Aries or Blackstone.

48:36And so we had a team of people who were diehard, ambitious, curious, smart, and then just good humans. Low ego, humble, young enough to be open-minded and to want to eat class too. I'm also really curious how you've dealt with technical talent and what matters in a technical person on your team and how that has evolved. One intuition might be the value of domain expertise from the technical person has gone up as the ease of execution has changed a lot. You don't need to be super technical to write good code or less so than in the past. So what is the shape of the engineering or technical team look like over time?

49:12I'm asking this again because I'm curious about thinking about other companies that want to tackle this and whatever their industry might be. So I would say there's definitely problems where domain expertise is increasing in value and product intuition and having more of a GM-like mindset versus an engineer-like mindset is super, super important. There are also parts of our product surface area where it's like you just need raw, gritty engineering talent because you're scaling things up so aggressively. But if I look at the folks on our team who have been so excellent, a lot of them are former founders.

49:42They're folks who started businesses, persevered, ate glass, had a lot of product intuition, figured out how to channel it, and then the business maybe petered out. and to the point you made, there's been a lot of companies trying to tackle financial AI. There's been a lot of really smart, product-minded, engineering-minded domain experts who have tried to tackle finance AI, and we've acquired six different fledgling financial AI startups. And so those former founders who can be galaxy-brained about the future of the product and navigate a course on what the UX should be, but also have engineering chops, and so they can constantly make the right decisions is super important.

50:17You said earlier to me before we were recording that this is the first time that we have like a major innovators dilemma in this category. Can you describe what you mean by that? Yeah. Well, I think for a lot of investment firms, a lot of high finance financial services, the last 10, 20 years have been pretty good. You can make a lot of money being a capital allocator, being an investor. It's a very hard industry to enter. And then especially if you're in private markets, your businesses have some natural momentum because when you raise a fund, another fund, another fund, it's hard to mess up the business after that.

50:49And I'm sure there's 100 people who have started funds who know it's 100 times harder than I just described. But to be fair, there hasn't been a moment and a shock to the market where every investment firm, every bank is saying, oh, wow, I need to completely rethink what I'm doing. And now there's going to be an opportunity for hundreds of AI native disruptors, AI native investment firms, AI native investment banks to attack my business model. And I need to figure out what I'm going to do now. And there has not been an innovator's dilemma for private equity firms, for hedge funds, for investment banks in a long time.

51:20AI native, what does that term mean to you? Like, what is the definition of that? In some ways, I think it just means willing to constantly reinvent everything you're doing and being so AI pilled that you don't worry about what's possible or what might seem completely far fetched. but you are just charting a trajectory towards integrating this alien fundamental technology into everything that you do. And it's showing up in every part of the business. And there's no part of the business that you hold sacred that is immune to being revolutionary. How do you do that? So you're a leader in a company that's very AI-pilled that want to make sure.

52:01Do you want to do everything you guys said in Rogo? And yet I'm sure there are areas that you're unhappy with the status of how much AI is used to do X, Y, or Z. How do you do it as a leader? Like, how do you make sure that your company keeps doing this as a practice and habit versus like a one-time? So I'll give you a very simple thing, which is every month I have a report that gets sent to me that shows me every one of the company, how much are they using the various different AI tools we have, both the ones we've procured, the ones we've built internally, all of these different things. And I have a stack ranking within every division of the top five power users and the bottom five users.

52:36And we post that everywhere. And the bottom user in each division gets a printout with a dunce cap and we post it around the office. And it's hilarious, but people know it's coming. And by the way, as we get bigger and fewer people know me and know it's kind of a joke and I'm funny, they're actually terrified. And I hope they're not terrified. And I hope that changes, but it's a strong incentive function to actually make sure you're using these things. If you were to list questions, let's say there's someone sitting down that runs one of these firms that's been a great business, hard fought, but a great business.

53:07And these businesses tend to be quite simple from an organizational and technical standpoint. It's mostly humans, right? There's not a lot of overhead in lots of these businesses. Maybe they buy a lot of data or something. What questions would you encourage them to ask of themselves, of their business, to stand the best chance of navigating this transition effectively? If you knew for sure that right now, 90 % of your enterprise value is in your people, Your best investors, your best bankers are the people that bring in deals, bring in revenue. And actually, that's what accrues enterprise value.

53:41And in 10 years, the world's best investment firms, best banks will have 90 % of their enterprise value, not in people, but in software and data and systems. What would you start doing? You would start trying to figure out how do you take all of what lives in the latent minds of your best people and putting it into a system that you own and operate autonomously. So that's a big one. The second thing I would think about is unpack every part of the deal lifecycle and in each one, try and chart where do you think you are invaluable or you have data or you have domain expertise that no one else has.

54:17And then be diligent about saying, OK, do I actually have something that no one else has in this market? And is it a relationship? Is it context that no one else has? Or do I just think I'm smarter and better read on the subject area in the market, in which case AI is going to obviate that? Have you seen anyone be the most cutting edge exemplar of this attitude in a big firm? Like, is there a favorite example of a person that's just. Oh, yeah. There's a racing of the folks that today look the most prescient sounded crazy batshit two years ago. They were the guys that came in and said, we need to record every conversation.

54:51You're going to be able to pipe in this conversation directly into my company brain. And there's going to be a digital clone of me. And then it's going to spit out the game theory on exactly what the investment should look like. And two years ago, everyone listened to those kind of guys and were like, what the heck is Patrick talking about? One example is there's a co-founder of firm Molas, John Montazzi, who was just prescient about where it was going. And he wanted digital clones of all their best bankers. He wanted systems that could basically show up to calls, speak on his behalf, know how he thinks, then ingest that context.

55:20And then he wanted to build a system such that anyone in junior levels of that investment bank could leverage his expertise and context and relationships immediately so that that context and that data wasn't just powering his ability to be revenue generating, but it was powering the ability of every junior in that bank to be revenue generating. And so there are a number of folks who had their kind of move 37 moment where they realized, wow, this is going to be so much more profound than anyone's expecting. What to you feels the most uncertain about the future of your business? I would say how quickly private markets actually do transform.

55:54If you think about why different types of asset classes have increased in transaction volume and have increased in liquidity, often it has to do with standardization because it gets easier than to track those assets and trade them. Private markets have been immune to standardization because there's so much unstructured data. AI should fix that. That said, is there going to be a regulatory or a market force that forces some additional standardization that really accelerates the kind of transparency and liquidity you can have in private markets. That's a little bit out of my control. The other thing is it's still unclear to me how much alpha will be left in the human relationships, right?

56:32I talk about that micro cap M &A. It's very hard to imagine that if you're a small business owner and you've been building a business for 20 years and you want to make sure that if you hand that business off to someone else, that you trust them, that you can shake their hand, that that can be fully automated. But for a lot of sponsor owned businesses or things like secondaries or private credit or GPLP secondaries, I do think it can be fully automated. But how long it takes for the long tail of all these small businesses, all these medium-sized businesses that have to deal with generational turnover for them to get comfortable clicking a button to sell their business as opposed to shaking the hand to someone, that's a little up in there to me.

57:09If you had several new young founders here with us and they were curious about how to navigate and interface with private markets investors, what would you teach them? What would you tell them to do, to not do? My style for fundraising might not be everyone's style. I'm super direct. I'm super transparent about what I'm worried about, where I want to go. But then you have to be very headstrong on that end state. And then I would say it's about reps and relationships. And the folks who come out of nowhere and lead the Series C or the Series D are the folks that I met at the seed and then the A and then the B and the C and they passed every time for all sorts of reasons, but they gather a lot more data on me and the business.

57:50Anything that you would encourage people to not do? I think there's a lot of the fake it till you make it and you need to have the bravado and the confidence in what you're doing, even if you're not fully confident. And I'm a deeply paranoid, deeply insecure, deeply scared person, but you need to put on the face and say that you are confident about where you're going, even in the moments where, you know, it's the ebb and flow, it's the ebb and flow. And I think people can misinterpret that sometimes as like they need to pretend there's something they're not. I think that's not true. You need to believe that that 5 % likelihood that you can be in$100 billion business is likely.

58:29And you don't need to pretend it's 100 % likely, but you should be able to delineate with very clear roadmap and strategy how it is possible that you can become a hundred billion dollar business and then have confidence that if those things play out, you will be. Why are you scared and insecure? I'm so paranoid about everything that can go wrong. Every day it feels like you're on the knife's edge of a thousand things collapsing. And I think the reality of this sort of business building is that it's a game of compounding momentum. How do you do every small thing to just race a little bit faster downhill and I'm just scared the momentum will stop.

59:04Or you hit a roadblock and then you go off course and then you need to recatalyze momentum. And it's so clear to me how hard it is to actually build a machine that gathers momentum. So if there's any stumbling block that halts that velocity, if I wasn't constantly petrified of those moments, I wouldn't be doing everything under the sun to prepare for them. What have we missed? Like what that you've learned about building a company like this in this era where everything feels like a jump ball, It feels like there's going to be a Rogo or a Harvey or whatever for every place that there can be, especially where the last mile wiring is hard and it's not just going to be anthropic.

59:38It's one company to rule them all or OpenAI. What else have we missed that you think is really important to the experience so far of building the business? I think that there are going to be businesses that solve all these problems, but the businesses that do it are going to become black holes for talent and capital and brand. And they're going to be able to siphon in the resources to actually execute because AI is an amazing tailwind. But the execution bar is higher than it's ever been to to compete. And everyone is getting pulled into the big leagues and is having their welcome to the NFL moment.

1:00:10You have to move faster and be stronger and be more resilient, agile than you ever expected. and having the right team is more important than ever. And the right team these days is extremely, extremely expensive. And so if you can't figure out what is the strategy to become a black hole for talent and capital as quickly as possible, I do think you are far more at risk at being roadkill of a lab or a company that can. When I do these, I always ask my favorite question last. What is the kindest thing that anyone's ever done for you? I benefited so much by having parents who were enormously kind and generous and selfless, but it showed up in such different ways for my mother versus my father.

1:00:52And my mother's version of kindness was no matter what I did, I was amazing and smart and could do no wrong, even though growing up, that was absolutely not the case, but she instilled in me the confidence to believe in myself. Even when you were in those low trajectories where it felt like everything was gonna go sideways before you couldn't do anything right, 40 no's in a row, idiot, failing out, flunking out, whatever it is. No matter what, she acted like I was maybe the smartest person on earth. That was irrational, but you need some of that irrational confidence that comes from just undying love.

1:01:27My dad was very different. My dad, if I came home and I had done something wrong, was seething, could barely look at me, couldn't understand it, right? Like he was someone who was so disciplined, so good, had such high standards. And so his version of kindness was figuring out how does he understand who I am and why I am failing at this thing and then help me. He would sit down and go over every detail with me, even though he sometimes just couldn't even understand why I had the opportunities I had and I couldn't take advantage of them and take the time to make me better. Well, staying true to his principles and his standards of excellence and his definitions of good, too.

1:02:05You're building a fascinating business. It's been so cool to watch it get better. Thanks for doing this with me. Thank you. If you enjoyed this episode, visit Colossus.com. You'll find every episode of this podcast complete with hand edited transcripts. You can also subscribe to Colossus, our quarterly print, digital, and private audio publication featuring in-depth profiles of the founders, investors, and companies that we admire most. Learn more at Colossus.com slash subscribe. Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum.

1:02:41This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc.

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