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Invest Like the Best with Patrick O'Shaughnessy
Neil Mehta - Finding Future S&P 500 Companies - [Invest Like the Best, EP.419]
01:34:04
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- [00:01]
Patrick O'Shaughnessy
Something I speak about frequently on Invest like the Best is the idea of life's work. A more fun way to think about it is that I'm looking for Maniacs on a Mission. This is the basis for our investment firm Positive Sum, and it's the reason why I am so enthusiastic about our presenting sponsor, Ramp. Not only are the founders Karim and Eric Life's work level founders certainly maniacs on a mission, they have created a product that is effectively an unlock for founders and finance team to do more of their life's work. By streamlining financial operations, saving everyone their most precious resource time, Ramp has built a command and control system for corporate cards and expense management. You can issue cards, manage approvals, make vendor payments of all kinds, and even automate closing your books all in one place. Speaking from my own experience using Ramp for my business, the product is wildly intuitive, simplistic and makes life so much easier that you'll feel bad for any company who hasn't yet made the switch. The Ramp team is relentless and the product continues to evolve to save you time that you would never have dreamed of getting back. To me, there is nothing more interesting than technologies that reduce friction for other entrepreneurs to be able to build the thing that they want to so much attention has gone to cloud computing, APIs and other ways of making life easy for founders. What Ramp has done and is doing is build yet another set of tools in this category. To get started, go to ramp.com cards issued by Celtic bank and Sutton bank member FDIC. Terms and conditions apply. Ridgeline gets me so excited because every investment professional knows this core challenge. You love the core work of investing, but operational complexities eat up valuable time and energy. That's where Ridgeline comes in. Ridgeline is an all in one operating system designed specifically for investment managers, and their momentum has been Incredible. With about $350 billion now committed to the platform and a 60% increase in customers since October, firms are flocking to Ridgeline for good reason. They've been leading the investment management, tech industry and AI for over a year, with 100% of their users opting into their AI capabilities, putting them light years ahead of other vendors thanks to their single source of data. You don't have to put up with juggling multiple legacy systems and spending endless quarter ends compiling reports. Ridgeline has created a comprehensive cloud platform that handles everything in real time, from trading and portfolio management to compliance and client reporting. It's worth reaching out to Ridgeline to see what the experience can be like with a single platform. Visit ridgelineapps.com to schedule a demo. As an investor, staying ahead of the game means having the right tools and I want to share one that's become indispensable in my team's own research AlphaSense it's the market intelligence platform trusted by 75% of the world's top hedge funds and 85% of the S&P100 to make smarter, faster investment decisions. What sets AlphaSense apart is not just its AI driven access to over 400 million premium sources like company filings, broker research, news and trade journals, but but also its unmatched private market insights. With their recent acquisition of Teagus, AlphaSense now holds the world's premier library of over 150,000 proprietary expert transcripts from 24,000 public and private companies. Here's the kicker, 75% of all private market expert transcripts are on AlphaSense and 50% of VC firms on the MIDAS list conduct their expert calls through the platform. That's the kind of insight that helps you uncover opportunities, navigate complexity, and make high conviction decisions with speed and confidence, ready to see what they can do for your Investment Research? Visit AlphaSense.com invest to get started. Trust me, it's a tool you won't want to work without. Hello and welcome everyone. I'm Patrick O'Shaughnessy 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. If you enjoy these conversations and want to go deeper, check out Colossus Review, our quarterly publication with in depth profiles of the people shaping business and investing you. You can find Colossus Review along with all of our podcasts@joincolasis.com Patrick O'Shaughnessy is.
- [03:59]
Neil Maida
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. This 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.
- [04:26]
Patrick O'Shaughnessy
Today is a special episode. My guest is Neil Maida, founder of Green oaks Capital. In 2012, at age 27, Neil left D.E. shaw to start Green Oaks with his friend Benny Peretz. One of their first investments was in Coupang, a South Korean e commerce company led by founder Beom Kim. Neil was so convinced of Coupang's potential that he invested 40% of their initial $50 million fund into that one company, a bet that eventually returned about $8 billion. Over its first 13 years, Green Oaks has backed legendary companies like Figma, Wiz, Carvana, Stripe, Discord, Rippling and toast, generating over $13 billion in profits with a 33% net IRR to LPs. Henry Kravis, one of Neil's early investors describes him as extremely disciplined with exceptional timing who has gone against the tide many times. Green Oaks operates with remarkable concentration just 55 core companies across nearly $15 billion in assets managed by only nine investment professionals. Their approach reflects their singular pursuit, finding companies that will become a meaningful part of the S&P 500. In our wide ranging conversation, Neil shares this mission along with his framework for identifying exceptional founders, his concept of jaw dropping customer experiences, and how his grandfather's gun shop in India shaped his appreciation for builders of all kinds. Once you've heard directly from Neil, I highly recommend you read our in depth profile of him. Neil gave our editor in chief Jeremy Stern unprecedented access to his life investment philosophy and the work that has made him one of the most successful and unique figures in modern investing. The outcome is a brilliant profile about a phenomenal investor. Find the profile on our website joincolasis.com and in the show notes of this episode. Now please enjoy my excellent conversation with Neil Maida, I think I have to ask about your grandfather first.
- [06:10]
Neil Maida
Yeah.
- [06:11]
Patrick O'Shaughnessy
Whoever taught you the artisan craftsmanship of gun making, can you start with that story?
- [06:16]
Neil Maida
Yeah. My parents moved here in the 70s. My grandparents are both from India. Both sets of my grandparents are from India. I was particularly close to my dad's side, my grandfather in particular. My dad was busy, traveled a decent amount. He and my mom would tell you that my grandfather raised me just as much as they did, especially when I was young. My dad was hardworking. He's my best friend. He's an amazing influence in my life. Still consider my best friend. My grandfather was the opposite of my dad. He was very calm. He meditated for an hour plus every day. The culture I grew up in is Jain, which is a subset of the various Indian cultures or Indian religions. Jainism, a little bit like Buddhism, has a lot of tenants around meditation. He's the most peaceful, calm guy. And so when I was growing up I just knew him to be this very calm, straightforward, deep equanimity. And it was only when I was 8 or 9 years old I learned that he owned a gun shop which was sort of counterintuitive to the guy he was. And we would go back to India, to Bombay, Mumbai every year at least once a year, sometimes even twice a year. And when we got there, his house was tiny. It was one or two bedrooms, a kitchen, and then literally just a hole in the ground for the toilet. It was a pretty rundown piece of property. Dirt everywhere, very little flooring. But what he did have in that house was an amazing gun collection. It was astonishing. And it came from these stores that he used to have. And it was not really, you think about the Bass Pro Shop as a gun store. It was not that. It was really collector's items that he had found his way to collecting and selling over the course of many decades. I'd hang out at the shop all the time, and the people that would come in would be everybody from English gentry that were looking for a place to hunt in India. And they'd know him well. His name was Dhara Chand. And they'd say, dhara Chand, what about this gun versus that gun? And he'd sit there and he'd opine for 10 minutes on which gun was better than the other gun. And it wouldn't be the millimeter casings or the pullback. It would be about the design and the craftsmanship that went in to each parcel on the gun. It was an appreciation for the artistic craftsmanship that went into this beautifully designed piece. It was a little bit like talking about art. In fact, there's almost no relevance to what the capability of that gun would do. I would just spend hours with him in the shop, and that passion he had for it was deeply infectious. I mean, my brother and I would spend all the time studying every gun, asking every question. By the end of the summer, I could usually run down whatever was in that shop and tell whoever was in there.
- [08:39]
Patrick O'Shaughnessy
Can you tie the feeling of that appreciation for the craftsmanship to what you do now? Is there a direct line? Do you think that had you not seen those guns, that was it that impactful, that early appreciation for craftsmanship? Or would you have come to it a different way?
- [08:55]
Neil Maida
It's hard for me to know the difference. If I hadn't experienced that, what it might have been like. But having experienced it, there's no question in my mind that there was an appreciation for humans creating beautiful work for other humans in particular, that I really appreciated. And if you think about the business I'm in today is evaluating founders building what we think are generational companies and being a partner to them. And I do think there's an artistic form to it. I mean, we oftentimes, internally at Green Oaks, describe a company as an artist painting a painting. I tell a lot of our young team. If you're in the business of evaluating painters, you've got to study the types of tapestry you could use. You know, paints they use different forms. You study all the great artists of every generation through history. You talk to artists all the time. And companies are just really founders painting in many ways. I think there's an appreciation I certainly got from that of what quality can look like on a comparative basis to something that's just not as good quality.
- [09:52]
Patrick O'Shaughnessy
Could you describe this acronym JDCE that I know is a key part of the early green oak story? And it's something I'm sure you still think about a lot. And maybe pick an example and go as far down as you can on what made for a JDC in a company or product that you were evaluating.
- [10:09]
Neil Maida
Yeah, JDC stands for jaw dropping customer experience. If you put five drinks into everybody at Green Oaks on a Friday night and you're just like tell me about your life. They just talk about jaw dropping customer experiences and JDCs. It's like we have a tattooed on our arm. And if you step back, there's a fundamental tenet at Green Oaks, which is a very small number of the world's founders are going to produce a significant proportion of the value that humans enjoy. And they're going to move the world forward through the products they build and the companies they build and everything else is just kind of a shell game along the way. And there's some tenants around building those remarkable businesses at scale that we think are really important. One of them is building a jaw dropping customer experience. It's really hard in the world of capitalism to build something that delights humans at a differential rate to what anybody else on earth can do. Think about when you pick up your iPhone or the first time you might have used an Uber. If you're a developer, the first time you use stripe for payments or if you're a trader maybe you opened the Robinhood. Capitalism is basically full of a sea of businesses that are not really doing anything that difficult. They're just kind of me too. Products that are swimming in the river of beta if you will. And I think the steps to creating a jdce a jaw dropping customer experience. It usually starts with breaking trade offs. It usually starts with doing something very difficult either technically or operationally. That would usually give competitors nightmares. You have to do something that was borderline impossible or perceived to be impossible before you have to do it from a customer centric perspective. You have to really figure out what the customer pain points are, you could ask some customers, but usually customers can't even articulate all the pain points they're facing. They just know they're frustrated. Or this experience is suboptimal. We're lucky. At Green Oaks over the last 12, 13 years, we've been lucky enough to partner with a number of companies that have built jaw dropping customer experiences. I'll tell you where we created the word. I created the word after spending a lot of time with coupang right at the beginning of Green Oaks and in the case of coupang. So bom started a business that was just starting to sell products like any other online site would sell products. It was really a marketplace. And he made the decision in 2013, 2014 that he start to transition that to building 1P capability, meaning that he could pick, pack, ship and deliver a wide variety of skus. Everything from soap to tissue paper to golf clubs to fresh groceries. Over time. And the early days of that, if you asked people around Korea, they would tell you we don't need faster delivery. Everything shows up here in two and a half to four days. It's great, it's totally fine. And his view was actually it's consistent, reliable, fast delivery. You get the stuff you ordered on time, usually within 12 to 24 hours. And that sounds obvious today you order something 12 hours later or 24 hours later, it shows up at your door. Now it's called the rocket experience at coupon, but at the time building that, it sounds easy. Open a warehouse, put a bunch of stuff into that warehouse, hire a bunch of drivers, work with those drivers to fill up their trucks, deliver to the door, take it off. Now there's a bunch of stuff that breaks. When you actually try to build that experience step by step, the first thing is the unit economics completely break. Second, to actually drive throughput through these. Do you buy from manufacturers? How much do you buy from manufacturers? What do you do about your inventory turns, how you surface the right stuff on a website. It is extraordinarily hard to go build all that stuff. And it took years, it took two to four years to really start to build that flywheel. So it worked. And what did it entail to build a jaw dropping customer experience? It took new technology. Coupang built, not just a new warehouse management system from what the consumer touches on a website all the way down to new routing software. FedEx famously never wants a driver to take the left turn because it takes a little bit more time. It was like that kind of optimization. It was infrastructure, it was Building warehouses that were the size of football fields in a place that doesn't have a lot of space, by the way. In Korea it was building delivery camps and it was building localized distribution points where that you have thousands of apartments to be able to make sure you could have even people run up and down the apartment to deliver something. It was making sure that you had the right packaging so that didn't get stuck with lots and lots of boxes. It came down to where do you leave it? Outside someone's door so you don't wake them up when you deliver it at 6am to make sure it's safe when you add all those things together. Actually, the way we came up with the term is BOM would show us you'd see in the cohort behavior average retention in pre 1P delivery was probably in the 30s overall for the market. Not for coupang. Specifically coupang for Brocket, which was eventually called rocket. Their 1P capability was in the 60s on a core retention basis. So it was clearly working. But that wasn't the coolest part about it. The coolest part is when we would ask customers about their experience. We do these video recordings and coupon would do them as well. I remember multiple of the videos. The woman was crying. Mom of the house was crying because the diapers were showing up the morning of and she didn't have to carry these giant boxes home from the store. She's like, if you took this away from me, I don't know what I would do. Please don't take this away from me. That is not an NNPS score of 9. That is a jaw dropping customer experience. That is incredible.
- [15:09]
Patrick O'Shaughnessy
When you think about BOM and a person like that that you met early. I think you led five of the eight rounds in coupang. Maybe tell the investment side of that story. So that's what BOM is doing for one aspect, to create this incredible loyal customer and fan base. Meanwhile, you're doing something very differently through Green Oaks, which is typically a company like yours would invest, maybe lead the Series A and participate in the rest of the rounds, own 5% or something at IPO. The way that you've always done it is very different. You're very, very concentrated. Maybe just talk about a step by step, the five of the eight that you led. So how much did you end up owning? Talk us through the numbers and the position and this has an investment case study. Obviously it's an important one for Green Oaks, but it's indicative also of the kind of investing that you do and how it's different from other firms of your type.
- [15:53]
Neil Maida
We think of ourselves as very long term investors. And if you really want to understand how long I've been on the board for about 15 years and this is public information, just last quarter we were buying more shares. Yeah, it tells you. It tells you more than just five of eight rounds. Exactly. We're still actively investing and helping where we can in the company. I consider BoM's development of Coupang and the development of Green Oaks that I've had is. They're intertwined. I mean, it's one of the first investments we made and I joined the board pretty quickly and it was a seed investment. Green Oaks is probably best known for its growth investments. We like to lead growth rounds in companies that we think will be a meaningful part of the S&P 500 over time. When we invested in Coupang, Green Oaks barely existed. When I was telling Vaughn that it was Green Oaks, he's like, I've never heard of Green Oaks. I'm like, don't worry, nobody's green oh me you're hearing about for the first time. And I just made it up. And he was kind enough to bring us in as an investor. And it's hard to start anywhere but the founder, which is in this case bom. And bom, I would say there's a bunch. It's a lot of the tenants we look for in any great founder. Bom possessed right away starts with focus. Bom had this unique ability early on to identify what was the most important thing in the company and focus all his time on that at the exclusion of everything else. Wouldn't it be unusual if you looked at bom's calendar on a Sunday night, everything the next week, Monday, Tuesday, Wednesday, Thursday, Friday, it would just be blocked out with one single thing he was trying to accomplish. If it was negotiating cost of goods sold in the diapers division in mid-2014, there'd just be two weeks locked out for diapers. Just do that for six hours a day, five hours, and he would just assemble a team and go deep on that and let everything else burn if needed. That kind of focus is just extremely unusual. People like to say they're focused. They don't really understand what focus means. Focus means saying no to everything else, everything else at the cost of doing what the single most important thing is. There's two parts to that. It's the ability to prioritize what is most important. Not you have to practice it to be able to intuitively grok what is most valuable and most important, and then the ability to maniacally do that at the cost of everything else is an intestinal fortitude that just not a lot of people have. Second, just the ambition. There was a lot of clarity reasonably early on that by building this 1P capability, BOM could build the best e commerce experience in the world. Not the best in Korea, not the best in Asia, the best in the world. Better than Amazon, better than anywhere else on earth. He has done that today. But at the time that didn't just ring hollow. There's a lot of people that say that you meet founders all the time that have very lofty ambitions, but there's a credible aggression to it that you're sort of able to validate along the way. I've never met a founder that doesn't want to climb the tallest mountain. Of course I want to climb the mountain. It's the ability to demonstrate that. They've mapped out their route. They've shown you how they're going to ration materials, they're going to show you what trade offs they might have to make along the way. They'll tell you how they built the team to make sure they get there. They'll tell you the steps of what's going to happen along the way. They've maybe even tried a few paths and come back and said, okay, now I'm going to go this way. There's a credible aggression to it that I think is unique to just pure aggression. Many of the rounds we led in the company were a result of BOM attacking this mountain. The building of Coupang was over 10, 15 years to where it is today. And there's beds in every delivery camp. BOM was sleeping on the floor. I mean, there are points where I talked to BOM more than most anybody else in my life. I mean Benny and my wife, Flash. Oh yeah. Still to this day I still talk to him a tremendous amount. Back then, I don't think there was an hour a day where I hadn't talked to him. 2:00am in the morning, 3:00am in the morning, 4:00am in the Morning, 3:00pm in the afternoon, 10:00am in the morning. His cycle times were 24 hours. There were points of enormous exhaustion for him and the team.
- [19:33]
Patrick O'Shaughnessy
So if you think about those rounds that you led, I always struggle with you a little bit of trying to understand and I guess it's just the answer is both if you're a more founder centric investor or a more business model centric investor. But I'm sure at different stages of those eight Rounds you were investing for different reasons. Is that often the case that at some point you might be backing really just a founder and what they're capable of at other points or really focused on the unit economics? Is every single investment idiosyncratic in that sense? Because I don't remember a conversation with you about a company that didn't include pretty hardcore quantitative angle. But so much of I think what's made you successful is you've backed some of the best founders and so helpless square like what matters When I have.
- [20:14]
Neil Maida
A controversial statement which is I don't think there are many truly amazing founders that are building bad businesses. I maybe ran into one or two but they figured out pretty quickly. I think that truly remarkable founders think in terms of jaw dropping customer experiences, they think in terms of competitive moats, they think in terms of scale, you know, getting to large TAMs. So every once in a while I run into a founder that hasn't figured that all out yet. But usually they're very young and the learning curve is very steep. It always starts with founders for us now, I'm going to come to business models in a second. But if you believe what Green Oaks believes, which is, I don't know, there's been what a hundred billion people on earth that have lived and something between the number of ten thousand to a hundred thousand have affected the technological progress of humankind. Our job at Green Oaks is to find few hundred more. I can join the pantheon of great humans that have driven humanity forward. Then we're squarely focused on that. First, I think that where we could generate alpha, where we're sometimes differentially great partners is by having a deep understanding of the business model. So in the case of coupon, in the case of most of the businesses we invested, we made multiple rounds in, it's never up and to the right. Oftentimes in Internet and technology, good businesses are hidden in bad P Ls. Not everything works right away. But things are going really fast and people sometimes think Green Oaks is looking for momentum or forward progress. Actually we're happy with volatility. It's kind of counterintuitive. Volatility is something like we're very open to and we're open to it because we're. When there's moments of high volatility, it's a lot harder to understand what's happening to a business, what's happening to a market. And so we will follow great founders into their businesses and there'll be moments where the businesses do not feel all that great. There's been, I think without exception, most of the businesses we've been invested in for more than five years have gone through a rough patch or two where the fundamental premise of the business and the quality of the business is being questioned. And I think if you could see through it, sometimes that's right to be questioned. We were wrong. But every once in a while you could sort of see through that and see the other side, that this is just one step along the way of building a great business.
- [22:16]
Patrick O'Shaughnessy
So in coupons, just to close out that case study, over how many years? I guess from the first one through to today. So the whole time did you invest, but how much did you invest at each round? How much did you end up owning of the business? Bring some meat to it?
- [22:27]
Neil Maida
We invested a little bit under a billion in total capital across 10 years. Led 5v8 rounds. We invested almost every other year, if not every year in the company for 10 years until it went public. And then since it's gotten public, we've bought more shares maybe two or three of the years.
- [22:42]
Patrick O'Shaughnessy
I want to get into your deep belief in growth, not just from an investment standpoint, but from an almost deeper economic or even philosophical standpoint. Why do you care so much about the concept of growth? It seems like that is the thing underpinning all of your behavior.
- [22:59]
Neil Maida
We're big believers in capitalism. The microphones are in the chairs we're in, the view outside. It's all built with capitalism. As far as I'm concerned, this has been the greatest invention humans have ever had. I believe it is our job to further our journey as humans within the framework of capitalism. When we started Green Oaks, we described ourselves as a growth. We actually never used the term growth. We just said we'd like to invest in great businesses that are going to be a meaningful part of the S&P 500. To this day, I still have a list of the S&P 500 companies on my desk. Certain lists all the time. And I just try to figure out what companies are not on that list today and will be on that list tomorrow. And how do I work tirelessly to become the single most important partner they have. To be honest with you, I've been surprised that people think there's other large scale ways to invest besides growth. I think this is by far the most interesting way to invest and a couple reasons why. I mean, you could go back to the 60s and you could talk about companies like AMD and Intel that were around in the 60s. You could go to the 70s where you had Apple and Microsoft, you could go to the 80s where you had Dell ASML. You go to the 90s where you of course have Google 2000s, you have Facebook. The small number of Companies, I think 1% of the S&P 500 make up 90% of the value. And most of those were growth. All of those were really growth companies. They were companies that over the course of many decades reappropriated free cash flow away from these legacy incumbents, moved it into their own purview and became a staple for how consumers enterprises work in the world. And to me that is such an enjoyable way to spend your time to find founders that are hell bent on trying to create one of Those S&P 500 companies that delight customers at scale. It's also the most rewarding financially. I think the companies that we invest in will capture lion's share of new economic value in the world. Everything else is just a shell game around it. I have lots of friends that figure out what's happening quarterly with Netflix. Doesn't matter to me at all. I'm much more interested in figuring out is Netflix a great compounder that is going to grow over 20, 30 years?
- [24:51]
Patrick O'Shaughnessy
It seems like one of those things like, oh, high is good. When is it not just refined? The hidden costs of really high growth.
- [24:56]
Neil Maida
There's going to be a lot of people that disagree. Growth is an output, not an input and growth for growth's sake makes no sense. But one of the unique things about our industry and about great companies. If you historically look at the growth rate of many great technology companies, they were very high for a long time. They had a lot of growth persistence as well, or growth endurance is another way to put it. The next year, was it in the 80s or 90% of the previous year? The best companies have extraordinarily high growth persistence or growth endurance. I am a believer. There's this meme that's come out which is too high of growth like destroys company. I think very high growth is very good for companies. I think like unreasonably high growth is very good for companies. And Mario Andretti quote where it's like if everything's under control, you're not going fast enough type thing. It is healthy in my mind in the businesses I've been involved in. It's healthy to let a few things break here or there in order to keep pushing and that results in a high growth. And I'm especially for software companies or BITS companies rather than Adams companies. I think it's good.
- [25:47]
Patrick O'Shaughnessy
Do you have a favorite Anecdote or story of a company growing really fast from the history of Green Oaks that like kind of makes that point a lot.
- [25:55]
Neil Maida
Yeah. And by the way, you know what's interesting is almost every company in our portfolio that's been successful has had many hundred plus year over year growth rates. Wiz is a great example. When the war started, more recently when Hamas attacked Israel and some disproportionate share of the people involved in Wiz and the go to market team and the engineering team went to go serve for their country. Of course our natural reaction, I think it was like Q3 or it was October of course. So we're like ah, this is the right thing and of course we should just absolve the company of any expectations for November and December. Just forget even reporting. Just worry about your people and worry about the country. I think they have like one of their best quarters. They're just like, that doesn't mean we're going to slow down, we're going to keep going. Having unreasonable expectations is a competitive advantage. Another example of this is Bomb Kim who grew the business incredibly fast at Coupang for a long time and oftentimes when you have strong product market fit it is like your moral obligation to drive it as fast as possible. But things break along the way, especially if you're in the Adams business too. And at points we had stock outs and were constrained by what we could offer consumers. We had to hire more drivers, we had to build more warehouses. We had a year that was like 18% year over year growth. And there were people involved in the company that were telling Bomb, oh that's good, you don't need to take it back up, just leave it. You know, Amazon never grew more than 30% year over year. That's fine, you're good, just get back to 30. I remember having this conversation with Bob and I said, I think one of the hardest things you'll ever have to do is convincing everybody at the company to be a high growth company again. To try to take that growth rate well above 30 and start to bring a growth mindset and grow culture back to the organization. He commented to me many years later he's like, it was one of the hardest things we did. I'm so glad we did. So glad we became a high growth firm again.
- [27:36]
Patrick O'Shaughnessy
I want to come back and really talk in detail about this process. This, I like the way you framed it which is this search for the next potential S&P 500 company and that everything else is a footnote and there's all those famous studies about whatever, 4% of the companies delivering 95% of the returns through equity history just seems like that's just always been the case and probably always will. How does that impact how you run a first meeting with a company? What are the sorts of things going through your head when you're wondering from the start, can this be a company that everyone in the world has heard of and used? Because these things all start small. How do you evaluate that question even at the series B or C or whatever, versus if you were just saying is this company going to make me a nice return? But maybe it's never going to end up in that list.
- [28:20]
Neil Maida
I think it starts well before a first meeting. I think it starts with figuring out why you want to meet someone. Why are you differentially great for that person to meet? What do you understand about that business? What do you understand about that opportunity for. For a vast majority of what happens in our market, we and I are not the right person to have that first meeting with. But there's a select number. Yeah, I don't know how many meetings happen to our markets. It's tens of thousands at this point. There's probably 200 that happen a year where we think we a differentially great partner to that person and we know it well in advance. And so we prepare an incredible amount before that first meeting. I don't mean like go on the website and use the product a little bit. Our first meeting should feel more like a fifth or sixth meeting. That founder rather than a first meeting allows us to go much deeper. And that the things I'm looking for. If someone just asked me, I'm going to give you a tangential side. Usually I like to visit a company rather than them come to us, which is also counterintuitive because you can do less meetings if that's the case. So I'd love to go visit and I'll give you a battery of things I'm looking for. But if you put a gun to my head and you said there's only one thing you could have asked this company or people at this company and I never actually ask it, but I always think about it right away is when I visit a company and I watch people and I meet people, I'm trying to evaluate just one thing, which is if you pulled everybody at this company and you asked them are your best days ahead of you or behind you, what would the proportion of people say? And especially the most important people? It's not year over year growth. It's not Margins, it's not strong form competitive advantage, it's not jdc. All of those things matter. But if I picked one thing very early on, even in the startup you could tell if the energy's not there. I'm more excited about the future. I mean I just was in Europe a couple of weeks ago. A vast majority of people for it seems like 40 years have believed the best years are behind them, not ahead of them. If you were running a company, that's the one stat you should care about more than anything else in the world. When I spend time with a founder and I'm talking to them about their business, I'm trying to figure out are they high focus, high ambition, determined. Do they have divergent thinking that allows them to see something in the world and in their business that other people would vehemently disagree with, but is right. So it starts with the founder personality of that founder. And I haven't been able to sit down and write on a piece of paper. I think every great founder looks approximately the same. Every bad founder looks different. Now there's some quote about how the dosage people. Yeah, that's exactly. This is controversial. I do believe there's an archetype for a great founder and I think that once you see it and learn it, it's a repeatable process. And I think some of the things I mentioned are part of that. I think that you're looking for usually someone that's built a jaw dropping customer experience. That's why we invest at the stage we invest in.
- [30:53]
Patrick O'Shaughnessy
Because it takes some time.
- [30:54]
Neil Maida
Takes some time. It takes some time to get that experience right. Especially in things like infrastructure SaaS where at the beginning the infrastructure product's just not that good. Just takes time to get the product into a performant level where it can actually delight customers. Consumer is a little bit different. You could feel it right away. We're looking about for defensibility in that. What technical or operational trade offs have you broken that allow you to have the early signs of a moat? We're looking for competitive advantage. You have network effects, shared scale economies, counter positioning, corded resources. These are just adjectives we use to describe the characteristics of a business that allow it to produce unfair amounts of free cash flow over a sustained period of time. I tell this to our team all the time. I think with Buffett you could sell 30 points of IQ and still be great. I think with us you could sell like 40 to 50 points of IQ. It is not complicated. It is the discipline of only looking for those types of Businesses and those types of founders. There is no secret sauce. It's just consistency of doing that over and over and over again across thousands of companies.
- [31:48]
Patrick O'Shaughnessy
Is it true that you are doing pretty much the first meetings almost every time with these founders?
- [31:52]
Neil Maida
Yeah.
- [31:53]
Patrick O'Shaughnessy
That is strikingly different than the industrial complex of private growth stage investing that has emerged around you in the time that Green Oaks has been alive as a firm. Maybe highlight all the other ways in which you feel you and your process is the most different from what has emerged as the norm way of investing for your peers.
- [32:11]
Neil Maida
Let's say I think what's happened over the last 10 years in particular, but it's been happening for a while, is when I grew up in the industry and you drove down Sandhill, there's like six firms and the way the process worked is you'd walk into someone's office, usually someone was famous, you'd be a no name entrepreneur. You tell them your idea, they kick it around for a while, they do three more meetings or maybe four more meetings. There's this great Elon Musk quote which is every manufacturing process is wrong. Every production process is wrong. Every design, you know, I won't get exactly right. Every design process is wrong. It's just a question of how wrong. Because the likelihood we could have envisioned all the available capabilities that we have today when we designed that process is zero. Like, you know, so many things have changed. I think our industry is a little bit like that. You're going from this process where people would take a little bit of time, they wouldn't really know your company when you walk through the door to now. We've gone from a cottage industry into a large scale asset class at this point. And I think there are a lot of firms correctly so that believe venture at scale, venture with lots of capital, lots of companies, lots of coverage, lots of aum, lots of people is the right way to prosecute it. And I think they're right because I'll get to why we're doing it differently. But I think they're right because why should people have earned 35 net IRRs over the course of many decades. That's too high for any asset class. It should be in the teens and usually you could deploy a lot more capital and a lot more people and bring down to the teens and still have lots of people excited about the way you invest. I think that has resulted in essentially the private equity of our industry. I think of a lot of our brethren and these are friends of mine, I really like them and I think they're doing a great job. But they essentially have like a matrix. They have industries on the top and I don't know, maybe geographies or stage, whatever their matrix is, something comes into their firm, they serve it to that part of the matrix. That little box of people goes and chases after it. And what they've done is they've said, listen, everybody has a slide which says, what are the series A's or series B's or series C's that happened this quarter and what percentage coverage did we have? What they're explicitly telling you is they're saying we are optimizing for coverage. There's too much happening. There's too many ways to make money. The world's a big place. We have five offices and all these great people and we are a factory that's able to produce it. Now, I think that's actually the right and state for a vast majority of our industry. I think 90 something plus percent of our industry should work that way. I think for the 10 to 15 best founders each year, that's precisely the wrong way to work. What you should definitely not do is meet someone in that little matrix, have it elevated to a senior partner at the firm. Or maybe most of these firms are not found to run anymore anyway, but have it elevated to someone at the firm and then they chase it all down and bring some people in and try to win it. And you become one of 35 or 40 investments they make that year. I think it reduces the purpose of venture capital, which is a little bit of validation, a little bit of actual company building and partnership, a little bit of speed and velocity. And so I think if you're one of the 10 to 15 best founders, people like us should be able to find you before anybody else finds you. You shouldn't have to explain what you do. All that much. We can understand from the outside and better than most anybody else on earth. And you should get all of Reno's, not a little bit of Green Oaks. All of us. And because we know that there's not more than 10 to 15 people we want to really meet each year, we don't need to bifurcate our firm into multiple layers and have investment committees or any of that. We can be laser focused on the vital few and basically leave alone the trivial many.
- [35:33]
Patrick O'Shaughnessy
One of the coolest things about Green Elks, I've seen the reports, I've talked to you about companies and so I've seen it firsthand and know that it's true is the sheer amount of information like you Said that you gather on a company even before you meet them. How has that process evolved? Talk us through that machinery. Because it's very distinctive relative to other firms that I've encountered. When I call you, you tend to know more about the company than anyone else that I talk to about the company. Which sounds very non scalable in some way. If Your customer is one of these 10 people each year, it sounds like one of the guns in your grandfather's store. Not mass manufactured Smith and Wesson or something. So how do you do both of those things? How can you have so much information about these companies and still have it feel to them like artisanal or something? Or high touch where it's you in the meeting. It's not some junior associate. Like the two seem a little bit at odds, but I've seen the work.
- [36:25]
Neil Maida
So I don't think there's any secret to it. I think it's highly replicable. I think that one thing to note is we start green. So I was 27, got a long way. We have no beach houses, we like being in the office 80 hours a week. We like working with each other. We're extremely high performing and we love understanding companies. There's nothing else. We're not on Twitter, we like basketball, we don't have to go to any games. By just being ultra focused on this at the exclusion of anything else. Surprising how much you can get done in this process.
- [36:55]
Patrick O'Shaughnessy
Are there common negative things that you hear about people that actually excite you?
- [37:00]
Neil Maida
Yeah. Oh man, what a great question. Tons. It's funny, we learned the hard way on this too. Early on we were building Green Oaks. This is like GCL1. We had heard some amazing things about Elon Musk at SpaceX. Obviously he was already Elon Musk at SpaceX and Elon Musk at Tesla. He was already the guy. But we had some mentors, some people in the venture capital industry. It's actually the biggest mistake we've ever made at Green Oaks is a mistake I'm about to tell you, which as we had heard, he fires people quickly. He's hyper aggressive, he manages down to the nth layer, he micromanages people like crazy. He disappears for large spots of time, comes back in and changes everything. And we're like, wow, this guy sounds like he's doing too much. And we had mentors and friends of ours who were like, he's not backable. Like, oh well, I guess we can't back. And we didn't do the primary work ourselves. We actually outsourced that work. This is one of our big learnings. And if you looked at the feedback we got, it read like it was much worse than it actually was. I'll never let that happen again. Some of those characteristics are exactly what we look for in a founder. We like micromanagers. We like people that are in the weeds. We like people that fire fast. There's oftentimes we read about founders who have such divergent thinking. Their team thinks one thing and they are hell bent on going another way. And they have some data to back it up, but their hell bend up going another way.
- [38:23]
Patrick O'Shaughnessy
What have been the hardest moments in building Green Oaks? The firm itself. You said before, none of these companies are up and to the right. There's always these existential moments. Have you had truly existential, scary moments in Green Oaks history?
- [38:36]
Neil Maida
The thing about our business is the barriers to entry are very low, but the barriers to excellence are really high. You hear a lot about being excellent at Green Oaks. And so I think a lot of the challenges. Anybody who starts a business has tons of challenges. They haven't always felt like that because we have a lot of fun with the way we do things. But I could give you inordinate number. Actually, I was just looking out the window and Benny and I first came out here. We didn't have a seed deal or we didn't have anybody that was going to back us when we left DeShawn and we'd have to go do it all on our own. And we raised our first 50 million of capital. Now, remember, we came out here and we stayed at the DoubleTree on Lexington. I don't know if it's still there where they give you the cookies. And we stayed in one room with two double beds. And I don't know if it's still there, but Blackstone used to be across the street and we had friends. We were too cheap to go to a Kinkos and print out the deck. So we'd have our friends at Blackstone print out all our green oak stacks in the printing room and then we staple them together and we go up and down here. And we had some amazing investors who.
- [39:26]
Patrick O'Shaughnessy
Joined us who was in that 50.
- [39:28]
Neil Maida
Oh, gosh. Henry Kravis was one of our first investors. What an amazing. I should talk about a couple of them because you always hope to get to a point in your life where you get to pay it forward. One of our first ones was Henry Kravis. And Henry, we went to go see him at his old office at kkr and we walked in we didn't know we were supposed to wear ties. I maybe wore a suit jacket, but I was dressed probably something like this, what I wear every day for 15 years. And we walk in and Henry's in a tie. And he walks into his conference room. It's breakfast. And he looks at us. He's like, nobody told you about the dress code. It felt terrible. He was a legend to us already. And he sat down and he listened to every word. He asked incredible questions. At the end of it, it's like, I'm in. I'm committed. I'm going to invest with you at Green Oaks. And then he offered a number of other introductions, which I'll come to in a second. But not only that, about six months later, he came out to Green Oaks. He came to our office just for our team to meet Henry Kravis. I remember he came into our bullpen and he's like, I hope you guys are making me some money. And walked away. Just to do that for a young team, a young fledging organization that looked up to someone like Henry. By the way, the best part about that story, I'm not the only one that has that story. I think there's a few dozen people that have that story about Henry, which is just incredible.
- [40:39]
Patrick O'Shaughnessy
What was your pitch to him? What was the original Green Oaks pitch?
- [40:41]
Neil Maida
Yeah, I'd have to get back to some of the hard things we've gone through. That was one of the good things. So when you're 27 years old, there's two ways you could walk into a meeting like that. You could walk, well, maybe on a spectrum. One end of the spectrum is I'm 27. I'm really smart. I don't know what I'm going to do, but just trust me, I'm going to figure it all out and make a lot of money. The other way is I have a set of ideas, and these are ideas that I think are really interesting. Some portion of the money you give me is going to go into these ideas, and the rest is going to go into ideas like this. I was very much in the latter camp. I was describing what we were seeing at companies like Palantir, which is one of our first investments, Tiny amount flipkart company called Oyo Rooms Coupang. I was starting to say, look, these are the kinds of ideas we're seeing. This is what I like to be investing in. Invested a de minimis sum of money in these businesses today. I'd like to invest a lot more tomorrow. It was driven by really three things. It was driven by the teams, it was driven by the quality of the businesses that I thought those companies were building and it was driven by returns math. And my view was this is the beginning of a 20 or 30 year opportunity ahead of us. And I articulated that over the course of maybe 30, 40 minutes.
- [41:43]
Patrick O'Shaughnessy
And how much of that was the legendary Internet businesses are being built and we're going to back them. Did it feel that simple at the time? I want you to tell the de shot 10 cent story. At some point there is like a key moment of realization, I think, for you and your history. But was that the gist of the story? That this new enabling layer of technology is getting digested by the global market and that's going to take 20 years and we're going to back that?
- [42:06]
Neil Maida
Yeah, it was. At that point we were at well over a billion smartphones being shipped. Facebook was already a big company. Alibaba is a big company. This was like 2011, 2012 kind of thing. Cloud and mobile were obviously going to be pretty large. And so somewhere in that presentation were penetration curves of cloud and nutrition curves of mobile and how there's 10 to 15 plus years opportunity here. There's nothing about AI. There's a little bit about fintech, what we were seeing in China and fintech and how that might be irrelevant for other parts of the world. I think Brazil and India and Europe were in there in that context, but it was really across consumer Internet, fintech and application infrastructure software and the opportunity to build new platforms that would become Future S&P 500 companies.
- [42:45]
Patrick O'Shaughnessy
Is it true at that time that you deleted your personal email?
- [42:48]
Neil Maida
Yes, I. I do not to this day have a personal email, which probably is a compliance issue somewhere. But yes, I just have a Green Oaks email. I really felt at the time, and I feel this today, that this is what I wanted to do for the rest of my life. I was lucky enough to figure out pretty early and nothing was going to stop me from doing it.
- [43:04]
Patrick O'Shaughnessy
Just to set the initial fertile soil or whatever. Tell the story of being with DE Shaw and encountering Tencent and that episode taught you.
- [43:11]
Neil Maida
So I was at Kane Anderson in LA buying software companies and I had a great mentor and I think about him as a great boss named Adam Fisher who's at D Shot. He ran a small group there which is financed by a parent company called opg. It's in New York. And then I moved out to Hong Kong and when I got out to Hong Kong, this is like 2007 and.
- [43:30]
Patrick O'Shaughnessy
You moved there on A whim.
- [43:31]
Neil Maida
I moved there on a whim. This is a great story. Adam called me and he's like, hey, I want you to come join me. I was like, great, I'm happy to do it. Wrapping up here probably another six months and we can start to talk about. He's like, no, no, I mean Monday. And I was like, well, I probably need to figure it all out, but I guess I could just be in the office in New York on Monday. He's like, well, I need you. I'm in Hong Kong on Monday. And I was like, wow, that's fast. And I got out there and it was like we were looking for office space. It was not well organized. We were figuring it all out from scratch. And it was an amazing time to be out there. And at 24 or something like that, to be out there was amazing. It was an incredible experience. And China was taking off. I spent my time doing all sorts. It was a special situations group. So I actually spent none of my time on Internet companies. I spent all my time looking at Macau real estate, Chinese real estate, India real estate. Distressed debt came later. I'll give the most favorable interpretation. If Adam was sitting here, he would describe it as, I was a benevolent but negligent boss and I let Neil go spend time on things that were interesting to him at the cost of spending time on things that were important to me. I'm very grateful to this day for him allowing me to do that. I remember going out to Guangzhou to look at real estate. It's like 2007 and I get out there. Guangzhou was nothing at the time. It was a couple buildings. There's no Google Maps out there at the time. So you'd land and say, hey, I have to go to this apartment building. I have to look. Potentially buying this new high rise apartment building that's just coming up built by spec developer. I get to buy it and then rent it out. The yields might be in the 12 to 15 range. Pretty good yields. Get out there. Nobody would know how to get to this apartment building because the road didn't exist six months ago. So you'd have to pay some guy on a motorcycle to take you out there. They take you out there to the high rise. You'd sit down in the chair, they'd auction off the apartment building. I'd be sitting there competing with a guy that was wearing a wife beater, smoking three cigarettes. I'm like, who is this guy? Represent a multi strat $30 billion plus investment manager. Who is this guy? There's Moments you get in life where you realize there's the top. And this was one of them where this guy just had 100% LTV financing from some bank that would eventually have to wash the NPL through their balance sheet. But at the time, I was blown away. I was like, wow, this is a pretty crazy world. But they would take out their phones, using their phone for things. And I had a BlackBerry at the time. 2007, the iPhone came out in March of 2007, I think the App Store in 2008. So. And it hadn't really got to China in any way whatsoever. And I remember the Beijing Olympics in 2008. And so I went out to Beijing, and it was really at the Beijing Olympics where I started to flip into what can be happening in technology, where Michael Phelps won all those medals at the Beijing Olympics. And the lights would go down in the cube and they would spotlight the swimmers. And the first time they did that, nobody's phones were out. The last time they did it, everybody had the little glow on their face, and the BlackBerry just didn't have that same glow. I would look over and ask my friends, like, what are you guys using? And they're like, oh, we're using QQ, which was the predecessor to WeChat. And I remember going home and being like, qq, what is this thing? And then look it up, study as much of it as I could. And I remember finding a stat which was QQ was adding something like 30 million subscribers a month, which is still a crazy number, by the way. But at that time, that was unheard of. Would eventually turn into WeChat. And at the time, Adam was asking me to look at distressed banks in Europe that had been around 150 years and had 30 million total deposit holders. This company was adding 30 million people a month. And I was like, I want to spend all my time on Tencent. I don't want to spend any of my time on some distress bank in Europe. This is uninteresting to me. And much to his chagrin, frankly, thanks to his support, I ended up being able to do a little bit of that there. I left at the end of 2010, beginning 2011, moved back to San Francisco to start Green Oaks purely because this is all I wanted to do.
- [47:00]
Patrick O'Shaughnessy
Can you tell me everything about Benny?
- [47:02]
Neil Maida
Oh, sure, yeah. I don't know if I can tell you. Eric can tell you a lot about Benny.
- [47:06]
Patrick O'Shaughnessy
Tell me a lot about Benny.
- [47:07]
Neil Maida
Someone asked me a couple days ago. They were starting a firm, and they asked me, how do I Find someone like Benny. It's like, how do you marry?
- [47:13]
Patrick O'Shaughnessy
How do you get married?
- [47:13]
Neil Maida
Yeah, yeah. It's like an impossible statement. I wish upon anybody in their life to have a partner and a partnership like what I have with Benny. I think if Green Oaks was an abject failure and we screwed everything up, I would still be grateful for the journey I had with Benny. And by the way, I should highlight Benny is my true partner. I talked to him more than I talked to my wife. Josh, actually by a fairly large margin. Josh would agree with that. So would Cheryl, Benny's wife. It has been 20 plus years where I don't think there's been a single day. We fight all the time. There's never been a single day where we've actually been frustrated with one another. I met Benny. We were both still in college. He was kind of between freshman and sophomore year. I was in my junior to senior year and I was working investment bank. And as an intern I was working on a financial transaction. It's actually a really interesting financial transaction. It had to do with cruise line ships. And the way you would finance some of these cruise line ships is you would find a country that was willing to give you 100% LTV financing. In Germany they're called like a CAD AD or KG structure. In Korea they're called something else. But these countries would do it in order to give you jobs, to give their local citizens. You know, the shipyards would be full and they'd make it very tax efficient for doctors and dentists in these countries to invest. You have to really be steeped in strange financing structures in your late teens to be interested in this stuff. So I was telling my brother, my younger brother was at Penn and he's a freshman. It was during like Spring Fling. I was telling my brother about this financing structure. My brother couldn't care less. Like, this is not what he's interesting. And Benny, who was his roommate, was sitting on the couch and I was like, oh, Katie. Or KG financing structure. And I was like, this kid knows. I was one of these older brothers who thought all their younger brothers friends were like goons, not serious people. And I perked up. I was like, who is this? It was love at first sight. Benny and I became close friends right away. I knew Benny's zero to one clock speed is the fastest I've ever seen. To this day, I've never seen someone look at a business or look at a model or think about a situation and so quickly get to the jugular. He's astonishing. The Second thing I'd probably tell you about him that's unique is he's able to extend our time horizon as a firm pretty consistently. Sometimes when things are moving really fast and you're in the fog of war, you could find yourself constraining your time horizon, trying to make decisions that are optimal in the short term, just to make sure that's the corner you could see around it. Benny is so good at stepping back and reminding everybody, including myself, especially myself, what we're trying to optimize for over the fullness of time. I mean, really, really astonishing. He is the most clear and concise thinker one could have as a partner. So often I describe a situation that I'm thinking through. We talk about everything at Green Oaks, down to when you walk in, what the lighting is in our office. We are micromanagers to the max. And when we talk about investments, Green Oaks. It's not atypical for us to sit around as a team and talk for three, four hours about a single company. And then we go home, we put our kids to bed, and then I'll call Benny and we'll talk for him. 9pm to 1am in the morning. You almost do that every night. I've talked to Benny already four times this morning.
- [50:02]
Patrick O'Shaughnessy
How do you process AI? Do you sit with Benny and team and think through. Okay, you talked about yesterday, the genetics of the model companies just like, weren't good when you first encountered them. How do you do that on an updated basis to make sure that whatever opportunities emerge because of this technology, like you're most on top of. Do you form some core view on. Are you obsessively looking at the benchmarks when DeepSeek R1 comes out? Is that the sort of thing that you're doing?
- [50:28]
Neil Maida
We do do a lot of that. If you just step back for AI. We're investing in a bunch of different companies across a bunch of different industries. What is the common thread? And there's this great. I forget the name of the book, but it was about the Wright brothers figuring out how to get a plane in the air. And there's all these people chasing, trying to be the first one to flight. Of course, you look at the bird and they flap their wings. I got to replicate that. And the Wright brothers are like, wait a second. The laws of aerodynamics. Are the laws of aerodynamics not going to change the laws of aerodynamics. You just have to figure out how to make fixed wing flight work. And of course they make it work. And I think businesses are the same which like the laws of great businesses are the laws of great businesses.
- [51:06]
Patrick O'Shaughnessy
We know how this works.
- [51:07]
Neil Maida
Did you delight customers? Do you break trade offs to create something operational or technically really great? Do you have a competitive advantage? Is it a large market? Whenever we've screwed it up at Green Oaks it's usually been because we ignore the laws of like Green o crypto. No, no, you don't need a board in crypto. Don't worry about it. Oh no, you don't need an auditor. It's not a thing that you need. You don't need to delight customers. Has nothing to do with customers. Has something to do with price movement and fund flows. You know, it makes sense to me but I guess the laws are different this time. They never are. And so we absolutely look at evals and R1 benchmark and figure out. Wow. Deepseek figured out a way to deploy a model at the 35x reduction for input output tokens on a comparative basis to OpenAI's reasoning models like that's pretty impressive feat. What are the takeaways in terms of competitive advantage for OpenAI's model on comparative basis to others? That's a really interesting question. But what we try not to do at Green Oaks is get excited about that development and then deploy our time and effort eventually invest a lot of capital just based on that. We try to bring the abstraction level back up to what does this mean for customers and then we work backwards from that. So when we talk about the model companies our our reaction has been like these large capex spends my feeling has been and by the way I've been wrong. If you look at the valuations of these businesses, the investment that you have to make versus the payoff you get and then the fact that you have to make that investment 12 months later and there seems to be like a pretty fast catch up. It just didn't strike me as in the laws of business is a great business model. Of course ChatGPT has proven that you can build a consumer business on top of it.
- [52:36]
Patrick O'Shaughnessy
I'm curious how you would characterize the changing nature of competition. So you're not the only person looking for these 10 outstanding people every year. There's other really talented players in this game and on this playing field. When they meet one of these 10, I'm sure lots of them move heaven on earth to try to be the partner of choice. Early on you probably faced less competition, they were less industrialized this industry. How has that changed over time? What have you had to do to have your win rate stayed as high. When you want to win, if they have, what have you had had to do to keep the win rates as high?
- [53:08]
Neil Maida
I used to think about this a lot, especially when we were starting because in our first many funds people would ask us, they'd have a list of other firms they'd ask us about and be like what about these guys? What about these guys? I found that first of all if we're going to screw it up or lose, it's usually something we're going to do internally. It's almost always we've internally messed something up that has led us astray. And just getting this stuff right internally, that's hard enough. So I don't spend that much time anymore thinking about, about the competitive dynamic in our industry I would actually argue has become much less competitive. It's counterintuitive. Think about what we're doing. We're scouring the world for founders that we think are going to build Future S&P 500 companies at the exclusion of everything else. But if you think about the job to be done in our industry, it's been layered. People that injected complexity in ways that are so counterintuitive. There are firms whose only job is to do fintech in Brazil. They're firms that, their only job is to do everything that comes out of Y Combinator. Their only job is to do New York City consumer startups. It's become this specialization of our industry. That goal I mentioned, that's Green Oaks goal. Of course I don't think everybody would agree that that may be their end state goal but they have maybe a different job to be done on a day to day basis. Our industry is more like, I think this is investing, generally investing. It's a game of reducing complexity, It's a game of reducing noise. There's too much noise. And I find the people that willing to have the intestinal fortitude to dramatically reduce the noise and make their job extremely simple and have the temperament to allow it to be so simple to know that you only need 110 points of IQ to do this. The number of people that I feel we compete with on that is very, very low.
- [54:44]
Patrick O'Shaughnessy
I want to get as far into this as you possibly can. Again, name specific firms or names or anything but really, really, really drill into why it's less competitive today. Because naively I would say it's different. The supply demand and by just think about, okay, there's a unit of transaction here, some cash is going into a business for equity. In that business, the supply demand dynamics of how much supply of cash there is for limited amount of equity in great businesses has gotten way out of whack relative to when you started. There's way more cash.
- [55:17]
Neil Maida
You said a hundred times, I think it's 2 billion when Don Valentine did Nvidia and now it's 200 billion or something like that.
- [55:23]
Patrick O'Shaughnessy
So naively you might say it's way more competitive. And the expected returns to your point used to be 35, doesn't need to be 35, now it's 15. And all this cash is driving down that return. So really walk me through in lots of details why the nature of firms, who's leading them, the partner at those firms, all the dynamics that happen to make it possible for your statement to be true that it's less competitive today you than it was 10 years ago or something.
- [55:48]
Neil Maida
Two things are allowed to be true at the same time, which is our space has too much capital and it's actually less competitive for great companies. And I'll try to explain those. The economy. A lot more companies are getting funded. Thousands of companies will get funded by really great investors. And if you look at the matrix we just described of you divide by sector, industry or whatever, it's geography stage by and large people are doing investing. It sort of looks like painting with numbers or something like that. You're looking for certain types of characteristics around growth rate. And by the way venture capital invent this summit and TA have been doing on the growth side for a long time. Inside's pretty good at it. On the private equity side, the entire industry works this way. If it's a 21 IRR you do it. It's a bulge rack of private equity. If it's 21 IRR you do it. And if it's an 18 or 17 unlevered you don't. Maybe that's even changing. But like those are kind of the numbers. I think the mistake people are making is this is not the private equity of our industry. These are founders building companies. Now with private equity goes to the highest bidder. Every company essentially goes to the highest credible bidder that could move fast and straightforward in our industry. I can't think of a single company in our portfolio. Not one. Tell me if you can think of one in yours that took the highest valuation. Only they took some combination of the partner, brand, speed, the understanding the capability of that firm and valuation. Now that doesn't mean you could be the lowest valuation. That's certainly not what I would claim. In fact I think in some cases we are the Highest valuation too. But we have differentiated inside on why we are willing to pay that without sacrificing returns. That comes from understanding. And if you are driving for coverage, if your job is to make sure you don't ever miss a Series A and are doing that by hiring a very large number of people, then what you're sacrificing is fidelity and insight. It's impossible that you can't scale that with an entire organization to like a couple individuals. I've never met a firm that's had more than a few good investors. It's so hard. So you end up just doing a lot more. And it's not clear to me that any firm is that good at figuring out what's good and what's truly exceptional. Immediately figured out over time. I was looking back at a lot of our Series Bs that we've invested in. Most of what we do are Series Bs and ours. I was looking back at every round that we had done for the better part of 13 years. Every single one of those had some other company that traded in its sphere of competition, that traded at approximately the same turn within the same 12 months. Isn't that crazy? The best companies and the worst companies at the Series B or Series A trade at approximately the same multiples. There's exceptions here and there, but by and large, very few people could actually tell the difference between the two. Now, if you and I were evaluating Coca Cola, you might know ten times more than I know about Coca Cola. If we both had to figure out what earnings per share were in 10 years, we wouldn't be that far apart. It doesn't matter that much. But in our industry at the Series B, we can Both look at two companies, kind of competitive, both doing 30 million in ARR, growing 100% a year. There's a chance that the one you invest in is worth many billions in enterprise value in the future and the one that I invest in is borderline and solvent in five years there's a huge spread. But yet it's most likely that the Series B's those trade approximately the same multiple, same turn. And so I think having a system that allows you to build differentiated insight in a targeted way can yield better results. I can't promise it, but it's also just a much more fun way to live life. I think when you talk to founders now again, for the 3,000 founders that'll get funding. The matrix large scale. I'm glad our industry is going from a cottage industry to becoming this large asset class it's going to help so many people get so much more. It's actually great for Green Oaks, the later rounds too. There's some of those companies that might be very interested in this down the road. But for the 10 to 15 best founders that care about that relationship, they care about speed, they care about fidelity, and they care about price. I think we are much better experience.
- [59:42]
Patrick O'Shaughnessy
Do you care about the enterprise value of Green Oaks?
- [59:45]
Neil Maida
No, not at all. 00 doesn't matter to me. I have no plans to sell my painting. I have no plans to.
- [59:53]
Patrick O'Shaughnessy
You don't have an email?
- [59:54]
Neil Maida
Yeah. I have no other hobbies. This is it. This is all I want to do for the rest of my life. I mean, as long as I can. And investors allow me to. And the founders we work with allow me to. Yeah.
- [60:02]
Patrick O'Shaughnessy
If you think about the ways most recently that you've improved your craft, what comes to mind even today versus two years ago? What are you doing better today than you were two years ago? In this craft of finding and courting the 10 best each year at the.
- [60:16]
Neil Maida
Highest bid order, we have got much better. Not a little better. Much better at separating the vital few from the trivial many. There's a version of Green Oaks two or three years ago where not just me, everybody at Green oaks would do 12, 15, 20, 30 meetings a week. We used to show this slide to our investors. Here's how soon it fees happen and we had 92% coverage. Aren't we great? We'll never leave a stone unturned. It's the way I grew up. I grew up believing that the way you generate great returns, the way you find undiscovered opportunities. There are really only a few ways to make money in the world. One is speed. You just move faster than everybody else. Citadel may be a version of that. That's really interesting. Our favorite combination is when you have the same speed and the same information, but you have differential insight. I think what we've become much better at Green Oaks is increasing the speed and velocity in our information asymmetry and being able to generate differential insight that matters long term enterprise value. Putting those things together with a small team and building a flywheel for doing it over and over and over and over again every day. That has been a sea change in the last couple years.
- [61:21]
Patrick O'Shaughnessy
The ability to write a $500 million check. Maybe we should tell the Carvana story at this point or something. Move really fast in real huge size on something that you're not going to have a full written memo about. You have to act quickly. It seems like that's a great answer to your earlier point about it being less competitive because you could probably rattle off the other investors that could do that same thing today without an investment committee meeting or without this, that or the other thing. I remember the Robin Hood story that Mickey Malka from Rivet told me, which rings like a similar, you know, like a guy making a couple calls to make something happen. Maybe talk a little bit more about that. Carvana could be the example here, but pick a different one if you'd prefer. I'd love an example of weird high conviction fast. That would be impossible in a committee structure.
- [62:04]
Neil Maida
I'll give you three.
- [62:05]
Patrick O'Shaughnessy
Great, let's do them all.
- [62:06]
Neil Maida
So let me start with Navon, which was formerly called Trip Actions. Trip Actions, for those that don't know, it is a travel management company. It does your corporate travel and expense management end to end. It's a company I'd been following for a little while and Covid came and as a travel management company, not a good thing to have happen to your business. And so Trip Actions, which is what it was called at the time, revenue went from 100 million down to zero. It happened overnight. Remember Trump first version went on TV and shut down all the flights from Europe. He felt like Lehman Tuesday or Wednesday or whatever. But I think it was a different day. They felt like, oh, this is not good, this is not good, this is real. I called him a week later and I was like, I know your revenue just went to zero, but I have conviction that you are the right end state solution for this market. And I think instead of battering down the hatches and preserving all the capital you have, I think you should be aggressive in capturing flow share. And we'll write sort of unlimited number. Up to 500 million ends up being less than that, but up to 500 million for you to go do that. And it took us four days or something like that. And Trip Actions dramatically accelerated its market share leadership over the course of COVID Over those two years, it went from number four or five in the industry, maybe even number eight in the industry, I think, to top two in the industry, and was able to be aggressive at a time when other people were nervous. Another example is SVB Weekend with Parker and Rippling. Been investing in the business for a long time. It has always helped us to have a prepared mind. And when we have these moments of volatility, it doesn't change the end state all that much. So SVB Weekend, you remember it was Wednesday and Thursday, it started to have some trouble. Friday morning, Parker called and said SVB looks like it might go into insolvency or be taken over by the treasury or by the Fed. And people make this mistake. People think that Rippling was having financial troubles is the opposite. Rippling used SVB for essentially plumbing, essentially the pooling of capital that would be then dispersed to employees for customers of theirs. And so it was just like Rails that it was using. And by the way, credit to Parker. There's a lot that's been said about Parker from his previous company. And I have to say he's one of the most high integrity people I've ever met in the world. Just to talk about customer centricity, the reason he called me on Friday morning wasn't because Rippling was in trouble. He called me because he wanted to make sure that on Monday morning his customers weren't in trouble. All of his customers got money. There were other payroll companies that were planning to send an email out on Monday that was like, sorry, you know what's happening with the US financial system right now? Payment to your employees will get delayed. That was not an okay solution for Parker. So Parker called me on Friday morning. It took us about 30 minutes to agree to invest 500 million credit to his team, by the way, spent the entire weekend, day and night. It wasn't 18 hours. It was 24 hour, two blocks, 48 hours of straight work. And by the way, Sunday, another credit to Parker. Sunday looked like everything was going to be okay. And Parker's like, just in case this is the right thing to do, we're going to do this. We hand shook on a deal. We're doing the deal. What an amazing partner to have in Parker. Monday morning, every Rippling customer got their money on time as scheduled.
- [65:05]
Patrick O'Shaughnessy
Crazy.
- [65:06]
Neil Maida
Carvana is a funny one because it was public. Carvana's a company we had been following for a long time. Never took venture financing, you know, earning a little bit. He was out in Phoenix. He was building a customer experience that we always thought very highly of. Whenever you talk to customers about Carvana, they would talk about how much they liked Carvana At a differential rate to CarMax, it makes sense. You could buy and sell a car easily. You get it delivered to your door, you have much larger selection.
- [65:30]
Patrick O'Shaughnessy
It's like the Baum Kim story a little bit. It rhymes with it.
- [65:33]
Neil Maida
Yeah, a little bit of hard work. Operationally hard work, technically doing it out in the middle of nowhere on behalf of customers that you want to serve differentially. Well, similar dynamic in Carvana's case you have all these local competitors that have a limited selection. Usually they're wearing leather jackets. It's not a great experience to buy from them. Carvana was making that a much better experience. Only got to know Ernie when Covid came, the stock was maybe a hundred dollar stock. During COVID it went down to the 30s. I called Ernie. We're like Ernie, now's the time to take some money from us. He's like great, love to do it. We got very close for Green Oaks reasons. We ended up not proceeding and investing. I think it was going to be about 500 million in the business at the time. It would have been a great investment. I would have talked about as one of our big mistakes. It went from maybe $35, $40 a share up to $300 a share, whatever it was over 2020 and 2021. We have these moments at Greenhox where you're like ah, now it is well recognized as this amazing used car experience. It's going to be dominant. People understand it's the Amazon of cars. And it was maybe at 450,000 units being sold each year. And Ernie did this big acquisition which is Odessa ramping up. He used quite a bit of debt to do that. I think he financed all of it with debt and so added a bunch of debt to the balance sheet. When things started to slow in 22, everybody's excitement about the fact that he was building infrastructure to go to a million or 2 million cars went the other way. People became very nervous about the business surviving. And the stock went from $300 a share, 332 eventually went down to five. How many companies can you name that went from $70 billion market cap to one and weren't like a fraud? Zero.
- [67:06]
Patrick O'Shaughnessy
After you and I had this conversation, we actually looked it up. The answer is none.
- [67:08]
Neil Maida
Is none. As it started to go from 70 billion or 300 plus a share down to $50 a share, we actually at $100 a share we started to become very interested in it. And there was two questions. The first question was the market was getting killed. I think it was one of the largest peak to trough drops in used cars in the last 30, 40 years. Was this a one time thing? Was this going to reverse? The second is his unit economics were terrible. I don't think he'd mind me saying that he was losing $3,000 a unit on an EBITDA basis. If that wasn't enough. He had about $2,000 of interest payments per unit. So he had $5,000 per unit of costs. So the question was not if, but when is this company going to go bankrupt? And so the stock went from 100 to 50. We started to buy around then, of course, we started buy all the way down to about five. My partner, Ben, it doesn't feel great when you start to buy at 50 and then at 30 and then at 20, and then the 20 goes down to 5. Ben has a great line, which is what's the difference between being down 95% and 97 and a half percent? Just half. And so that was a tough moment. At Greed Oaks, we invested a substantial amount, became one of our largest investments in our fund. And we had a view. Our view was that Ernie had a decent amount of Runway. There was things he could do operationally to fix the business fairly quickly. And we did what any investor might do at the time. We went line item by line item. We said, here's where he needs to cut, here's what he needs to change. And much to our chagrin at the time, Arnie didn't do any of those things. Stock kept going down and he just didn't do. And it wasn't until later, I'll come to a couple stories. It wasn't until later that I realized there's certain CEOs that might react immediately in order to placate the market. What he was doing was doing a bunch of AB tests internally to figure out what were the right things to cut to make sure that he could manage the company through it and grow on the other side, which takes a lot of intestinal fortitude. There's a bunch of really good stories about Carbon. As the stock started to drop and we started buying more, not everybody was thrilled with us, but we thought, we fundamentally understood that he would be able to reverse the unit economics on a per unit basis. And there are things he could do to not just stave off bankruptcy, but be an ongoing concern with strong capital structure. And then the second part of that is the debt side was really reflexive. If you're right on the first part, you're kind of right on the second part. So it's a two part investment for us. One was the company won't go bankrupt. Second, is this a business that could go from 400, 500,000 units to 2 million, 3 million, 5 million units over time, used cars, about 40 million units a year or something like that. And I remember this is a big debate for us, but it really also comes back to founders. I went out to Phoenix, sat down with them for dinner, I got on the plane, I was reading the papers and four of the articles were about Ernie and how terrible Ernie was. It was like, he's a crook, he's awful. The company's terrible. They can't pay their bills, it's about to go bankrupt. Employees are leaving in droves. It was like left for the dead. I remember, you remember this, and I remember getting out there and I remember sitting down with them. We talked about the business, we talked about other things. But I remember the first thing I did is I said, boy, and the papers a lot nowadays, how does it feel? How do you feel? And he didn't talk at all about himself. He almost was like down to tears. He was talking about his team. He was talking about what it's like for employees of his who have been on the company for a long time to have their kids go to school and hear that their parents company is going bankrupt. And he was going into enormous detail about this. And you could feel the pain wasn't on the articles about him. It wasn't even on Billy to manage cuts. It was that he was trying to balance getting through this with. With making sure that his team felt good about how he got through this. There's very few CEOs in the fog of war. When things speed up, people start to make snap decisions very quickly. What impressed me most about Ernie at that moment in time was how he just slowed everything down. I remember at the dinner, the waitress came by and she's like, would you like to use your Marriott gift certificate card? He's like, oh yeah. He like searched 10 minutes to find his gift certificate card. I was like, wow, you're supposed to be in a hurry, but you really care about this gift certificate points off or something like that. We went through operational step by operational step. It was so clear to me that there was a spread between where the market thought he was. And that happens all the time in our industry. The spread between perception and reality. For private businesses, for public companies, it could be quite significant.
- [71:13]
Patrick O'Shaughnessy
As you go back to the early days, you had this first fund that was so successful, huge multiple on money. How did you decide how much money to raise in subsequent funds all the way through to today? This is constantly a question for every investor ever that's been really successful. They tend to have the opportunity, you certainly did, to raise probably as much money as you wanted to raise. Given your past results, how did you choose the amount through time? How would you teach if you're Travis giving money to, you know, the next you. What coaching would you Give them On how to answer this question, I think.
- [71:42]
Neil Maida
You have to decide whether you want to be in the hall of Fame of Returns or the hall of Fame of Aum. And by the way, Ivory LP has to like shut their ears. But like, that's an okay answer for a ton of people. The hall of Fame of Aum is a well trafficked game with lots of buildings in New York have names of people that have been in the hall of Fame of Aum. And that's a great way to live life. Not to take away from that, I think for Benny and I. And maybe it's because we had some success early. We're large investors in our own fund. It's just a more interesting way to try to be in the hall of Fame of returns by partnering with the kinds of companies we like to work with. If that's the case, then you want to reach the right limit where you can invest without reducing returns. And for us, our largest investments are 500 million to a billion plus in size. And we do that with some regularity. We want the founders we work with to call us and say we want 500 million to a billion dollars. We are thrilled to get that call and we want to make sure that we could always answer that call and we can be the partner. And that number may move up over time, but that number has served us pretty well of at least a couple times a year we'll get a call for can we get 500 million to a billion from you? And we want to be able to answer that call. So that's kind of determined how we think about. Our funds have gone from the, I guess tens of millions to the billions. But it hasn't really been a function of the number of companies for funds has not changed at all. In fact, it's gone down.
- [72:50]
Patrick O'Shaughnessy
How many is it?
- [72:51]
Neil Maida
10 to 12? That as high as 15 historically. But our numbers actually come down quite a bit and we only have 55 companies across 15 billion of AUM Green Oaks. I could talk to every single one of our founders in half a day and still have tons of time.
- [73:03]
Patrick O'Shaughnessy
Have you ever thought about other structures for Green Oaks, like making it some sort of permanent capital base like Berkshire style, or all this creativity with Apollo and Athene, like having some sort of insurance. It seems like every great investor reaches the point in their career they want an insurance company for a permanent capital base or a balance sheet. Have you ever thought about that side, the asset side of the business, of where the money comes from, how it sits and its structure?
- [73:26]
Neil Maida
Yes, we have. In fact, Green Oak started with the idea of an alternative capital structure.
- [73:31]
Patrick O'Shaughnessy
What was it?
- [73:32]
Neil Maida
It was a holding company that owned insurance businesses. Frontier and emerging market insurance companies. Benny and I had spent a lot of time at D.E. shaw studying insurance businesses in places like Ping an in China, Donggu in Korea, Qualitas in Mexico, Selenco in Seb in Thailand, Silico in Sri Lanka, businesses like this. And actually the cool thing was if you study these PNC businesses, they all follow the same kind of curve. You could draw an XY axis, you could put GDP per capita on the X axis, and then on the Y axis you could put insurance penetration as a percentage of gdp and it follows this S curve. And the S curve is basically rich country has 10% insurance penetration. The exception to this, by the way, is the Middle east countries, they get really rich on oil and then don't have insurance penetration. And then the really poor countries are at the bottom. They have very low GDP per capita and they have low insurance penetration. And our view was, if you believe in a country's GDP per capita growth, a levered investment is to buy the best insurance company, the PNC Consumer Insurance Company.
- [74:32]
Patrick O'Shaughnessy
Interesting.
- [74:33]
Neil Maida
So we did this and it was a phenomenal investment for Dongbu and Qualitas and scb. They were really good investments. So our idea at Green Oaks when we started, we had a traditional fund structure. Our idea was, let's start a holding company where we buy anywhere between 51 and 100% of these insurance companies. We suck up those premiums and we can invest them in a wide variety of different assets. It's like phenomenal idea on paper. In fact, we did it right when we started Green Oak. So we went around and raised 150 million of capital from some great investors, many of our longtime investors, and we started a holding company. Now I don't think one person asked us, have we like been to Africa or Pakistan or any of these places. But we did it. And then we took a small team from McKinsey Insurance practice, which was known for helping some of these insurance companies. And our idea was, you can't buy Ping and in China, it's too big. But you can buy the frontier and emerging market insurers in places like Pakistan or Rwanda or Nigeria, places like this. So the first thing we did was just get on the plane and go to these places. So we went to Nigeria. I have so many fun stories about this.
- [75:32]
Patrick O'Shaughnessy
I love this, man.
- [75:33]
Neil Maida
It was the craziest thing. So we decided, we started holding companies called GGH by the way, the punchline here is, it like went terrible. This is the single biggest mistake we've made at Green Oaks. I think it's a funny story. So we took a team out of Zurich, Switzerland. That was our operating team. We had about 12 people they were working with, local teams, teams. The first trip we made was to Nigeria. Actually before I got on the plane to Nigeria, I was in London. There's this late night flight and we had assembled a list of businesses that we might potentially want to buy. The list was only six companies, seven companies. We had a banker that was on the ground that we were working with that was like only an insurance banker. We had known him for a little while. We'd been studying our approach for maybe six months or so. The flights arrive at 10pm and our banker calls, he's like, hey, I'm so excited about the trip. I can't wait for you guys to get into town. I'm like, great, can't wait to get there. And he's like, I gotta tell you, I gotta skip dinner with you guys tonight though when you get in. I'm like, why? You know, we're really excited about our dinner. He's like, I had a long night, I was up all night, it was kind of crazy. Like, oh, what happened? Had a guy from London here last night. He flew in, I was gonna do with you guys. He stays at the same hotel, dropped off his bags, took him out to dinner. And we went out to this great dinner, had a bunch of drinks. He goes back to his hotel and he proceeds to tell us the following story, which is this English banker goes up into his room, checks into his room, there's a guy sleeping in his bed. The English banker's like, what is going on here? And he closes the door, goes downstairs, tells the person at the check in desk, there's someone sleeping in my bed. You must have double booked the room. This is a huge problem. Guy's no, no, no, that's like not possible, I'm sure. Reissues him the key. This is your room number, go on. Goes in, guy's still sleeping in his bed. Banker goes downstairs, goes to the front desk counter, says, you've got to come up with me. This is crazy. There's a guy sleeping in my room. I just want a different room. The front desk check in person goes up with him. Sure enough, this guy's still sleeping in his bed. The front desk person goes and checks his pulse. It's cold. Dead guy in the bed. Exercise is telling us this story. We're, like, listening to it. Like, where is this gonna go? And the banker is furious. He's like, this is crazy. I just want to go to sleep. It's like 2am in the morning. I got a big day. Like, they're saying, I don't know what's going going on, but just like, figure this. And the front desk check in person's like, I don't think you understand. I gotta call the police. There's a dead guy in the bed. You gotta stay right here. And the police come, sure enough, dead guy in the bed. And the banker's furious. It's now 3am in the morning. He's like, this is crazy. You gotta get me the police. Like, no, no, you're a suspect now. We gotta, like, take you to the police station. And he's freaking out. He's like, what do you mean? I don't know who this guy is. I don't know what happened. I just waited in my room. There's cameras. You can check. No, we're taking you to the police station. They put him in the back of the car. They tell him he can make a call. Takes out his phone, calls our banker. His name was Balaji. And Balaji's like, oh, this happens. Don't worry. How much money do you have on you? He's like, I got $1,000 on me. He's like, that's not enough. You probably need $10,000. Can you get a wire to them in the morning? And I don't even know how to get a wire. He's like, don't worry, I'll take care of it. I'll get you out by 5am Balaji's up all night figuring it out. Banker gets out at 5 or 6am, gets back on the plane back to Balaji's, like. So I was up all night figuring this out. And we're like, this is where we're flying in like an hour. This is terrifying. And so that was the first time we went out there, was hearing this story. It was incredibly fun. We bought 75 to 100% of an insurer out there. We bought 75% of insurer in Pakistan, which. Benny's Jewish, I'm Indian, we're both American. This is the first time I had gone out to Karachi. Ben's like, I'm not going. You gotta go. Yeah. And so I was going out there, we were about to close this transaction, and my mom, who's from India, she's crying. She's calling my wife. She's like, he can't go to Karachi. It's, like, too dangerous. And it was a phenomenal experience. And we had an amazing partner in Pakistan. He did a fabulous job with the business. I have nothing but incredible things to say about him, about the country, about our business there. This is a great story about Rhonda. We bought the leading PNC insurer. We're also one of the largest real estate owners because the insured all this real estate. So we're in Kigali, we buy this business, we're growing it. None of these businesses had great solvency law. I mean, this is like very early in the life cycle of how insurance work in these countries. But our view was, if you read about Rwanda, it's like the Singapore of Africa. We get on the ground, our insurance team's there. This business is terrible. For every dollar of premium we get, we lose A$80, which in the insurance business, you can't make that up with investment returns. You're in a bad position. And we were the best of all of them. Why is not everyone else bankrupt and like, well, it's a funny thing. Nobody really audits these companies. And as long as you continue to write more premiums, the next year, you could make it work. I'm like, well, that's not going to work for us. So we decided we might not want to be in this business. As we make that decision, we get a claim. And the claim is from a wealthy family that has some political connections. And it turns out that someone that we insured died in a car accident. There's a terrible thing. Now, there's a pretty systematic way to think about PNC insurance globally. There's a table for how to think about life. I hate to put it that crudely, but that's kind of how it works. And I fly out of Kigali, Ugh, we gotta take care of this claim. It's a big claim. And I'm like, well, we have to prosecute the claim because that's too much. That's outside of the table for how to think about the value of this accident. So we go to court. The guy that shows up as the defendant in the claim, it's not the lawyer for the claimant, it's the claimant that died in the car accident. And we're like, I mean, case closed. Guy's right there. This is all done. And lo and behold, there's this performative jury that's like, ah, you know, like, this is out of bizarro world. This is crazy. And so we're like, this is not a country we want to be operating. So it took that experience of building this insurance company. We're like, there's no winning here. It taught us a lot about the kinds of founders we want to partner with, the kind of markets we want to be in, the way we want to spend our time. It costs us real time and money and years. We haven't lost that zeal of wanting to build something really special.
- [81:12]
Patrick O'Shaughnessy
I'm so freaking glad I asked about the holding company thing. You're in one of these positions where if you wanted to, you could just do this with your own capital. I think you're the largest LP in the funds. You've had the success that all the investors chase. Why still have outside partners? You've made that choice, obviously. What is it about working with great LPs? I know your LP base is super concentrated too. Very consistent theme in your life that you're really concentrated. But having achieved the level of success, it could just be your balance sheet, could be the holding company in the Berkshire and make the marginal investments. How do you think about that? Trade off that choice.
- [81:45]
Neil Maida
I have friends that sometimes complain about their LPs or all the updates they have to do, or the conversations they have to have, or they just love.
- [81:55]
Patrick O'Shaughnessy
This stuff too much.
- [81:56]
Neil Maida
They might make different decisions if they didn't anyhow structure our lives in such a way where I really enjoy the people that we spend. I have a WhatsApp chat with my LPAC. I mean, I talk to them a decent amount. I talk to some of my investors. They're like friends of mine. I get to do this with people I really love and admire and respect. They've oftentimes our best ones have given us courage when we might have even lacked a little bit of it. I think about them as partners and shareholders in our business. And I think there's three reasons why. I think the first is I enjoy them. That's like the most obvious one. I really do. If they never invested another dollar with Green Oaks, I'd still be good friends with most all of them. And that's becoming increasingly true every year at Green Oaks. The second is we're competitive. We're deeply competitive and it really bothers us if we're not amongst the best returning investment opportunities for our LPs. Remember, there's a table that came out in 2021 and it had the endowments by return. And I was really proud of the fact that like for the three or four top ones, we drove some real performance for them. But that matters to me.
- [82:53]
Patrick O'Shaughnessy
If I were to do a great complete, anonymous, ubiquitous survey about you and Green Oaks and I were to find the critics to the extent that they exist, what do you think they would say?
- [83:04]
Neil Maida
I'm sure we have tons of critics. I actively try to seek it out so I think I can opine on some of it. Yeah. Although you feel free to add in. I just had a dinner where I met a bunch of young people. I asked them this specific question. I said what are the most negative things you can say about Green Oaks? And I'll give you each comment because I thought all of them are valid. So the first was Green Oaks. Wildly successful early, but as of late, what have they done? And I think that's such a healthy attitude. Frankly you're only as good as your next day. And my pushback was it takes time. The stuff you're judging us on 10 years ago, there's stuff you would judge us on in another 10 years that we did today, but it just doesn't show. So that would be the first. The second would be some higher priced rounds that look like really crazy on the outside. They don't make any logical sense. Why did you do them? We have some logic for why we did them, but we could be wrong. Benny and I as founders we've pushed our organization really hard. One of the other pieces of feedback might be like are you pushing too hard? We can't always hire well, we can fire fast. We run a very tight team. We're reasonably intense in the way we run that team. You can make an argument that you should not run at this intensity level. You could run at 70% of this intensity level and things will be just fine. I just don't think we'd be that happy if we did it. So it probably the right feedback but I don't value it that much.
- [84:18]
Patrick O'Shaughnessy
What do you think the greatest of all time is?
- [84:20]
Neil Maida
I'm going to have a controversial answer. I think it's Yuri Milner. The easy answer is Masa. Most people I think the Mike Moritz's and phenomenal Peter Fentons like phenomenal investors. It's hard to argue against Masa. I will in a second. Have you spent time with Masa?
- [84:35]
Patrick O'Shaughnessy
No.
- [84:36]
Neil Maida
He gets made fun of a lot. He is incredible. Incredible. First of all, step back for a second. This guy came from Japan when he was in his teens, didn't speak a word of English, was ostracized for not speaking a word of English. Studied his butt off. It goes back to Japan, creates one of the largest Enterprise value companies in Japan over the course of 20 plus years along the way decides to become an accidental investor. At one point he was the richest man in the world. One thing I think is underrated is Silicon Valley is a fairly insular culture and has never really been that nice to Masa.
- [85:09]
Patrick O'Shaughnessy
They make fun of his PowerPoint slides.
- [85:10]
Neil Maida
They make fun of his PowerPoint slides. They make fun of the investments he makes. There's almost like a twinge of, I don't want to call it racism but xenophobia to him of like what is this guy doing coming out of nowhere? The guy has multiple times made hundred billion dollar returns. I remember when he invested in arm, a lot of respect for Masa. I don't think Green Oak should emulate the way they invest. I think Mossa is an N of 1. But when he invested in ARM, I had a friend of mine who runs a large investment bank call and say, could you believe how stupid this guy is? I can't believe he bought arm. That thing is tanking. It's never going to work. This guy had his semiconductors analyst on a call with me. Semiconductor analyst runs out a list of reasons on why this investment's never going to work. Mahs and another entrepreneur. And I decided I'm going to give all the reasons. I'm like here are all the reasons the semi analyst from one of the big investment banks thinks you're going to fail on our listen. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10. Listen to him, he's like, ah. But he fails to realize that the market's growing and he was right. And I've seen him multiple times and by the way, underrated for how great he is with entrepreneurs. At times he's come up and stepped into the plate. Sometimes you can measure investors not by figuring out where the momentum's going, but when the going gets tough, how they stand up for entrepreneurs. And I've seen him three or four times step up to the plate in a meaningful way. Whether it's Tony at doordash, whether it's bomb at coupon pay off. Most times, not all the time. Most times. I think that's really remarkable. The reason I say Yuri is when I was at Tshaw and Yuri made the investment in Facebook, I didn't know you were allowed to make investments like that. I remember going to my boss and saying are we allowed to invest in like money? Losing Internet companies at $10 billion in enterprise value that are still private. I know the growth investing of buying things at four times revenue that's a software company. And adding a couple bolt ons into that to me was growth investing and private equity and growth companies. Yuri broke that mental model for me and he was the first one. I remember making a large scale category defining investment in a category defining company that was so obviously going to change the world. The way he built dst, the number of correct decisions he's made compared to the number of bad decisions he's made, it really is a remarkable ratio I can't name. I think the total impairment in all of DST is like very low. The quantum of money they've made as a firm. And then also with his personal investing in things like bytedance and Shuami, you just take one of those and that's all of a firm's returns. By the way, who do you think is the best?
- [87:32]
Patrick O'Shaughnessy
Well, I'll tell you the answer that most people give, which is Moritz.
- [87:36]
Neil Maida
Yeah. I've only got to know Mike a little bit better recently and not a lot of people will know this. I don't know if he would describe us as a competitor when we were coming up, but I certainly think about them. I think they're an amazing firm. And Mike recently retired. When I was going through all the San Francisco stuff, when politicians were holding my face on a picket, Mike emailed me and I was like, can I help you a little? Any help? What you got? And he recommended that I write an op ed. He's like, I know you don't want to do anything publicly. I know you wouldn't like this, but I think it's the right thing to do. You should be transparent and direct with what you're doing. And I was like, sure, I'll try doing it. He helped me. And he was on the phone with me, helping me outside of this conversation. It would have gone unsaid. What a remarkable thing to do for a young kid that he doesn't need to help in any way whatsoever. He's a really amazing human being.
- [88:20]
Patrick O'Shaughnessy
Since we're at the end of a long session, I'm curious to hear a little bit about where your instincts for understanding the world have brought you outside of investing. Are there other places that you apply this same instinct where your curiosity pulls you into a world where you're not investing huge sums of money?
- [88:35]
Neil Maida
I think the thing, if you were with us at Green Oaks and you just sat with Benny and I for like a day, I think the thing you'd probably be most surprised about is how much we care about beauty. Like, we love spending time on a P&L. But the reason we like this so much is we like beautiful businesses. We love beautiful relationships. We care about beauty in the world. We want to make the world a little bit better tomorrow than it is today. And we think Reno's going to be driving enormous impact doing that. That's why we invest in the companies we invest in. That's why we don't care about finding a software company in Minnesota and buying it three times revenue and flipping it five times. Don't care about that at all. It's probably a better business than the one we're in. We're okay leaving that on the cutting room. Floor manifests in a bunch of different ways. I'm born and raised in San Francisco, so I dedicated a reasonable amount of money to trying to fix just my street in San Francisco.
- [89:21]
Patrick O'Shaughnessy
Oh, that's.
- [89:23]
Neil Maida
Oh, gosh. It's not a story I expected to have come out or ever talk about, frankly. I mean, maybe you and I talked about off the cuff. We did, yeah. But I was just quietly doing it, and I did it as a nonprofit because a terrible financial investment. I mean, just to walk through the financial math, I'm buying buildings in one street called Fillmore Street. It's in Pacific Heights. It's a street I grew up on. And I'm buying stuff at, like, a five and a quarter cap, which treasuries were five and a quarter when I was buying this stuff. And I'm buying, like, illiquid, small, rundown commercial real estate that usually has no tenant or if the tenant's leaving, which is why the person's selling me the building. And then I'm putting in, like, a mom and pop restaurant at a 3 cap, which barely pays its rent, and I have to do all the ti. This is like a terrible financial investment. So we were like, oh, you're so good for doing this. No, it makes no sense to do it any way besides a nonprofit. So I started a nonprofit with a good friend of mine named Cody Allen. You came out to San Francisco during COVID I think San Francisco is a really important city. I think it's important for America. I think it's important because it's ground zero for a lot of the most interesting people all over the world to come and build their version of the future. It's different to New York, and it's different to the finance and the real estate and other industries, which are a little bit more. I don't know, Rent seeking is maybe the right word I want to use, but I think there's something about tech and the aspirational nature of company building that San Francisco harnesses uniquely. Well, I don't think there's anywhere else on earth that's anywhere like it. Tel Aviv may be getting close, but it's really San Francisco, I think, losing that. And we've tried really hard to kill it. We're anti business, we're anti growth, we're high taxes, we're anti family. Lots of things going in the wrong direction. My view was these were imminently fixable, and if we fix them, it can make San Francisco great for a long time. And I don't think you could take these things for granted. I mean, you go back to the 1920s, even earlier with the Hungarian physicists in Budapest, and you had all these great. The von Neumann's of the world all living there in Budapest. And World War II came along and Hitler came along and wiped them all out, and they all dispersed to different parts. That group of physicists, they were the foundation for modern physics for like a hundred years. String theory, all the atomic weapon work that came out, it was all from that small group in Budapest. And so I think losing San Francisco to some of the progressive causes that have plagued the city would be pretty bad. And so this was one part of my little corner of the world starting to invest and make it better. But it came from a place of wanting to make that street beautiful. And if we can make that one street beautiful, then you could maybe do that across other parts of the city and you can make the city livable for families and have people still there. I started down that process about a year ago. I was just doing it quietly because what was there to share?
- [91:51]
Patrick O'Shaughnessy
Yeah.
- [91:51]
Neil Maida
San Francisco has this funny progressive bend, which is we'd rather have empty buildings than have someone own them that they seem to be too wealthy to own.
- [92:01]
Patrick O'Shaughnessy
Mysterious investor.
- [92:02]
Neil Maida
Yeah, and there was a guy, Aaron Peskin is the guy's name. He was a politician. He's out of office now. He had picket signs with my face on them, you know, marching down the street, billionaire taking over city. And I wasn't doing any of that. I think they thought I was trying to develop the city. They never reached out or called or talked about it, but I was just trying to preserve that street and make them restaurants. And I think what I take a lot of joy from is it has a very similar feel to Green Oaks, which is I'm backing other people that are building great restaurants and a new theater. There's a bunch of cool stuff happening on the street. There's like it's three or four blocks now. It's really remarkable what will be done on that street. But I'm enabling other entrepreneurs to go build something that will delight people. This is at a little smaller scale than what we do at Green Oaks, but it's been so much fun. I don't spend all that much time with it. I have a great team that runs it on a day to day basis. But I was just on the street yesterday and it was so fun to walk down and be like, oh, this is where this coffee shop's going in and we're doing an all day diner and rebuilding the theater with a great partner and it'll be really fun.
- [92:56]
Patrick O'Shaughnessy
You said you don't like any of the attention. Is there any kind of attention you do like? You've walked the walk here, by the way. I'm so excited to do this with you. But something tells me this is going to be the one you do and then I'll see you again in 10 years or something. You've walked this walk of focusing on the work, which makes me curious.
- [93:12]
Neil Maida
I think it can be distracting. I think that maybe one of the flaws I have at Green Oaks and Green Oaks has in general is we find that when we make it not about the work, when we talk about the work, it can diminish our ability to do our jobs well. I'll give you an example. We write letters. And historically I would write letters where I talk about an investment we made or something I was excited about out. And the moment I wrote it down, it became a perspective that I had to defend. One of the flaws maybe at Green Oaks is I change my mind all the time. I'm willing to try on an opinion like a score code, and if it doesn't work, I'll throw it off. And I have no pride in authorship or ownership. And so the ability to move opinions around as we talk about things without any touchstone of must be true has helped me. I find whenever you start to say things publicly, then it becomes part of who you are and we haven't felt the need to do that.
- [94:02]
Patrick O'Shaughnessy
I think that's actually a really interesting and compelling place to wind down. I love that, that you don't want to get attached to things. That fundamentally what you've done at Green Oaks is always search for the next person, even if that person's bomb over and over and over again. Which is so cool to have these special relationships. You know, the last question I ask everybody, what is the kindest thing anyone's.
- [94:23]
Neil Maida
Ever done for you a defining moment was I went to public school and then I went to a private high school. I was, was a pretty cocky 14 year old. I came in and I had a great mentor named Joe Rosenthal who took me under his wing, just liked me and was like, you know, I'm gonna just get to know you. He was an administrator at the school and he would come to watch my soccer games every now and then. And one of the soccer games we had, I scored a goal and I did what any 14 year old hooligan. I put my shirt over my head, I spread out my arms, I started flying around down the field. I celebrated like we just won a championship. I think we actually lost the game, by the way. Just like really embarrassing. And then after the game, Joe pulled me aside, said, don't ever do that again. What do you mean? Scored a goal. I'm going to do that every time I score a goal. Don't ever do that again. Have some class. Know that you have teammates that helped you score that goal. Know you have people that passed. Know that you have a coach that trained you. You're better than that. Don't ever let that happen. Never did anything like that again. And it sticks with me to this day. I think about with kids, it was the kindest thing, man. It stuck with me forever.
- [95:21]
Patrick O'Shaughnessy
Neil, thanks so much for your time. If you enjoyed this episode, visit joincolasis.com where you'll find every episode of this podcast, complete with hand edited transcripts. You can also subscribe to Colossus Review, 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 joincolasis.com/subscribe.