Anu Hariharan – Lessons in Growth Investing

**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, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (1:39)
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** (2:05)
My guest this week is Anu Hariharan. Anu is a partner at Y-Combinator's Continuity Fund where she focuses on growth investing. Before YC, Anu was an investment partner at Andreesen Horowitz where she worked with the portfolio companies Airbnb, Instacart, Medium, and Udacity.
In this conversation, we discussed growth stage businesses and their business models, how her background as an engineer impacts her investing style, the most interesting international markets for tech startups, and how much opportunity there still is for investing in tech and e-commerce startups. This conversation left me thinking about how much digital transformation there still is in front of us and excited for the opportunities ahead. Please enjoy this great conversation with Anu Hariharan.
So Anu, thank you so much for doing this with me. I thought an interesting place to begin would be with your framework for how you think about growth stage businesses through their business model rather than through their industry and why that lens is appropriate for investing.

**Anu Hariharan** (3:01)
First of all, thank you so much for having me, Patrick. I'm a huge fan of the podcast, specifically on business models. I in fact gave a presentation in YC for the YC batch a couple of years ago. And we focused primarily on business models because when you break down tech startups, even by industry, certain business models really overlap. So let's start with what they are. So for example, if you're looking at marketplaces, whether you're a B2B marketplace or a consumer marketplace, at the highest level, you have gross merchandise volume, the dollar value of the transaction that's flowing through, you have a take-crate that translates to net revenue. Then you have a bunch of costs associated with servicing that revenue, especially all variable costs. And then you deduct that to get to contribution margin. And then you have a bit of margin. So the reason we focus on business models by function versus industry is that as tech is pervasive across industries and software is eating the world, you do see that whether it's a B2B or a B2C, if your business model is marketplace, your metrics are similar. If your business model is advertising, like LinkedIn has an advertising angle, but it's arguably on the B2B side, while Facebook is on the consumer side of advertising. But advertising as a business model, you monetize in a similar way.
When we broke it down, I think there are about nine to ten business models that really are the most common across tech businesses.
At growth stage investing, especially at the stage we invest in, be it the B or the C, we're sort of testing on, okay, if you have product market fit, which is say you have, if you're a consumer business, you hopefully have like a million plus users or at least a few hundred thousands.