This is a great interview around venture capital, writing and branding a VC firm. It’s with Morgan Housel. Morgan is a partner at The Collaborative Fund. He’s also a former columnist at The Motley Fool and The Wall Street Journal.
We get to hear how Morgan made the transition from a writer to the VC world. And what he’s interested in these days. Enjoy.
Here are some other thing we talk about:
-What makes an article great?
-How many articles did Morgan have to write per day at one point?
-What’s the brand of The Collaborative Fund?
-Why did Morgan become a VC?
-How does Morgan personally vet a team/company?
-What’s a great example of a company doing social good?
Dave Kruse: Hey everyone. Welcome to another episode of Flyover Labs and today we get to talk to Morgan Housel. Morgan is a partner at the Collaborative Fund and he is also a former columnist at The Motley Fool and The Wall Street Journal. And so as a writer he has won or been nominated for a number of awards, including he’s a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers. I wanted to say all that because I thought that it was a nice mouthful. But then so – and the Collaborative Fund is a venture capital firm that has invested in companies like Kickstarter, Lyft, Reddit, Codecademy and Impossible Foods. So I’m excited to hear more about what Morgan has learned over the years and what he’s doing now and what he’s excited about now. So Morgan, thanks for coming on the show today.
Morgan Housel: Thanks for having me. Happy to be here.
Dave Kruse: Definitely. And so can you – before you came to the Collaborative Fund, can you tell us a little bit about what you were doing before?
Morgan Housel: Yeah, so my background majoring financial writing, financial journalism and kind of the back story on that, it was never a plan that I was going to get – never had a plan to become a writer. It just kind of happened accidentally over the time. It kind of starts back in 2007. I was a senior in college at that time. Like a lot of finance, economic students, at the time I planned after school was investment banking. It was a really attractive industry and had a lot of things going for it, particularly in that era, kind of the 2006, 2007 era when investment banking and finance in Wall Street was really kind of at their high in terms of prestige and power and the pay. So I really wanted to get into investment banking. I got an investment banking internship the summer of my senior year and quickly just realized that the culture didn’t fit with how I liked to work and so really intense, in the moment kind of macho culture, especially back then which changed a little bit now, but especially back then it was a pretty intense culture. So I did that for about six months before I left and then I jumped out of jobs in private equity, which I really liked, I really enjoyed private equity. It was really getting the hands dirty in businesses, both the business side and the finance investment side, we had both elements. Now you would have enjoyed it, and this was summer of 2007 which was when private market SG then blew up, which was you know private equity fund where you had to borrow often money to keep the businesses going. It was a pretty precarious place to be in. So I kind of saw the writing on the wall and where that was going when things got – started getting really heavy. So I started looking for something else to do in finance and then this again was moving into 2008 when things started getting real interesting in finance. At the time I had a friend who was a writer for The Motley Fool and he said ‘hey, you should see if they will take you in. You can just write about investments.’ I had been really interested and active in personal investment, personal finance for a long time. I had never – I had no interest or background in writing back, but hey maybe I could write some articles for a couple of months before I find a new private equity job. And then so I joined and started doing it and really just fell in love with the process of writing, kind of the thought process and just being able to lay your ideas down on paper is a really good to clarify how you think about a topic. So I planned on doing it for a couple of months before I found another job and ended up staying at The Motley Fool for almost 10 years and so that was – so in the middle there I was a columnist for The Wall-Street Journal for seven years, well the Saturday investment column. So my background was really in financial writing and journalism and kind of what I always tried to do was take complicated financial topics and just slow them down into something that will get easy to understand without losing any of the meaning and I feel like a lot of forms of writing, but particularly I think finance goes out of the way to complicate a topic and if it’s not even known, it’s not even that the writer is doing that on purpose, you’ll think there’s this innate idea that when you make something sound complicated you are adding more value to the writing. And I think from the perspective of the reader, it’s never the case, but from the perspective of the reader, the best writing that you just love and cling to and want to keep reading and just pass on to your friends are the things that you explain something complicated in as few words as possible, as few paragraphs as possible; just neat, clean, simple, to the point. So that’s always what I tried to with writing, taking something out of – like finance and investing that was intimidating for a lot of people and that not the same individual investors, but professional investors that kind of have a hard time wrapping their heads around some of the bigger topics or they have this idea go around the tip of their tongue, but they never really articulated it. So I just try to take those points and just slow them down to something that was a little more digestible for readers.
Dave Kruse: And how do you kind of learn to do that? Like how good were you at that when you first started at The Motley Fool?
Morgan Housel: Terrible.
Dave Kruse: Terrible. So why did they…
Morgan Housel: The process of it.
Dave Kruse: Oh! Go ahead, Go ahead.
Morgan Housel: I would say the process of it is (a) myself, I’m a pretty active and voracious reader and when you are a leader your basically a customer of the writing product and through that process you see what kind of writing you like and what kind you don’t like. So all day when I’m reading books or articles or magazine articles or what not, I come across stuff where I would have said, ‘Gosh! That paragraph was insufferable.’ Like I didn’t understand a single word of that’ or you read an article and you say ‘Wow! That was so powerful. This was like one of the best articles I’ve read in a while.’ And then I think as a writer it just became incumbent to start analyzing and saying what was it about that article that made it so easy to understand or what was it about that article that I just didn’t get, just turned me off and time and time again I think I just kept coming down on this point that the articles that I loved were the ones that just had a simple point, made a point quickly and clearly and then got out of the readers way, without adding any more slug to the sides. Just what’s your point, tell me that point and then get out of my way. So that’s always what I tried to do with writing. And it’s different than just writing short articles. I think that’s often times how its interpreted it’s just like, okay if you could try to write something clean and simply text that’s short, it doesn’t necessarily have to be short. It’s just using as few words as possible that you need to make your point and that’s always good with something that I tried to read when I’m writing. It’s not easy even after 10 years and 3,500 articles, it’s not easy at all to do that. So it’s something that – you know I really don’t think it’s possible to master writing or even come close to it. It’s an art that’s a sort of daily guide and even if you do it every day you’ll still be learning new things and still be trying to get better and better as you go. So that’s kind of the process of how I like to think about writing and how I’ve kind of viewed it in a long way.
Dave Kruse: And I’m curious, because you know to instill something simply often you have to have a pretty good grasp of what’s going on. I mean do you find that articles that you read with where it’s kind of confusing or not very inspiring, do you think sometimes the writer just doesn’t have a very good grasp of what’s going on or is it more just their writing is terrible?
Morgan Housel: No, I would actually say most of the time its neither of those. I would say it’s not that the writer doesn’t have a grasp and it’s not that they don’t know what’s going on. I think most of the time it’s that, the writer doesn’t really have anything notable to say and they take a point that is not that interesting and then they try to make it interesting, they add on a lot of fluff on top of it. We’ve seen this a lot, particularly with daily stock market news, what is the value today? What did the mad max do this morning? That is not – the information that’s in there doesn’t really have any meaning in it or insight or take away that you as a leader are going to say Wow! That’s really important. I should do something with this that changes how I view the world. There’s just nothing in those daily market updates that’s really going to change how you think about the topic of investing and then but of course as a writer, as a journalist writer sometimes you can’t say that. So what happens is they end up reading these articles, just add on a bunch of fluff where they interview you know mutual fund managers who adds his or her take to it and they add on what they guided last week and you know some historic milestones. It’s just like adding in a bunch of words to try to make it sound coherent, so that the article tries to make a point, but there’s really not much point there. I guess the bigger point I’m trying to make in that is that the number of things that need to be within is a tiny incontesimal fraction of these numbers when they are written online and that’s of course grown by orders of magnitude over the last 10 or 20 years with blogs and twitter and digital publishing where the cost of admission is now so low its basically zero. Anyone can really go on and start writing and in many ways, I want to make it clear, that is a great thing, because its bringing in voices that we never had. But the downside of it is that it was increasing the amount of noise and the amount of fluff by many orders of magnitude compared to what financial media was 20 years ago, when the cost of admission so the speak was much higher and that if you wanted it to get published in a magazine or even get peoples’ attention, you really had to put out something that was more thoughtful and had a more direct point and was more – it was pretty flushed out versus a lot of stuff that’s out there today.
Dave Kruse: Yeah, you come across a lot of – it seems like they are almost copycat articles too. Like you see one topic and then you see like a bunch of like – kind of like a little different twist on it and yeah, that’s it.
Morgan Housel: Yeah, and you know I criticize writers who have the quota where they have to put out one or two articles per day, when even if you are the most astute and voracious thinker, and you are an expert in your topic you’re going to have a good insight once or twice a day, I mean no one has that; nobody can do that. But if you are a writer, if you are a writer and your editor say I’m going to need your publishing article everyday at 2:00 p.m. then most of the time you’re going to be really stretching for ideas and filling in kind of mediocre ideas that go out in a flash and once in a while you will get an idea that’s great, but a lot of – most of the kind of the stepping stones to that great place are going to be a lot of local qualifications out there and that leads into a really important point; those lower quality pieces do not reflect a lack of intelligence or a lack of skill from the offers by and large. A lot of it is the incentives of the industry, especially if you’re a professional writer like I said, if your forced to write every day, that’s what you are forced to do to earn your paycheck versus a lot of these people if they didn’t have that incentive and they needed to say hey, whenever you have a great idea, post it to your blog and whether that’s once a month or twice a year, just whenever its good, post it, then I think the quality of the output of a lot of those writers will go through the roof. And really interesting, like a fascinating part of this is a lot of the best content and the most thought provoking, the most meaningful content out there today, it’s not from the media outlets that have deep pockets, mostly journal or at Bloomberg or writers that have tons of resources that can pay the best people and invest in the best graphic designs, it’s not necessarily those outlets. A lot of the most meaningful, thought provoking content comes from non-profit blogs. Just someone out there who has a blog, maybe they are a portfolio manager or an economist or just a – maybe the product engineer can have a blog and a couple of times a year they get a great idea and they put it on paper and they publish it. That I think overwhelmingly is where some of the most thoughtful content comes from. So it’s kind of flipped up this idea that if you know in media if you have the most resources, the most money, you’re going to put out the best content. I think it’s just really not the case in content and specifically the reason is – this is going back to where we started this conversation, the number of great ideas out there you know are few and far between, but in order to make a media company run these days you need to kind of play the volume game, publishing, publishing, publishing all day long.
Dave Kruse: And a couple of more questions on the writing there before we get into your VC world. So how many articles did you have to write a week or be responsible for?
Morgan Housel: Yes, so there was a period where I was that person who was writing one or two articles per day, and it’s tough. So when I go back to it and the story that I just told you, I was basically just starting my life say five or six years ago and you know if I published you know 40 or 50 articles per month, I might be proud of one or two of them, and that’s true for a lot of the writers that I speak with now. Even if they are writing one or two articles per month, so let’s say 20 or 30 per year, they still might only really be proud of one or two of them per year. So the number of articles at any given year that you know you’re really proud of is usually going to be a small fraction of what you had published. So that was my experience back then. And then it tapered off and now I write about once a week or sometimes less than that, so its tapered off considerably. So now I feel like I do have a little more leeway to really think a topic through and want to publish it and once I have kind of checked all the boxes and thought things through and slept on it for a night and talked to other people and what not. So I have more flexibility now than I have in years past.
Dave Kruse: Okay. And how did you find ideas for articles and you know I’m especially interested in kind of your process. I’m guess you got a lot better at the research process for like taking information in and then paraphrasing it or putting your own words you know quickly where you had to when you are writing that much, which is kind of a skill that we all want.
Morgan Housel: Yeah, I think there’s two sides to this. One is that – I’ll start with the downside. It has actually become substantially harder to come up with topics than it was for me five or six years ago and its one of the few things where I think the more experience you have, the harder the job becomes and the reason why I’ll tell you is because so much of the low hanging fruit for articles I picked five or ten years ago and now for me to come up with something new to say, that I haven’t said before, to even give an example that I haven’t used before, even a story line I haven’t used before, it gets harder and harder as the years go by. Whereas like people like you know five or seven years ago there were all these ideas, all that hadn’t been thought of and it were obvious to other people that I hadn’t adopted it yet. So for me it was all new and I had to come up with new ideas, where now it’s like – I feel like it’s a struggle for me to keep coming up with new ideas and kind of how I’ve gotten around that and this is something that I’ve learned from other writers is we don’t keep coming up with new ideas, nobody can do that in perpetuity, because there’s aren’t enough good ideas. What you need are nearly five or ten big like grand points, big massive ideas that you believe in and then for your articles you have to keep coming up with more examples and new ways to kind of reinforce those points. And Jason Zweig at The Wall Street Journal, famous investing writer, he said his job as an investing writer is to write the same thing 50 times per year without using – making readers to realize that he’s repeating himself.
Dave Kruse: That’s good, that’s interesting. Wow!
Morgan Housel: So that’s, so that barrier becomes the skill of a writer, is learning how to say the same thing or reference the same ideas in ways that are so new and like new examples that your readers don’t realize that your repeating yourself and that becomes the challenge. In terms of like where those ideas come from and what not, that I would say in terms of writing examples and story lines, that is something that probably does get easier over time and I think you just start training yourself to in the process of your reading when your reading books or reading newspapers and magazines, just always looking for ideas where you read an example in a book and it usually doesn’t have anything to do with investing in a business, what your reading in a book. I like World War II history. As much as your reading something and you come across a line or a story or an example and you just have to say like how could this tie into a business or an investment story and I think the more you need, your just always looking for those examples. The more you start seeing them in the non-investing industries, you see them in politics and biology and math and physics. So I think the more you just expose yourself to the main different topics, you start seeing certain behavioral flaws and advices and stories around incentives and long term thinking in other industries that you can use it as an example to tie it back into investing. So officially this is the long way of saying where these ideas come from. Its mainly just I think I’m immersing myself in the reading, and not just reading, but the reading of a variety of different topics to try to just take out certain examples and themes and stories and then we try and tie it back into your writing and for business and other things.
Dave Kruse: Okay, that’s good advice and you mentioned something in there about – you might write about five big ideas over and over again. Do you have – and then we’ll talk about the Collaborative Fund, but – and this might be a part of it actually. Do you have any themes like that right now you’re writing about, one or two big ideas that you kind of go back to over and over again?
Morgan Housel: I don’t know – so what I – the one thing I would say is that they haven’t – there is not a list of them so to speak. It’s not that I have you know a list of five ideas. For me it’s just kind of like informal things and themes about how I think about investing whether that is long term thinking or in the branding of a company or trends around information, dissemination. So I think some of the themes that I have been writing about lately, you know one is this idea that access to information is proliferating quickly in a way that has made it harder and harder for companies to hide behind that business practices and I think there’s two parts to this. One is certainly the internet has open doors and has brought forth access to information where it has never existed before. But that’s obvious and it has been ongoing for 20 years. I think the bigger point is that millennials who are now up and coming to the upper ranks, business manager and some of them work their way into politics and coming into money for when they are starting to be the allocators of capital, have – because they grew up working the internet and open access to information and the expectation that pertinent information would be disclosed in front of them. Since that generation is now moving into positions of power, the expectation that all information needs to be out in front of you is much greater today than it was even five or ten years ago. So it just makes it harder for businesses to hide behind and know where the product is manufactured or what ingredients their product is, how they treat their employees, how they treat their community, how they pay their CEO, things that 10 or 20 years ago they could get away with because people – the information you know wasn’t out there or if it was, it just wasn’t easily accessible and the generation of managers and investors that didn’t put access to that information as one of their priorities. So that’s a big shift that’s changing a lot of how I think companies and brands think about their deployment and their marketing and their customer acquisition and kind of using those values and their openness and their trustworthiness as a competitive advantage. So that’s again the access to one theme that I’ve been touching on quite a bit lately.
Dave Kruse: Yeah, that’s a whole podcast right there. That’s a great theme and yeah, there’s a lot of layers to that. That’s interesting.
Morgan Housel: Yeah, no it’s a really complicated topic. Actually that was a two minute summary, but I think it’s a topic that has its roots you know generations ago, just in terms of how people think about access to information and I think kind of the root of it is how generations acquire trust in other people, in other organizations and in one way to put this and then maybe we can move on to another topic. But baby boomers I think by and large acquire trust through the handshake. Look someone in the eye, shake their hands. You know financial advisors, you go into their office and you shake their hand. It is a face to face interaction and that’s how trust was acquired. Millennials I think were the first generation to acquire trust digitally. So it’s not that millennials had more information online than baby boomers, but millennials were much more likely to use the information that they have online to build a sense of trust. So no problem whatsoever putting your personal life on Facebook or managing their investments for betterment, just acquiring trust digitally was that theme. Generally the really up and coming generation who are in their late teens right now, I think are the first generation that acquired trust not only digitally, but specifically through social engagement. So it’s by and large based off of what your peers are doing on Snapchat or Twitter or Facebook. So it’s a whole new kind of system of how trust is acquired and there are a few companies, not many that have caught onto that and are basing a lot of their branding and customer acquisition if they are going after generally; certainly not through Facebook face interaction and not even digitally, but specifically through peer social networks. So that’s just another way to kind of sum up that broad topic of where we think kind of information and the acquisition of trust is going in the future.
Dave Kruse: And I’d like to – I’m curious if that helps drive your investment kind of thesis or focus, but before we do maybe we should tell people about the Collaborative Fund. If you could just give like a brief overview on the size of it and I guess I mentioned somewhere the investments Collaborative Fund is made, but yeah…
Morgan Housel: Yeah, yeah. We’re an early stage venture capital company started in 2010, currently on our third fund and kind of – and between those two funds, about $125 million under managing that and we’ve made more than 100 investments in all of these big companies. And kind of the broad theme of how we invest is investing I think in a session for more profiting sports goods. So companies that are moving the world forward as opposed to exploiting a hole that they found in the economy and kind of the big idea is that companies that do the best social good over the next generation, are going to be the companies that attract the most attention, the best employees. They will attract the best operating partners, attract the right customers, attract the right long term thinking customers and using those values as a competitive edge and that I think ties back to what we were just talking to in terms of access to information and how trust is acquired, that it used to be for many generations that companies could kind of hide behind how they treated their employees, how they treated their customers, where their products came from, how they were made and we can’t do that anymore. Companies that will have that competitive advantage over the next generation are going to be companies that use their values as a weapon to kind of compete against the companies that aren’t doing that. So we’re really interested in even companies that have a social mission to move the world forward. That’s not even in addition to their profit motive but is a functioning part of their business model. So it’s not even that by investing in companies that are doing good for the world we are taking a gain on returns. We view it as these companies are likely going to be the companies that create the most value for their investors over the next generation, specifically because they are the most sustainable in terms of kind of not getting called out by people for bad business practices and because they will attract the most talent and the best and most loyal and committed customers during the next generation.
Dave Kruse: Was that the investment thesis right from the beginning in 2010 or has that kind of transformed over the years?
Morgan Housel: No, that’s always been the thesis from day one, yeah, yeah. That’s always been the core and I think that will always be our core. It’s not to say that we won’t adapt and adjust to new industries, new trends, where things are going, kind of thinking that will always be the base of the pyramid of how we think about growth in the economy over the next, not quarter or year, but you know five, ten, 20, 30 years over the next generation or two.
Dave Kruse: Got you, okay. And where are you guys located, for the audience?
Morgan Housel: Yeah, so our main office is in New York. We also have a partner in San Francisco.
Dave Kruse: Got you, okay. And so for you personally, you know why the VC world? Now there have been some pretty well known fans we see that were journalists before becoming VC’s, but what made you take the plunge and how did that all happen?
Morgan Housel: Yeah, so I’ll give you two answers. One is a firm belief. So my personal answer is a firm belief that if you can align your personal values with the values of your employer, then the object is that you would give your best work, your most meaningful work that you are truly passionate about to go through the roof. So when I met Craig Shapiro, who is the Managing Partner of the Collaborative Fund, actually years before I joined, it was one of those meetings where right from the start you kind of start saying to soften your head, like yeah this is the company I want to work for, because it might sound to you but it doesn’t feel like work when you’re really chasing something that you truly believe in. So that’s my, that’s one personal reason for joining. The second personal reason was kind of like I always have and still do and always will enjoy the process of writing about investing, but there’s something about being an outsider. There’s a V that you don’t see and I think there’s a unique need that you can see an outsider, looking again as a writer, kind of who I’d edit out from aside. I think there is a lot of benefit to that because you’re not kind of swayed by some of the biases of being an insider investor or the company operator. And I got to a point in my career where writing about it in the outside was not even going to be as meaningful towards – I was missing a lot, that being on the inside, kind of getting your hands dirty so to speak who was going to show me. And to take it back to where we started, my background, kind of my early career was investment banking, private equity and its always something that I wanted to get back into. The writing portion was never part of the strategy. It was just something that happened. So I always kind of longed to get back into it, and when I found the right company and the right team, the right opportunity it was fun to join. The other reason I would say from the Collaborative Fund’s perspective, why I spent quite a bit of my time doing content, I would say there is this neat irony that if you speak to a lot of investors that can talk at length about the value and importance of branding to the companies that they invest in. They can say oh! Look at Coca Cola. They build such a great brand and marketing is so spot on. The brand is so important, so important to set yourself apart from the competitor and the brand and they can go on and on, and then for their own company, their own investment firm, they got no product or whatsoever. They name the firm after themselves. You know it’s called Joan’s Capital Management and have their website that was built in 1994, but they don’t even think about it anymore. There is no thought whatsoever into their own brand and I think that irony has always been interesting and its getting more interesting over the last 15 or 20 years after there has been a proliferation in investing companies and now it gets harder and harder to set yourself apart and you’re going to know when money is fungible, how do you set yourself apart from the other, literally thousands of hedge funds and private equity funds and venture funds out there. You know there are so many funds out there and one of those have really big pockets and you write big cheques, but if you are a world class entrepreneur who has your pick of different funds, how do you sell yourself a part. And I think branding a venture fund as you try to do, the Collaborative Fund is how we go back to the values and kind of the investing philosophy that we have of how we invest. Those values and that philosophy don’t matter unless the world knows about them. Unless we are actively going out to tell people this is how we view the world and this is how we see the biggest opportunities and this is how we are going to try to exploit them. So by reading the content and whether it is articles or new research reports or speaking at conference, that is all the way of just going out and telling people what we are doing and trying to build our brand to set ourselves apart from the little thousands of other private investment funds that are out there and our bill with that is that brand over time will itself kind of become a beating for people, for entrepreneurs and other investors who align with that philosophy so that we start attracting the right entrepreneurs, the right investors, the right operating partners and the brand itself kind of becomes a symbol for how we invest. So that’s the broader reason of why we institute and I am putting a lot of effort into content as a venture capital firm.
Dave Kruse: That’s interesting, the branding perspective. I mean there’s lot of – there’s you know now there’s quite a VCs that blog, but if you think about – if I think about the most elaborate VC firms are not really branded. You know you got Union Square Ventures kind of known for their networks, but a lot of other VC firms, they are just – they are not really known for anything besides maybe having deep pockets or maybe immersing early on.
Morgan Housel: Right. And you know there are some firms that can certainly get away with that because their long term track record is such, the brand speaks for itself. Sequoia or what not, they have built a long term brand based surely off of results. But if you are not a 40 year old fund that has you know 40 years you know of holding a track record, then its incumbent to kind of build that brand in a different way.
Dave Kruse: And so what’s your role at the Collaborative Fund. I mean I assumed you probably do a lot of content, but what else do you do kind of on a day to day or what are your priorities?
Morgan Housel: Yeah, so it’s probably about half the time content and then half the time other stuff.
Dave Kruse: Okay.
Morgan Housel: You know other stuff is a combination of working on VC deals that we’re working on. Now we’re a pretty small group. There’s only seven of us and we have to – that’s a small group. Kind of everyone needs to help out with everything. It’s a combination of doing diligence and checking in with entrepreneurs or existing portfolio of companies or speaking to RLPs. But then also something that we’re coming in the early stages of thinking about is whether our vision and our values and investing kind of thesis that we talked about earlier can extend the other asset classes, the growth equity, the private equity, what’s really out in the area. You got early stages of looking at kind of the future in the Collaborative Fund as we look out five or 10 years plus for me, I’ve spent quite a bit of my time on these basis.
Dave Kruse: Interesting. So taking kind of the social good aspect and moving it into other verticals and investment.
Morgan Housel: Exactly.
Dave Kruse: Oh! That’s cool. I didn’t know, okay. Interesting! Yeah I could see where that could have a big impact in a lot of industries, okay.
Morgan Housel: Yeah, yeah, and you know back to like branding and blogging that is something that a lot of venture capital firms have figured out. There are a quite a few venture firms like you said that blogging and podcasts what not. We have not I think seen that bleed in to private equity or growth equity or public markets. So that’s I think where we you know – that’s part of this equitation that we see as well, that we’ve seen the success of venture funds that have used branding and values as a competitive advantage within the investment market place, but not so much further down the capital stack.
Dave Kruse: Interesting. Yeah, you’re right. I can’t think of any private equity firm that really might be one.
Morgan Housel: Yeah, not many.
Dave Kruse: Not many are out there. And so you know what – so how long have you been in VC for now working with the Collaborative Fund?
Morgan Housel: About a year.
Dave Kruse: About a year, okay. And during that time, is there anything that’s surprised you? Now you’ve written a ton about investments, you know you used to work at private equity. Is there anything in the past year that kind of surprised you or that you learned that surprised you or anything like that?
Morgan Housel: Yeah, you know I would say this is not necessarily a surprise, but something that has been interesting to see and then really cool to see. It’s kind of in my own world which was kind of – which was public investing and asset allocations and ETS or not, there was – and then there is big attempts among practitioners to try to reduce risk. In and out the whole industry more or less is ‘here is the market risk. How can we reduce it? Here are certain portfolio allocations, how can we reduce risk?’ One thing that is refreshing in venture I think is the two handed embrace of risk and rather than saying what can we do to reduce it and what are some ways that we can dampen the volatility in the portfolio, which is an embrace of risk and look, what we are doing is by its very nature and well known a risky endeavor and I think there is – it’s much more eyes wide open I would say to the concept of risk than most public investors are and not in the reckless way, but in a realistic way that I think a lot of public investors through themselves, thinking that they are going to reduce the risk when they haven’t. But I think most venture funds are extremely aware of the amount of risk they have taken. I think just the cognizance of the amount of risk that investors are taking is much more realistic in venturing than the days in other parts and investing and all that I think.
Dave Kruse: Interesting. And what’s one company your working with that you think is – your really excited about has nailed it and you probably don’t like to pick favorites and you don’t have to if you don’t want to, but just curious since you’re talking a lot about the social good and just curious if there is one company out there that is a shining example?
Morgan Housel: Yeah, I mean the company that is the most widely known from my portfolio is Lyft and I think what’s interesting about Lyft and I think what’s interesting about Lyft, you know a year ago even six months ago I think people would say and rightly say, he has just copied Uber. They took the idea even down to their app and they copied. I think that’s what moved it to get. I think there is a growing recognition in the past couple of months, even say in the last couple of weeks. But the one thing that Lyft did distinctly different from Uber was its brand and its corporate philosophy and kind of its treatment of drivers. Just its corporate in-house was a little bit softer and nicer than Uber and was seen and when and who knows it might be a temporary trend. I’m not bearish on Uber if it makes any sense, but we definitely see some Uber backlash based around its culture and more of the migration for Lyft, which is effectively an identical product that has a more branding and like a trustworthy brand that people have realized that Uber has. So that is an example of I think what we’re trying to go after, are companies that are on kind of the cutting edge of technology on where the world is going, but has their competitive edge rather than better technology or even faster engineers. Their competitive edge is the trustworthiness and its friendliness and accessibility of the brand. That will be one example.
Dave Kruse: That’s a good one. I think in the last three months, on multiple times I’ve said to myself Lyft is really like you know very socially conscious. Like they really pressed there at some media statement or they do something and I’m like Oh man! I know they are doing it partially just because Uber is the exact – it seems like the exact opposite, but at the same time it makes you feel like they are familiar about Lyft versus Uber and you are like what button should I press and yeah, it’s nice.
Morgan Housel: Yeah, and you know I think there’s certainly been times both in the past and probably likely going forward that Uber will be many more forward thinking of faster and more aggressive in its growth. But I think if you think really long term, not about the next quarter or the next year, but after the next 10 years, what is going to drive the most consumer value? Is it getting some new function out next month or is building consumer trust and brand that consumers embrace as something that they can empathize with and they really see eye to eye with. If we think about the long term, the next 10 years where we would put more cards, it’s in the latter than the former. More cards being kind of the brand and the social mission than the engineering moves fast and bright stuff idea.
Dave Kruse: Makes sense, all right. So we’re pretty much out of time, but I got a couple more questions. One is, I was curious, you know what’s your personal process to make, to see if a team or company has what it takes you know to invest in and if they are going to make something happen. Like how do you personally kind of go through that process?
Morgan Housel: Yeah, its two things. One is a little objective and one is a little softer. The first is the founders bat; what have they done in the past? How much per million dedication did they put in the past? Really important, how did they deal with challenges and pick-ups and road blocks in the past, that’s really important. So not just how successful have they been in the past, but what did they do when they came across failure in the past? How did they deal with that? I think that’s going to be pretty indicative of their ability to handle misfortune in the future. So just track record resume so to speak, it’s a big one. The other that is much softer and more subjective and harder to quantify is just kind of the feeling that you get when you meet a Founder and it’s hard to describe or put into words, but I think most people can understand the feeling if you’re in a VC. There’s a feeling that you get when you meet someone special and in terms of their trustworthiness and their dedication, whether they are faking their dedication to this or whether they are truly putting their life into it. You can tell pretty quick whether someone is trying to pull the wool over your eyes versus if someone is genuinely as thrilled and excited and devoted to what they are doing. So those are the two things and you know that’s actually the beginning and then after that once the investment is made and you are working with the company its figuring out where you as an investor can add value and where you need to step out of the way and let them operate on their own. So there’s a bit in it for everyone and there is no one size fits all, but those two things would be the biggest ones that we are looking for in terms of trying to size a Founders opportunity.
Dave Kruse: Do you help companies kind of from the content perspective sometimes?
Morgan Housel: Yeah, you know there’s a company that we looked into. It’s a balance that we have to think about in terms of we don’t want to come across as their advertising arm, because that’s not at all what we are trying to do. But if there are ways that we can help them tell a story, whether it’s on our side or theirs, it’s a series of the companies and then that fits into the whole broader idea of what we’re trying to do with something.
Dave Kruse: Got you, all right. We’re almost done here, but on a personal level I’m always curious, how do you get away from work. Like what do you do outside of work? I’m sure you work a lot, but when you’re not working, what do you …
Morgan Housel: I would say and I have heard this from a lot of writers, but it definitely doesn’t except me is that what I like to do in my free time is read about stuff, read about tons of different topics you know outside of investment. I almost never read about investment. I read about history and biographies and what not and I think the irony is that that’s what I do on my downtime, but that’s also where I get my other cool ideas. So its filling and enjoying and you know I don’t consider it work at all, but it’s also constantly when I’m doing that I’m highlighting passages and writing down my idea what I get from that reading that drives the writing that I do for work afterwards.
Dave Kruse: I feel like I’m Tim Ferriss here, but is there a book that you’ve liked and its especially influenced you in the past or just currently a book that it’s like Wow! This is – because it’s hard to find a book where you actually finish the book and your impressed by the book all the way through, so I’m always curious to find this.
Morgan Housel: No, I’m reading a book right now and I’m not quite done with it. I’m about 90% of the way through but I’m definitely feeling that I am comfortable recommending it. The book is called Boyd, B-O-Y-D. It’s a story about a fighter pilot in the 1950’s and 60’s named John Boyd who completely transformed how the U.S. Air force thinks about combat flying, air to air passage and just the way that he figured out these tactics, that was just – that was way kind of low ranking air force officer and has completely rethought the entire system of air to air combat. So just telling that story of how he fought through it as a total renegade. He didn’t take orders from anyone, which I think all of the while when we’re in and we are very – here we have court marshals about two dozen on them. The book is just incredibly well written and it’s a fascinating example of the difference I think that one person, one low ranking, more or less lay person can make in a very complicated regimented industry. So there are a lot of people I send the book that I think I will take a book to many different businesses.
Dave Kruse: Interesting. Boyd, B-O-Y-D right?
Morgan Housel: Yes, that’s right.
Dave Kruse: All right, I might get it. Excellent! Well, that was good. So I am always looking for a recommendation. So well I think that just about does it. So Morgan, I really appreciate hearing about your writing experience and now your VC experience and yeah, it’s fascinating. So you’ve done a lot and I appreciate your time and telling us about it.
Morgan Housel: Thanks Dave. Thanks for having me on. I appreciate it.
Dave Kruse: Definitely. And thanks everyone for listening to another episode of Flyover Labs. As always I definitely appreciate it and we’ll see you next time. Bye Morgan. Bye everyone.