Founders | Alix Pasquet III

0:04 All right. So, why am I presenting this? A, we've had success picking out some of these founders early. and I want to replicate that success without getting you know, to kind of increase our luck. Two, we have chosen to start marketing to a lot of individuals and a bunch of them happen to be founders. So, I'm also learning how to speak with them.

0:36 and then three, I happen to like them a lot and to back them when they are publicly traded. So, it's something that I want to present on to kind of help my pattern recognition, help my marketing, and also when you're the founder of a hedge fund, you're a founder yourself, and I'm trying to kind of learn by osmosis and replicate some of the stuff that we've seen these guys actually do.

1:11 So, what's it like being a founder? Sean Parker says starting a company's like eating glass, eventually start to taste you like to like the taste of your own blood. I think that's very true by the way. You know, as a business owner, the amount of I have taken and sleepless nights and cajoling and I have a lot of empathy for these guys because in many ways they're the captain of a boat and have to show supreme confidence, but inside very few people actually understand what they're going through cuz if they showed what they were going through, they could face a mutiny. So, from the outside it always looks good for but inside we know that they're they're going through a lot. Whenever I talk to founders and I get them to open up, it's almost always a bag of insecurity and and and weakness and foibles, but they have to put on a strong face. My grandfather was an entrepreneur and I remember being 8 years old and walking into his office and he was throwing up.

2:22 And I remember asking him, "What's wrong?" He's like, "I don't know if I'm going to make payroll this weekend." He actually didn't know if he had money to actually pay his people and he just threw up all the time. >> >> Anyways, look what Nick Molnar says. This was the founder of Afterpay. he says, the interviewer asked him, "You said, Nick, that being a professional athlete is not dissimilar to being an entrepreneur and that you get punched in the face every day. Is that true?" Nick says, "It's completely true. It's still true. You get punched in the face every day. I think the resilience you need to be an entrepreneur is incredibly intense."

2:58 Think about what Nick faced. Short seller attacks, COVID growing in multiple geographies growing with partners, early fraud. I mean, all of these things and and by the way, this is one of the greatest sales I've ever seen. We were long when he sold and of course, 3 months later we realized how lucky we were for having sold when he did. but still, you know, being an entrepreneur is something like being punched in the face every day.

3:36 All right. I think I've said this to you guys before but it bears repeating that one of the opportunities today is we lack terminology or vocabulary for some of the most important things in business or investing. And the reason why that's powerful is I think it applies to founders as well. Where a lot of how to pick a founder, what to look for is kind of stuck in the bowels of venture capital funds and they give you more intuition and broad-based generalizations, but really is there is there a better way of figuring out what that is?

4:17 And how to pick them apart and and look for them and also invest with them. All right, Reid Hoffman. One of the reasons why we think opportunities should be people-driven is what he says here. He says, "Opportunities do not float like clouds in the sky. They are attached to people. If you're looking for an opportunity, you're really looking for a person." Very true. But now I think also people have the wrong impression of sometimes of these founders. And the reason why is they look at them today and see how amazing they are, but very often they don't have the picture of what they were like in the beginning.

5:01 And that's the point that Charlie makes here. Give me a thumbs up if you can't if you if you can hear this. >> I'd love to hear your thought on this interesting concept that actually our mutual friend Graham and I have batted around quite a lot, which is this notion the term we use based on a blog post by a guy named Rick Burton is the idea of an alien founder. An alien here is used as the best possible compliment to a founder where it's somebody that just has sort of what seems to be in like an unfair and privileged access to some sort of underlying substrate, the thing that is going to build the business. And they just kind of know what to do. They have an incredible first principles mindset typically. And say Bill Gates would be a great example of this. I think Bezos would be a great example of this to use obvious ones. What do you think of that idea that in some ways the absolute best founders are in some sense alien and distinctly unique people?

5:54 >> I will maybe for the sake of it sort of take the opposite argument and say I think one of the mistakes that we fall into is just sort of seeing sort of effervescent genius because you're seeing people at the height of their powers, you're not seeing them on the way up. There's that famous clip of Bezos back in '99 with Amazon spray spray paint on the back of the office. It would be really interesting if you talked to him whether he is similar to the Bezos of today because in the intervening 20 years remember you've got this incredible training program for the mind.

6:29 They're working every hour in the startup. They're talking with the smartest people. They're constantly getting new information. They're hiring, they're firing. So their pattern recognition of executives gets so much better. They've got a million failed initiatives. So they have all these learnings of what not to do. They've got all the things that have worked and they've seen what scale, they've seen the commonality. And so how much of that is sort of looking at an athlete at the peak of their performance and not seeing the 10,000 hours of practice that got them there. And I could almost argue you could invert it and say what are actually the causes of mortality and how do we just avoid suffering that mortality this year? And if you survive long enough, maybe greatness eventually becomes you. So one of the things that I think that sort of is perhaps underestimated is if you want to live forever, maybe don't start thinking about studies centenarians instead work out how to not die of a DUI, right? Or drunk driving or any of the other smoking 20 cigarettes a day. And to some extent the same in entrepreneurship is it would be amazing and of course the problem with sort of the observation of the world is people spend a lot of time studying greatness, they don't study failure. They study Muhammad Ali, they don't study all the heavyweight boxers that flaked out after losing their first match. But maybe if you study all of those, you can find a commonality in their mistake. Maybe they all, I don't know, offered their chin to the opponent or something. And in startups, I think there are common mistakes. There's an original sin about capital raising. I see so many startups 3 to 5 years in still haunted by a bad capital raise at the beginning, some investor they don't want, some valuation that was hopelessly dilutive and puts DCs off now. Often, one of the things that I see call very well with successes is how quickly they exit their first employee that doesn't fit. And I think what that's actually showing is are they willing enough to be disagreeable Oops. Okay.

8:23 Basically, the point that he makes is we look at businesses who he is today is like, "Wow, he's so quotable, like so smart." But who he was in the beginning is what matters, and who he's going to be afterwards is how he evolves to be is how amazing it is. But really, it's surviving that got him there. It's the fact that Amazon was competing against weaker players that got him there. It's the fact that he was betting from the greatest tailwind in the in the world at the time, which was the internet. It's the fact that he was highly analytical. It's the fact that he was had a business and was built around great economics. You know, and I think too many times we look for amazing people from the get-go, but we might miss the guys that, "Hey, he's street smart, he hustles."

9:17 and the idea is okay, but he's well surrounded and has all these different features. Let's see what we can do, what he can create over time. I think people make that mistake with with founders. Mike has a great framework. he has a couple actually that we love. He says that a great founder leverages an inflection point. You know, so he gives the the the iPhone introduction and the inflection point that took Uber up and you were able to leverage that. But the other one that he has is he calls it founder future fit and it's based around this quote which says the future is here it's just not evenly distributed yet.

10:04 And sometimes you meet a founder and he actually fits already the future that doesn't exist yet. So the example that he gives is that Eric, the founder of Zoom where Eric came from a business that was already built around video calls and he had that software and he he he was already in the future. He had that founder future fit. this also applies in public markets. I remember taking a look at when I saw Afterpay for example and it was saying, "Hey you know, if credit or credit cards didn't exist the way Afterpay does it is kind of how we would do payments in many ways."

10:49 and I remember thinking about it like, "Okay, that that's actually smart." You know, so so Maples, you know, has these frameworks that actually help you recognize that we keep finding this pattern with great founders if that they are extremely frugal if not borderline cheap. And part of the reason we think it works isn't because when you're cheap your profit margin is actually larger, but it's also because when you're frugal it forces you to look for solutions in your environment, preferably for forces in your environment or resources that though you don't own them, you can leverage them and exploit them. and then the second thing is when you're not frugal and you have a lot of clutter and costs, two things happen. One is those clutter and those costs stop you from seeing threats and opportunities cuz you're distracted on them.

11:54 And two, when you have to change and adapt, those clutters and your and and and costs actually either strangle you or stop you from from from adapting and evolving. So, frugality seems to be a precondition that's actually very important for founder. You know, I remember studying on John Rockefeller and his frugality with with having cans of oil where it didn't overflow and didn't waste, not only increases profitability, but lowered his transportation costs as well, which gave him the bargaining leverage to get rebates back on the transportation costs almost of everybody.

12:42 so, frugality is a very powerful thing to look for in a founder. All right. Founders tend to be fake it till you make it. The old, you know, reality distortion field. but look what told me at dinner once. He says, "I have never known someone that made it big that wasn't at least a little bit fake it till you make it." there's some anecdotes from on that, by the way, about all the great entrepreneurs that he knows.

13:19 one, for example, that was literally bankrupt and yet walked into a bank saying that he had the castle to do it and pulled it off and that's what saved him from going bankrupt. The guy's worth 30 billion today. You know, so so again, you find it the problem as analyst is we tend to shy away from it. I think it's what a lot of value guys have with with with very much as reality distortion fake it till you make it. he's just really good at execution and convincing people that it's going to be real.

13:55 but some of the examples and his early biography, it wasn't fraud, but it was close. They all have a sense of urgency. Slow is fake. Okay, I'm unbelievably amazed at how fast Elon moves. and I need to learn from that myself. The the the the rate of change is Jeff was like that. Travis was like that.

14:27 Elon was like that. You know, they're all founders that I know move fast. The the call it speed of implementation, which is the quality that the founders have. but it's something that we look for. When I'm with a founder, if I see anything that I think is valuable for him, one of the signs that I look for is how quickly he goes to implement it. I remember I was with once and and I said, "You got to do this."

14:59 And literally he looked at me, punch pushed a button on his on his cell phone. All of a sudden four people get called and he's like, "Guys, here's what we're doing for the next day. This is what I want you guys to do." And then for the rest of the week reported to me on how you had executed and that did add value. I told him, "You got to start a content strategy." He started doing it. I was getting sales reports on how its growth was was coming in just because he had certain contest strategy.

15:27 They they they don't they don't wait from the time that they hear an idea to the time they don't analyze it. They just start implementing it. and we think that's a big advantage. They tend to be authentic these founders. Okay? They are not afraid of being who they are. Elon, Trump, Zuck, Travis, you know, they are irascible, they don't suffer fools, you know, they don't care what you think. You know, they tend to be authentic. And and and for me that's one of the biggest signs that we look for is this authenticity.

16:08 we think it's extremely powerful. Every founder we found had these big tailwinds and behind their back. Whether it was the internet, whether it's AI, whether it was the smartphone for Uber, whether it was discount retailing, whether it was the uses of technology for logistics for Amazon for Excuse me, for Walmart, you know, they're always using these technological, demographic, social, political, regulatory forces to really accomplish what they want to accomplish. You know, I Alex von Furstenberg, who is a Barry Diller's heir right now, you know, when I asked him, "What's the most important thing in investment?" And he said, "Being on the right side of change and being on the right side of tailwinds."

17:13 Because when you make a mistake and you have a tailwind, the tail wind is very forgiving of your mistakes and often tell you here's more revenue. But if you make a mistake and you have a head wind, your company may get crushed because it's not forgiving of your mistakes. So you need tail winds. Okay. By the way, what's misunderstood about the max 7? is all of these business practices these guys use. The other part that's misunderstood by the way is the leverage embedded. I think these founders are masters of leverage.

17:54 Naval Ravikant who came up with the framework of leverage of building capital, code, community, and content. I think he noticed that from the patterns of what's worked and and founders and whatnot. If you think about Elon, he's built massive amounts of communities using content and software and and to to make capital. Right? but so has Larry and Sergey, so has Mark Zuckerberg, so has Jeff, so has Satya, and and Bill Gates and Steve Jobs and Jensen. These are all people that they use their content as a form of leverage to drive the examples that to to drive the results that they seek.

18:44 Almost all of them used imitate, assimilate, innovate. Okay? Jeff copied Costco. he copied Netflix. He copied Amazon Prime Vi- Prime Video. He They They if they They are a best practice orientation. But if you look at it, they imitate, understand why the imitation is working, and then they make it better from there.

19:17 That's a pattern that we see across every single founder. I think in the end they look original because they innovated, but they started out by imitating. Zuckerberg stole the idea from the Winklevii, made it understood why it worked, made it better. Then he stole Reels from Snapchat. He's stealing location from Snapchat again. Snapchat apparently exists so that Zuckerberg can steal ideas from them. but you see him do that with Threads and Twitter, for example.

19:52 It's fascinating, but this seems to be a a consistent pattern. Crowdsourcing is a founder tool. They're constantly crowdsourcing. It's one of the reasons why they like to build communities, but they crowdsource from their employees, they crowdsource from their investors, they crowdsource from their competition. You know, it's not unusual to see founders visit the competition and literally talk to employees and try to pump information out of them.

20:26 Right? They have content strategies. Very powerful. You guys have heard me say this, but this quote from Tim Ferriss kind of shows how, you know, it was the content that opened the doors for him to invest in Uber and all these other startups where Tim is Tim has made more than half a billion investing in this stuff. And for him, it was totally unexpected, unusually impactful on his life path. All right.

20:57 Must-read book. You guys all know this cuz you know me, but this thing of part of the reason why these founders seem amazing today is because they survived in the beginning, but they were also predators. Game theory-wise, what you're looking for is transgression. Generally, they're always breaking some sort of a rule or accepted norm in an industry. You know, if you look at the moves that was willing to do all the So, like, how's he going to make make money doing that? it was almost breaking culture, breaking accepted norms.

21:44 and and even in some cases accepted regulation. Transgression's very important with great founders. often, you find that in them when they're playing games. You know, the the the old Star Trek Kobayashi Maru. You always find when they're younger that the they're looking for ways to rig the game or break the rules of the game. You know, the and again, all within the bounds of legality, propriety, and ethics, but still Okay.

22:21 They're looking to rig the game so you can win it. You know, but look at what Jeff used to say here. You know, your margin is my opportunity. You know, these are not gentle words to hear if you're competing against Jeff, by the way. but hold on. you also saw that with Sam Walton. Right? Sam Walton you know, would automatically go after anybody he competed with first by killing their margins. He started with the small mom and pop stores, then went to the regional players, then went to the the the the state players, then went to the national players, and then wiped them out at each stage.

23:12 Right? Went after and by the way, once he did that, he went after the suppliers because Mr. Walton wasn't just happy taking out his competitors, he had to take out his suppliers, too. The thing about founders is that they're very good at using their moats offensively. Okay? They don't think of moats as defensive. They say, "Okay, how do I use my moats to crush my competition?" How did Jeff Bezos use his fulfillment centers, his logistics, the internet tools, the demographics analysis, the search engine optimization to be able to crush retailers and did it at a time when certain you know, these retailers didn't even know or understand Google, for God's sakes.

24:05 and they used these moats offensively. People have a tendency of thinking of moats as static, defensive, and visible when these guys were using these moats as dynamic, offensive, and a lot of the stuff they did was invisible. The the early on and some of the books was wouldn't not talk about some of the tactics he was using cuz the last thing that he needed is for the the to understand these tactics. So, offensive usage of moats is very important and and powerful.

24:49 The power pair, you always see these founders in the beginning usually with a number one two, or number three, that's a right arm, left arm, and they're always a cut a a a complement to whatever the founder is. At the beginning of Amazon, it was the Amazon first CFO. I believe it was Joy Covey.

25:20 Did I get that right? Yes. And she was amazing. By the way, she passed, but she was very much If if Jeff was the kite, Joy was the string that held them together. And and it was very much power pair wise. So, Travis had a whole bunch of guys that were right and left arms, including the guy that's working for procurement in the US government right now, whose name I'm totally blanking on. You know, so this is actually a pattern. If you find a founder, always look for who is holding him together.

25:56 It's a very powerful framework. They're masters of the cold approach. We recommend the route technique for that. You know, a founder is not afraid of cold calling. He's not afraid of approaching and failing. On the contrary, he actually sees it he or she sees it as, "Look, if they don't pick up, that's my downside. If they pick up, I may make a fortune with them." And you see that. It's not uncommon to hear of a founder pursuing a girlfriend and sending them flowers every day despite 60 rejections until she says yes and now they're married.

26:36 You know, they they tend to be to be highly highly persistent cold approach. Here's why you have to do this. One of my first interactions with the founder of I met him in St. Barts, and I was too young and strategically immature to recognize that quality. But once we left St. Barts, he called me every single day for 3 months to pitch me his baby clothing idea that went bankrupt. And on the last day that I turned him down, he actually insulted me, called me an idiot for not seeing the vision of his idea.

27:21 start And that's a whole different story. But that cold approach and be willing to fail approaching somebody is another key tactic. Who they're surrounded by you know, very important. The fact that they have networking skills, also important. You know, and read what Marc Andreessen says here. He says, "It turns out that the skill required to network into a VC is the same as the skill required to network into a customer, into a supplier, into a distribution center, and to the press, or into an executive search firm." So if a founder can't navigate and network into a VC, it's unlikely that founder has the skill to navigate the other network required to succeed in building a company.

28:07 Best startup advice of all times come from Steve Martin, be so good they can't ignore you. In this case, that means be so good at networking that they can't ignore you. We find that to be very, very true, by the way. they're always creating triads. You know, you guys have heard me talk about this stuff before. But founders are always taking two people, connecting them, and say, "Hey, go do this for me." You know, they do it consistently to the point where sometimes they forget they've done it, but yet those two people come back and help them do stuff. Travis, master of it. Jeff Bezos, master of it.

28:43 we keep finding this as another pattern of success for founders. almost all these founders today are these monster introverts. there's some that are extroverts and you find that they use these connector types to introduce them to other people. This case, this is Sean Parker. I thought they was such a good job that this kid on the right, whose name I forget, he's a singer. Justin Timberlake did a representing Sean.

29:16 I'm playing Sean, excuse me. And Sean is the one that acted as a connector to Peter Thiel for Zuck. you find, you know, my partner, for example, was is an incredible entrepreneur. he's a massive introvert and his network there's all these connectors around that literally do the work for him to to get to network his way to whatever he's trying to accomplish. it's a very powerful thing. Like, you know, so for example, if all the connectors that I know, if they call me and say, "Hey, you have to meet this guy, he's a founder."

29:55 Generally, I pay attention to who that founder is because if he's smart enough to have this guy as a connector, generally, he's going to be pretty good at doing the other stuff that Marc Andreessen says here. they always have mentors. Now, one of the negative patterns we found in found founders is we call it upgrading your mentors. So, they find and take them to the next level.

30:30 But what plateaued, upgraded him. Right? Once plateaued, kept going. and a lot of you see a lot of very good founders do that. Now, it's a negative pattern for a lot of reasons. One, the mentor doesn't like to be upgraded, right? But the second reason is people that do that and see that other people have done it, it's a survivorship problem. They only see people that have done it and it's worked, but what they miss is that when a fact when a mentor takes you to the next level, if he doesn't come with you, when the founder goes to the next level and let's say he fails, and he falls back down where he needs that mentor that was with him before, that guy often is like, "Look, you ignored me for the last 6 months. Why should I help you now?" And that's one of the reasons why these founders crash sometimes because the people that helped them at multiple levels are no longer there, right? So, this upgrading your mentors thing, you got to be careful with that.