Patrick O'Shaughnessy: great CEOs become capital allocators — Tony Xu is one of the greats emerging

to become much more native to the venture world as cost of capital comes down and the lines blur between private equity and venture capital. Uh, expect more of a premium placed on founders with allocator backgrounds. You've interviewed tons of founders, tons of private equity investors, tons of venture capitalists.

Do you think this is a trend that we'll see? Do you think it's already happening? Uh, how do you think that actually plays out? because you you talked to Tonyy's a software guy. He's learned hardware. Can't you just add these uh these skills on later when you need them? Is it really happening earlier? What's your take?

Well, the reason that Tony and I are in town Yeah. is for an award that he's winning later today called the Singleton Award. Okay. And Henry Singleton was a very probably the most famous capital allocator in history. Uh he was the person that Buffett would tell you, you know, he he learned from.

And the cool thing that Singleton did was for the first 15 or 20 years of of his conglomerates existence, it was called Teladine, he bought like 200 businesses buying them, M&A. And then the last 30 years, all he did effectively was buy back like 95% of his stock.

So he did the he he completely turned and did the opposite strategy. Yeah. And it was one of the best shareholder returns, you know, in in market history. And so Buffett studied this guy. Sure.

Um so Singleton has a foundation now that awards someone like Tony in the middle of their career and someone that it's Ken Lang and tonight. sure who started Home Depot at the end of their career that recognizes greatness in capital allocation.

I would argue that Tony is an unbelievable allocator of capital and that the very best CEOs have to be if they're going to win. He said they've been I like the sound effect when he went cash flow positive several years ago or whatever.

Um when you start generating cash, your job as a CEO switches to be a capital allocator and no one's trained in this, but the very best people like him learn how to do it quickly and on the fly. And that's what distinguishes the great CEOs over the fullness of time. It's not it's not just the products that are amazing.

Door Dash is an amazing product. It will keep getting better. But really distinguishes the great CEOs over decades is how good of a capital allocator are you?

Because that's ultimately ultimately you just become an investor after I talked to two SAS CEOs, both public companies, both trading in the you know singledigit billions. Uh one has been buying back stock very aggressively. He's worth like $4 billion now. obviously got diluted during the venture rounds.

How about Larry Ellison? Like so the the percentage of Oracle that he owns the Ellison versus Salesforce been selling buybacks. I mean the we when back in my quantities we found the single best investment of all time in terms of like dollars returned in in some alpha sense was Apple's buyback program of its own stock.

So that that was a better investment than anything else that you can find. And that's a capital allocation decision when you don't have something better to do with the cash and the market's undervaluing. I think Apple's returned over a trillion dollars to shareholders over the past like little over a decade. It's crazy.

And my my b I bet bottom dollar that that Tony when the opportunity is right and Door Dash stock is too cheap and he's got excess capital would make a decision like that. Um and so it's an amazing signal. I think when people are buying back tons of their stock, it's historically been like an incredible incredible sign.

So I you know I think we're seeing one of the greats emerge in Tony uh better and better. Well, thanks so much for coming on. I I I still your your question around what does the street misunderstand? It's like it looks to me like they misunderstand everything, but there's still like there's this almost meme of Yeah.

Uh you you order takeout. We extrapolate like the linear trend and he's g he's going to go exponential and all these things he's building. Yep. Um I think it's time for another Jeremy Gon on Invest like the best. I need an annual episode there. He's been he's been he's been posting quite a lot.

Yeah, he's getting back on the timeline a lot. He he kicked off his run on the timeline, but with a with a uh a strong uh statement about how bad being online is and then just posted, posted, posted. So, he's a great young capital allocator in the making himself. Yes, he is. He's a lot of fun.

Are you going to be uh I'd like to have uh any plans to get more like public SAS company CEOs on to talk about the state of AI? that we were covering last week. Uh you guys are doing a good job of it.

Well, yeah, we're we're trying to, but I think you uh I mean, honestly, I don't know if a public SAS uh company CEO stock is traded down 30% because they look like uh somebody that's not going to benefit from the SAS apocalypse. I don't know if they're going to want to come into your studio. Um invitation.

I'd love to host one. I think it's a fast I mean, this is the big question that everyone has.

even Mark I mean the the thing that's top of mind for me con Mark Mark Leonard Constellation Software basically was saying that he was felt like he was flipping bearish on vertical SAS and then yeah few days later uh you know unfortunately stepped down um it's a new wave of people right like I was talking to Barry Diller last week about this asking him you know he was the internet opportunist fantastic investor whether he'd be an AI opportunist and he basically said like no I I don't have I don't have it in this is too hard, it's different, leave it to other people to do.

And so I think there's a question of which of these SAS CEOs can make this transition. It's really hard to do. Yeah. When your business model is is very different, especially in the market. Yeah.

It Brett Brett Taylor from Sierra was saying it's easier to change your model technology than it is to change your business model, which is which is um it's not just a tech problem. Anyway, thank you so much for stopping by the TBPN Ultradome. This was honestly this was fantastic.

While he rolls off, let me tell you about Cognition. They're the makers of Devon, the AI software engineer. Crush your backlog with your personal AI engineering team.

Uh, I felt like I was dreaming because it felt like we're sitting here in the Ultradome, but sitting in on an episode of Invest Like the Best, which is a podcast that, you know, Invest Like the Best and Founders are the are the two shows that I've uh spent the most amount of time uh listening to the last, you know, five years.

So, yes. Well, in other news, uh the Meta Rayban displays, which we interviewed the Meta team about now two weeks ago. I'm losing track of time, but uh they're out. They're on sale today. Uh and you can go they're they're going to be doing demos. Yeah. Um I think they'll demo very well.

I'm still interested in what the churn rate will be and how many people will be wearing them at T plus 30, T plus 90, T plus 180. Um I think people will if you're if you're big in WhatsApp, if you have if you're in the meta ecosystem, you're gonna have the best time.

Uh but man that that iMessage feature some YC team has to figure out how to trick the Metarban displays into displaying uh iMes because uh having a having a notification screen having a smartwatch a smart device that doesn't have all of your messages is uh really really fighting with one hand behind tied behind you.

I think we should have Simon. Yes. Let's bring in Simon. Let's do it. Let's bring it on. Play some soundboard for me while I tell you about Figma. Think bigger, build faster. Figma designs helps design and