Andrew Sugrue - Investing in Paradigm Shifts

**Patrick O'Shaughnessy** (0:00)
This episode of Invest Like the Best is sponsored by Canalyst. Canalyst is the leading destination for public company data and analysis. I had heard of Canalyst over the past few years and became more interested after meeting the founder and CEO last year to pick his brain about SaaS businesses. Founded by a former buy-side analyst who encountered friction in sourcing, building and updating models, Canalyst is now used by over 300 institutions, including the largest money managers in North America and by a number of guests on the show.
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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. Invest Like the Best is part of the Colossus family of podcasts and you can access all our podcasts including edited transcripts, show notes and other resources to keep learning at joincolossus.com.

**SPEAKER_3** (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** (2:58)
My guest today is Andrew Sugrue, co-founder and partner at Avenir Growth Capital. Avenir is a growth equity firm focused on backing category-defining businesses.
In our conversation, we cover Andrew's investing career, what he learned from Julian Robertson, how counter-positioning could drive unique distribution, and the difference between good and bad growth. We also spend time examining the business model of two of Andrew's portfolio companies, SavageXFenty and Latch. There are so many great lessons for investors and operators to take away from Andrew. Please enjoy our conversation.
So Andrew, you sit in a very interesting position, given your career background and how you got to what you're doing now. Maybe you can begin by giving us that thumbnail sketch, the unique couple pit stops you had before showing up at your current firm and describe your current firm, and then we're going to go into all details of your investment process.

**Andrew Sugrue** (3:49)
Great. Well, thanks again for having me on the show.
At Catterton, which is where I really cut my teeth in investing my first job in the investing world, I really learned the concept of keeping the consumer as your North Star to steal a line from Rich Barton.
The focus of the best companies at solving a unique problem that the customers have and being relentless in improving that experience to that end customer, looking for very large end markets that are being disrupted by some new technology, some changing consumer preference or evolving regulatory environment, and leaning in towards the disruptors who are taking advantage of that. Back in the day at Catterton, we were looking at new models like Peloton, new marketplaces like Vroom that were taking on very large end markets and saying, hey, we can create a better user experience and that will be a great business. I think at Shumway Capital, what I really learned was this relentless focus on business quality. Chris was interested in where the world was going, but he really wanted to make sure that winning was worth it. Not only was the market size large, but that category leading business, that these businesses had a sustainable advantage, a compounding advantage over time. Whether they be powered by network effects or some scale pricing advantage or intellectual property, these initially attractive returns could be sustained over time. I think working for someone like him who had this purview of having invested for multiple decades, there's a healthy respect for the efficiency of capital markets that initially attractive returns could quickly get competed away. And so many of the kind of e-commerce models, others, where you find this initial product market fit, where there's a consumer demand for a product and high internal returns on invested capital, whether that be through Facebook marketing or Google AdWords, those get competed away quite quickly when you have contract manufacturers who can stand up the same competing product for your competitors, where you have branding similar to others in a very efficient marketplace, which is Facebook and Google, where those returns quickly get competed away. So unless you had some kind of sustainable advantage over time, these businesses weren't really investable for us.