Invest Like the Best with Patrick O'Shaughnessy

Josh Kushner - Building Thrive Capital

Tue Jul 18 2023

TeagasFounders podcastThrive CapitalOscarinvestment strategybuilding businessesinvestment insightscreating a thriving environmentinvestment focusmentors

Description

This episode covers topics such as Teagas, the Founders podcast, Thrive Capital's investment approach, building Oscar, starting and running businesses, Thrive's investment strategy, their approach and culture, building an exceptional team, investment insights, investing in changing environments, creating a thriving environment, investment focus and mentors, inspirations and lessons, Thrive's approach and impact, founders' vision and investing insights, building Thrive and personal stories.

Insights

Thrive Capital's Approach

Thrive Capital takes a different approach by not seeking credit for their success and believing that founders are heroes. They don't apply to lists or seek external validation because every win or loss is attributed to the entire firm.

Building Oscar and Thrive's Philosophy

Thrive aims to be a meaningful partner to founders by constantly iterating and building. The idea for Oscar came from a poor consumer experience with health insurance. The Affordable Care Act created a new market for consumer choice in healthcare.

Investing and Building with Thrive

Understanding quality and taste is important, but getting it right is not always guaranteed. Good design has basic principles that can be applied to different industries and sectors. Having the ability to think outside the box allows for threading common design principles through various things.

Building and Running Businesses

Starting an e-commerce business is easier today with platforms like Shopify and plug-ins for payment processing and data analytics. In contrast, starting a health insurance company has limited technology options. Oscar's vision was to build a health insurance company that consumers love and create an operating system to run it end-to-end.

Thrive's Investment Strategy

Thrive's first institutional fund was $40 million, while their last fund raised was $3 billion. They focus on investing in market-leading positions and avoid overpaying for lower-quality assets. Their goal is to partner with visionary founders at early stages and identify potential before others do.

Thrive's Approach and Culture

Thrive follows a generalist model and avoids sector-specific funds to have flexibility in investing in the best ideas. Talent and people are crucial for Thrive, and they value independent thought, self-motivation, humility, and an immigrant-like mentality.

Investment Strategy and Insights

The quality of a company is determined by how end consumers feel about its product, not just revenue or valuation. Concentration is important, as sizing down positions based on risk perception rarely leads to extraordinary results.

Creating a Thriving Environment

Creating an environment where people feel empowered to do big, bold, ambitious things. Being a meaningful partner to founders and fiduciaries for limited partners. Building an exceptional culture of transparency and kindness.

Investment Focus and Mentors

Financial services and fintech investments have been focused on infrastructure, direct-to-consumer, and B2B companies. Belief in continued innovation in the financial services space. Learning from mentors like Mark Andreessen, Bob Iger, Stan Drucken, and David Geffen.

Building Thrive and Personal Stories

Thrive Capital is equally concentrated in people and ideas at the early stages as much as they are at the later stages, with emotional commitment and concentration. Thrive has built a data science team to make better decisions and be a more meaningful partner to founders.

Chapters

Teagas and Founders
Thrive Capital's Approach
Investing and Building with Thrive
Building Oscar and Thrive's Philosophy
Building and Running Businesses
Thrive's Investment Strategy
Thrive's Approach and Culture
Building an Exceptional Team
Investment Strategy and Insights
Investing in Changing Environments
Creating a Thriving Environment
Investment Focus and Mentors
Inspirations and Lessons
Thrive's Approach and Impact
Founders' Vision and Investing Insights
Building Thrive and Personal Stories

Summary

Transcript

Teagas and Founders

00:00 - 06:56

Teagas is a modern research platform for investors that provides access to publicly reported data points and industry-specific KPIs.
The Founders podcast, part of the Colossus network, explores the lessons of different entrepreneurs.

Thrive Capital's Approach

06:39 - 13:52

Invest Like the Best is an open-ended exploration of markets, ideas, stories, and strategies.
Josh Kushner is the founder and managing partner of Venture Firm Thrive Capital.
Thrive Capital manages $15 billion with a small team of nine investors and has invested in companies like Warby Parker, Instagram, Oscar, Spotify, Unity, Stripe, and Twitch.
Thrive takes a different approach by not seeking credit for their success and believing that founders are heroes.
They don't apply to lists or seek external validation because every win or loss is attributed to the entire firm.
Josh shares a story about investing in Slack where his partner convinced him to do the deal despite Josh's initial hesitation.
Thrive's style and philosophy have led some people to misunderstand what they do, so Josh sees this interview as an opportunity to tell their story.

Investing and Building with Thrive

13:23 - 20:49

Understanding quality and taste is important, but getting it right is not always guaranteed.
Good design has basic principles that can be applied to different industries and sectors.
Having the ability to think outside the box allows for threading common design principles through various things.
Extraordinary taste comes from understanding what works and appreciating creatives.
Rick Rubin's book emphasizes the importance of questioning rules and assumptions, as they can be constraining.
Pattern recognition can prevent seeing the world differently and hinder creativity.
Constantly questioning norms has allowed for pushing boundaries in building a firm.
'Lightning strikes a tall building' philosophy focuses on actions speaking louder than words and listening more than talking.
'Inner Ring' essay by C.S. Lewis highlights the desire to feel included but concludes that focusing on craft, loved ones, and personal growth is more fulfilling than chasing external validation.
Thrive values focusing on inputs rather than outputs, with self-motivation being key for success.

Building Oscar and Thrive's Philosophy

20:31 - 27:16

Investing in New York City allows for independent thought and avoiding echo chambers.
Being outside of the daily hustle enables clearer thinking and focus.
The experience of pain as an entrepreneur is a competitive advantage as an investor.
Dual tracking as an investor and entrepreneur has made the founder appreciate the struggles of both roles.
Thrive aims to be a meaningful partner to founders by constantly iterating and building.
The idea for Oscar came from a poor consumer experience with health insurance.
The Affordable Care Act created a new market for consumer choice in healthcare.
A new brand like Oscar could be created due to lowered barriers to entry in the industry.
The 'why now' factor is always important when investing or starting a company.
Oscar currently has one million members and $6.5 billion in revenue, but it's still early in its journey.
The volatility of the Affordable Care Act and external factors like the pandemic have impacted Oscar's growth.
There is limited technology available for starting a health insurance company compared to other industries.

Building and Running Businesses

26:50 - 34:17

Starting an e-commerce business is easier today with platforms like Shopify and plug-ins for payment processing and data analytics.
In contrast, starting a health insurance company has limited technology options.
Oscar's vision was to build a health insurance company that consumers love and create an operating system to run it end-to-end.
Oscar is the only company with this end-to-end system for operating a health insurance company and having a longitudinal view of members.
Deploying LLMs (Longitudinal Life Models) across Oscar's products brings excitement about future transformations.
Running a mature platform like Oscar comes with both pleasures and pains, which are different from the early stages of businesses.
Starting a small business is just as hard as starting a large one, and it gets even harder as the business grows.
The challenges increase over time because the problem being solved becomes more complex.
Ambition should be grand from the start when building something big because challenges will continue to come.
Identifying good problems means focusing on infinite markets rather than just big or large markets.
Every incubation at Thrive has grand ambitions and starts with building a specific product that creates a wedge into larger opportunities.
Working alongside extraordinary people is crucial for realizing the full potential of any project or investment.
The decision to start Thrive came after seeing Mark Zuckerberg build Facebook while at Harvard, inspiring the belief that peers could achieve similar success.
Initially, finance jobs were pursued due to peer influence, but exposure to startups led to investing in Hot Potato through General Catalyst.

Thrive's Investment Strategy

33:57 - 41:01

The speaker was introduced to a company called Hot Potato and expressed interest in investing.
The speaker spoke with General Catalyst and was offered a job, but did not join.
General Catalyst gave the speaker a million dollars to invest on their own.
This allowed the speaker to meet with founders and invest in great companies.
Andy Golden of General Catalyst spent time with the speaker discussing their goals for Thrive.
Thrive aimed to be an opportunistic vehicle that could invest across stage, sector, and geography.
Thrive's first institutional fund was $40 million, while their last fund raised was $3 billion.
Funds one, two, and three had incubations and investments in various companies like Oscar, Warby Parker, Instagram, Twitch, and Spotify.
Fund four marked a shift towards concentration with positions in GitHub, Slack, Stripe, Unity, Benchling, and Laddis.
Thrive also incubated Cedar in fund four.
The decision to focus on later-stage investments came from a mismatch in the market where no one was creating or investing at later stages.
Thrive took advantage of this opportunity by approaching category-defining businesses at later stages with attractive prices.
Competition mostly came from mutual funds blending down towards privates at that time.
Different models for building venture firms include small partnerships with shared economics or large multi-stage firms with teams in different geographies.

Thrive's Approach and Culture

40:44 - 48:02

There are different models in the investment industry, such as investing in specific sectors or building multi-stage firms.
Thrive sees itself as a company and aims to be a meaningful partner to its founders.
The market is constantly changing, and Thrive believes in adapting its approach like its founders do with their businesses.
Thrive follows a generalist model and avoids sector-specific funds to have flexibility in investing in the best ideas.
Thrive applies a consumer lens to every deal, regardless of the sector.
Talent and people are crucial for Thrive, and they value independent thought, self-motivation, humility, and an immigrant-like mentality.
The immigrant mentality represents perseverance, tenacity, and the belief that everything is possible in America.
Maintaining the power of this story is important for Thrive's culture and business.

Building an Exceptional Team

47:39 - 54:46

Maintaining the power of personal stories through actions and priorities
Emphasizing the importance of hard work and outworking others
Desire to win is more important than intelligence in hiring decisions
Looking for independent thinkers with first principles lens and creativity
Building a small team of exceptional individuals who respect each other
Belief that one extraordinary person can do the work of ten
Hiring for excellence rather than leverage
Expectation that every investment team member has the potential to become a partner

Investment Strategy and Insights

54:17 - 1:01:30

The mindset of the organization is that every person hired to the investment team has the capacity to be a partner.
They have a small team and believe in the power of teamwork rather than consensus or complete autonomy.
They aim to invest in exceptional companies and people for long-term partnerships.
The analogy used to explain their investment strategy is comparing it to real estate, where quality compounds over time.
They focus on investing in market-leading positions and avoid overpaying for lower-quality assets.
Their goal is to partner with visionary founders at early stages and identify potential before others do.
The quality of a company is determined by how end consumers feel about its product, not just revenue or valuation.
Concentration is important, as sizing down positions based on risk perception rarely leads to extraordinary results.

Investing in Changing Environments

1:01:00 - 1:08:11

The current investing environment is characterized by extreme valuations and an explosion of opportunity in companies and AI.
Understanding the prevailing circumstances is important in the investing process.
The macro environment does matter to some extent, but it's more crucial to focus on the fundamentals of the space, long-term trends, and exceptional founders.
Running towards opportunities when others are running away can be beneficial in one's career.
The availability of compute for AI companies like Nat Friedman and Daniel Gross's initiative is brilliant and challenges existing industry norms.
Thrive sold a small stake to a group of individuals including Bob Iger, Mukesh Ambani, Xavier Niel, George Apollo Lemon, and Henry Calvres to strengthen its cap table and board.
Thrive focuses on inputs rather than outputs, aiming to have the highest density of human capital in the industry and be an exceptional partner to founders.

Creating a Thriving Environment

1:07:59 - 1:15:40

Creating an environment where people feel empowered to do big, bold, ambitious things
Being a meaningful partner to founders and fiduciaries for limited partners
Building an exceptional culture of transparency and kindness
Partnering with extraordinary founders making a big impact in the world
Managing the tension between being the CEO of Thrive and a pure play investor
Spending time on both building Thrive and making music as conductors
Focusing on getting better at the craft every day to avoid mediocrity
Developing informed points of view through intellectual honesty and intentionality in learning
Recognizing that no one can predict the future when discussing opportunities
Excitement about AI's potential implications in transforming various aspects of life
The challenge of determining where value will ultimately accrue in AI space
API-based paradigm shift allowing every company to access technology simultaneously
Expectation that this paradigm shift will impact both top line and bottom line for companies

Investment Focus and Mentors

1:15:12 - 1:22:20

The absence of crypto investments was due to a lack of understanding and solutions in search of problems.
The focus is on investing in things that are understood.
Blockchain software is believed to have an important purpose when it solves tangible problems.
Financial services and fintech investments have been focused on infrastructure, direct-to-consumer, and B2B companies.
Consumerization of financial services has created businesses with significant growth potential.
Belief in continued innovation in the financial services space.
Investment categories include consumer, aggregation commerce, traditional industries utilizing software or internet distribution, software, and software-enabled hardware.
Shadowing Mark Andreessen provided valuable insights into generosity, curiosity, and tenacity as a value-added partner to founders.
Bob Iger's communication style is admired for his humility and kindness.
Learning from Stan Drucken.

Inspirations and Lessons

1:22:05 - 1:29:36

The person that I admire the most with regards to communication is Bob Iger's, the CEO of Disney. He leads with humility and kindness.
I've learned from Stan Drucken to focus on both the macro and the micro, appreciate quality companies and founders, and embrace simplicity.
Henry Kraviss taught me about building a firm, valuing people within an organization, and innovating in order to create success.
David Geffen has been a great mentor who encouraged me not to care about what other people think and be true to myself.
Becoming a father has changed me by bringing simplification and prioritization into my life. It has also made me understand what's truly important.
As a parent, I give and feel unconditional love for my children. Seeing Carly as a mother has made me fall even more in love with them.
Our firm values include deep concentration, long-term thinking, exceptional people and businesses, patience balanced with anxiety, and understanding everything before making decisions.
We are impatient in gathering knowledge but patient when it comes to deciding what actions to take.
The balance between investing large amounts in iconic companies like Stripe and smaller seed investments is challenging but necessary for our growth.

Thrive's Approach and Impact

1:29:09 - 1:36:54

Thrive Capital is equally concentrated in people and ideas at the early stages as much as they are at the later stages, with emotional commitment and concentration.
They don't believe in optionality around deployment of capital, especially when founders have a portfolio of one.
Founders have a hard time deciding who to partner with due to many firms saying the same things.
Important decisions should not be made quickly, as reputations are built slowly.
Thrive Capital focuses on winning through substance and having past partners speak about their values and what they stand for.
Sequoia has maintained a culture for almost 50 years, deeply committed to talent, and still has a strong brand and reputation that founders want to associate with.
The founder of Thrive Capital is inspired by the arts, particularly photography, music, and interior design.
James Turrell's ability to manipulate light in unique ways is inspiring.
Turrell's art represents seeing something obvious in a different way and being present in the world.
Artists manifest their vision while companies may pivot from their original idea to become successful in a different direction.

Founders' Vision and Investing Insights

1:36:36 - 1:44:13

Vision is the most important aspect for founders to realize their company's potential.
The ability to inspire and motivate is just as important as operational skills.
Every company needs a mission with a vision as its North Star.
Rejection should be a learning experience for both parties involved.
Successful deals are those where both sides feel like they've gained something.
The investing industry in 2023 has seen changes in perceived risk-reward and valuations.
Each company should make decisions based on its unique circumstances, rather than following generalizations.
Thrive believes in the compounding tailwinds of technology and the power of innovation.
Thrive values excellence across its entire organization and recognizes the impact of every team member.

Building Thrive and Personal Stories

1:43:46 - 1:47:21

Different people have pushed Thrive in different directions over time.
Kareem, a partner at Thrive, is considered the best healthcare investor in the world.
Thrive has built a data science team to make better decisions and be a more meaningful partner to founders.
Thrive builds products for themselves to gain an informed perspective on everything.
Kareem's deep understanding of both the healthcare industry and technology has made him successful in building businesses multiple times.
Thrive looks for investment firms that have independent thought, are pragmatic yet contrarian, and are not distracted.
Thrive believes in competing with oneself rather than having a common enemy.
Taking a Sabbath every Friday night allows Thrive's founder to shut off from the world and be present with family.
Simplicity is complex but important when building and investing franchise.
The kindest thing someone did for Thrive's founder was when he got held up at knifepoint during high school, someone took his tickets.