Howard Marks & Andrew Marks: Something of Value

1. DRDavid Rosenthal0:00

   All right, I think we figured it out.

2. BGBen Gilbert0:02

   Andrew, I think you have a bright future in technology.

3. DRDavid Rosenthal0:04

   I appreciate it. [laughing]

4. BGBen Gilbert0:06

   Especially Windows technology.

5. DRDavid Rosenthal0:08

   Yeah, you should invest in some tech startups.

6. DRDavid Rosenthal0:10

   [laughing]

7. BGBen Gilbert0:12

   [laughing]

8. SPSpeaker0:12

   Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down. Say it straight. Another story on the way. Who got the truth?

9. BGBen Gilbert0:29

   Welcome to this special episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert. I am the co-founder and managing director of Seattle-based Pioneer Square Labs, and our venture fund, PSL Ventures.

10. DRDavid Rosenthal0:42

    And I'm David Rosenthal, and I am an angel investor based in San Francisco.

11. BGBen Gilbert0:47

    And we are your hosts. Today, we have two guests with very different investment styles: a value investor and a growth-oriented tech investor, head-to-head! But not just any investors. We are joined today by the legendary value investor, Howard Marks, the co-founder of Oaktree Capital Management, and his son, Andrew Marks, the co-founder of TQ Ventures. Oaktree, for those who don't know, is one of the leading investment management firms in the world, specializing in alternative investments, with a hundred and fifty-nine billion dollars in assets under management as of the end of June 2022.

12. DRDavid Rosenthal1:28

    Probably far fewer of you know Andrew and his firm, TQ Ventures, but what they've accomplished so far is pretty equally impressive in a very different field. So as we'll talk about, TQ is an early-stage venture firm that Andrew and his partners started about five years ago. They have a billion dollars under management now, including, I think, a five hundred million dollar third fund that they just closed just a couple months ago. I can say I do know that their returns so far have been top decile across all venture funds raised during that time period in all of those vintages. We got to know Andrew over the years as a Acquired community member and listener, and then I've gotten to know him in the context of Kindergarten Ventures, my angel list fund that I manage with Nat Manning. And a little over a year ago, Andrew and Howard co-authored one of Howard's famous memos together in a departure for Howard, where they were debating over COVID together as a family, as father and son, value investing versus growth investing and tech investing, and what was going on in the markets, and they turned it into a memo, and it ended up becoming... we'll talk about it on the episode, Howard's most popular memo ever, which is incredible in a career spanning many, many decades as one of the most popular authors of investment memos.

13. BGBen Gilbert2:58

    Oh, Howard's memos and books are among the most coveted in the entire investing landscape. Even Warren Buffett is quoted in saying, "When I see memos from Howard Marks in my mail, they're the first thing I open and read. I always learn something." Well, if you wanna discuss these topics with us after you listen, you should come join the Acquired community at acquired.fm/slack. Our new merch store is available at acquired.fm/store. You can listen to The LP Show by searching Acquired LP Show in the podcast player of your choice, or get new episodes two weeks early at acquired.fm/lp. Now, we are very excited to welcome back to Acquired our presenting sponsor, Vanta, the leader in automated security and compliance. We are enormous fans of Vanta, and now investors, and their approach to the whole compliance process, SOC 2, HIPAA, GDPR, and more. And we've got CEO and co-founder Christina Cacioppo back with us today.

14. DRDavid Rosenthal3:52

    All right, Christina, we talked last time about the story of the tremendous round that Vanta raised in the end of April, even as the world was falling apart [chuckles] around you. But now that you've raised that round, how are you operating the company now in this environment [chuckles] that has changed quite a bit here in 2022? And what advice do you have for other founders who are in the same boat?

15. SPSpeaker4:12

    Yeah, so I think at a high level, a lot of actually what's said on Twitter and the advice that's given out is really good. It's take the last round you've raised, presume it's your last, or at least you're not gonna raise for maybe two to three years, and operate the business accordingly. Also, kind of assume a bunch of your metrics are gonna degrade, so whether it's you're gonna spend more to acquire customers or the retention's gonna dip. I think that's all really good. A few things we've done just super tactically, I tend to find tactical advice actually helpful to take the platitudes down to what we're actually doing. So we have an operating plan for two and a half years that we are revisiting on a weekly basis, and then we'll make updates on a monthly basis, and it filters into hiring, it filters into marketing budget, and it's just designed so that we, again, have the runway we expect, despite whatever changes might happen. We can just look at the plan, look at the actual results, diff them, be like, "Okay, can we speed up hiring? Should we slow down hiring anywhere? What should we do based on what just happened?" And having those touch points and also just a set of people responsible for looking at the data and making the decision every month, super helpful. So another thing we do is we have napkin math for a bunch of different roles, and that's how we figure out whether or not we can get comfortable with the hire in this environment. It varies per role, but for account executives, it's very much a pipeline and an attainment number, so are our current salespeople attaining at a level such that we wanna bring on new folks? We also do a bunch of sales capacity modeling, sort of in the Salesforce school of thought, that our CRO, Stevie, brought in of, we have this many AEs with this quota and this attainment, what do we think revenue can be? From that, then we'll back out a customer number and then back out a number of CSMs and implementation managers. It's pretty much fourth-grade math, but much more helpful than the, like, "Oh, do people feel overloaded? Does anyone, like, feel like they wanna go recruit?"... 'cause I think in that world, you get, in some cases, too little recruiting, in some cases, too much.

16. BGBen Gilbert6:12

    Fascinating. So it's doing a lot of focusing on head count related to revenue and trying to tie that as closely to predictable revenue as possible based on all the data you have on your existing head count.

17. SPSpeaker6:27

    Exactly. The go-to-market side of Vanta, I think especially as an SMB-focused business today, we kind of operate in this predictable, almost machine-like way on the go-to-market side. I think for the engineering and product and design side, that's a little different, and there we're actually just hiring as much as we can, and it's great in this environment versus last year's, honestly, but very much predictable revenue on the go-to-market side.

18. BGBen Gilbert6:50

    That is great. Our thanks to Vanta, the leader in automated security and compliance software. If you are looking to join Vanta's three thousand-plus customers and get certified for your compliance in weeks instead of months, you can click the link in the show notes or go to vanta.com/acquired for that sweet ten percent discount. Now, on to our interview with Howard and Andrew Marks. And remember, this show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only.

19. DRDavid Rosenthal7:20

    Well, it's such a treat to have you both here. So the memo you wrote together, Something of Value, Howard, I believe this is the most popular memo that you've written across your entire illustrious career. Is that correct?

20. HMHoward Marks7:32

    That's right, David. Previously, that was held by a one I wrote, I think it was in January of '14 or '15, called Luck, in which I talked about how lucky I've been, and that I'm a big believer in luck, and it's great to be on the right side of it. And I listed about a dozen ways that I think I've been lucky, and people liked that because it showed the personal side, as did Something of Value.

21. DRDavid Rosenthal7:56

    Well, you write in the memo about how this came to be, of the two of you collaborating over the pandemic, but maybe here to recap on the podcast, how did this amazing thing happen of a father-son writing this incredible piece of work together?

22. HMHoward Marks8:09

    Well, Nancy and I came to California on March the 6th of twenty twenty. Oaktree was scheduled to have a conference for its clients on the 11th. Although we canceled the conference, we did record it at the conference venue for live streaming. And so we were in LA, which of course, is Oaktree's headquarters. Andrew and his family came out on the 13th and moved in with us, and we stayed that way for, I think, until June. So we were incarcerated together.

23. DRDavid Rosenthal8:41

    [chuckles]

24. HMHoward Marks8:41

    And, well, first of all, we have fun talking about what we do and kidding each other, and we have a lot of differences. We're not the same person. Andrew's business is different from mine, and his general mindset is different. What he learned forty years after I learned what I learned initially, hopefully still learning, both of us.

25. DRDavid Rosenthal9:01

    [chuckles]

26. HMHoward Marks9:01

    So there were a lot of instances of differences, and that made for a very spirited period, and I hope a spirited memo.

27. BGBen Gilbert9:09

    And how many memos had you written before this first one that you co-wrote together?

28. HMHoward Marks9:14

    I've never actually counted them, but I think it's about a hundred and sixty.

29. BGBen Gilbert9:17

    Just trying to frame for listeners, Howard Marks' memo is a thing in the investment community, and it's crazy to see one come out with both your names on it. I mean, I remember first seeing that and thinking, "Oh, this is gonna be cool." And I'm curious if you had... even before we get into the content and the debate that you had in creating the tension with it, did you yourself have any reservation of, "Oh, my gosh, am I changing the nature of what the memo is by co-authoring it with Andrew?"

30. HMHoward Marks9:43

    No, because first of all, he didn't get near the keyboard. [laughing]

Episode duration: 1:34:51