Take a step back. What function do capitalists serve? In a well-functioning economy, you have these two things that should come together. You have an economic model and you have a political model. The economic model that’s worked for centuries, as far as we can tell, is capitalism. The political model that’s worked in scale is democracy. Often well, when they’re both combined, is where you have these amazing outcomes like America.
Now, the problem is that a bunch of these things are decaying. In fact, now we see both are decaying. Capitalists have a very important job to do, they vote with their money about what they want to exist in the future. And when they vote for rockets, SpaceX exists, and when they vote for other things that are not nearly as interesting as rockets, then those things can exist.
The way that we do our jobs, though, as capitalists, despite now all of the complexity that you have to deal with, hasn’t changed. If you think about the thousands of years leading up to 1985, you had mostly dudes making decisions with the sum total of a pencil, a piece of paper, and some combination of an abacus or a calculator.
Not to take anything away from how decisions were made back then, but an investor or a capitalist could actually do their job because the complexity of the businesses and the things that they had to figure out was actually not that meaningful. These things weren’t dynamic, they weren’t changing. Then, somewhere in 1985 the whole world changed, and capitalism completely changed. The reason was because of this weird little tool called Excel.
And if you really think about the advent of the mortgage-backed industry, the savings and loan industry, then the savings and loan crisis, then the great financial crisis, the boom in hedge funds, the boom in private equity, what is that? Well, that was a migration from a person to teams of people, and from paper and pencil and a calculator to Excel.
That was fine for the last 30 to 40 years, but now things are even more complicated. How do you Excel your way to understanding, for example, a company like Tesla? It’s impossible. You have to have a more profound operational sense of what they’re doing, and you have to look at fundamentally leading indicators. And when you boil things down to a cell and try to get a numerical answer to really dynamic companies, you tend to have bad outcomes.
So my perspective is, our job is increasingly more important because at the same time as companies are more dynamic, the other side of our equation, the governance model, is breaking. So we actually have an even more important job to do. If the government is not gonna fix health care, we need to fix it. If they’re not gonna fix education, we need to do it. So how do you do it?
My perspective is, instead of teams of financial analysts, you now have to have teams of really skilled operators. People who have built companies.
Instead of using Excel, you have to use the things that other great companies use to build great outcomes, which is really now software, data science, machine learning.
My whole orientation about our organization is one where I’m asking ourselves, okay, the next generation great financial services organization, the next great form of capitalism, will be folks like myself, Tony Bates, Mike Ghaffary, and Arjun Sethi, folks that have run businesses figuring out how to put money to work, backed by a deep operational understanding of how to build companies.
I think that historical artifact was fine for a while, but think of now what is possible. This is what I’m saying is, I guess you could continue to do your job that way, [as a seller of money,] but that’s just to me so bland and lacks such courage. Because what you could otherwise be saying is the following: Okay, here’s a great entrepreneur who wants to help, who wants to go and change something in the world and do something really interesting. Here we are, as folks that have been in their shoes in one point in the past.
And at the same time, not only can we give them money, but the expertise of that, which is frankly the same, but now there’s something else you can give which is to say, “Hey, we’ve spent time deploying code, aggregating data deep inside the bowels of hundreds of companies, thousands of companies before you, and what that’s left us with are these artifacts. It’s a knowledge base that basically says when you try this, it works. When you try this, it doesn’t work, across sector, stage, geography.” Now, all of a sudden, you can actually give people like a punch list of things to help make their business better, but you can only do that with software. You can only do that with machine learning and data science.