Alex Rampell - Investing in Operating Systems

**Patrick O'Shaughnessy** (0:00)
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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.
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**SPEAKER_2** (2:33)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:56)
My guest today is Alex Rampell, a general partner at Andreessen Horowitz. Alex has a long history in FinTech having co-founded six companies in his career, including Affirm and TrialPay.
During our conversation, we cover Alex's framework for positive selection in investing, why the best investments are often operating system or systems of record, and Alex's views on the future of FinTech. For those that have listened to our business breakdown on Visa with Alex, you know the intellectual horsepower that he brings to every conversation. And this conversation is no exception. Please enjoy my great conversation with Alex Rampell.
So Alex, where the hell to begin this conversation? There's going to be so many avenues we're going to go down. Maybe I'll start with a really simple concept I've seen you put out there. You call it the rules of investing. Rule number one is lean into positive selection and avoid adverse selection. Rule number two is just to see rule number one. So let's zoom in on rule number one. What do you mean by this big overarching idea?

**Alex Rampell** (3:51)
Well, I think it's particularly relevant for venture capital. Because if you think about the world as a two by two matrix, there's consensus and non-consensus. And then there's right and wrong. And if you're in the wrong part, if you're in the wrong column, you can never make money as an investor. By definition, this is the post facto outcome. It's like you were wrong. You can't actually do well. The company that you invested in went bankrupt or lost to their eight competitors or whatever the case may be.
But in public markets, you typically want to be non-consensus and right. Because obviously, you have to be right to actually make money. But if you're consensus right, then that's probably not that interesting. Whereas in venture capital, it turns out being consensus right is probably even better than being non-consensus right. Because the challenge with being non-consensus right, again, you have to be right. Because if you're wrong, it's not going to work. But the challenge with being non-consensus right is if you think, okay, this is a very, very interesting field. It's going to require $100 million of capital for this business to actually get to the promised land and get enough customers and get enough revenue and get enough scale.