July 23, 2024 • 1hr 42min

Jeremy Giffon - Special Situations in Private Markets - [Invest Like the Best, Replay]

Invest Like the Best with Patrick O'Shaughnessy

Patrick O'Shaughnessy interviews Jeremy Giffon, who was the first employee and general partner at private equity firm/holding company Tiny, which buys and holds internet and technology-focused businesses. Prior to that, he was on the founding team of MediaCore, which was acquired by Workday. The conversation focuses on esoteric opportunities that exist in private markets and how misaligned incentives and coordination problems create special situations for investors like Jeremy. They also discuss a wide range of other topics including compensation advice, meeting your heroes, and Jeremy's views on various aspects of business and investing.

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Key Takeaways

The "perfect business" according to Jeremy is getting paid a tremendous amount of money for your words and advice, like old school merchant banks and M&A boutiques. These require no capital, are cash flow accretive, and allow building equity by investing in deals you advise on.
The "perfect investment" for Jeremy is one where you don't need to talk to anyone or know details about the business - you can just understand the circumstances, incentives of interested parties, and why the opportunity exists. Many are coordination problems or "log jams" that can be unjammed.
There are currently many opportunities with venture-backed startups that have raised too much money. Founders realize they'll never make money personally due to the preference stack, but VCs have no incentive to shut them down. This creates opportunities to broker deals between founders and VCs.
Jeremy looks for investments where he has a very good explanation for why it came to him and why he can uniquely solve the problem. If it lands on your doorstep, you're either the luckiest person or everyone else has passed.
The biggest mistake in buying companies is ignoring your gut feeling about the seller in the first few minutes of meeting them. You need to understand if you can trust them and why they are selling.
Having an audience/following is incredibly underpriced. It provides serendipitous opportunities and access you can't get elsewhere. The monetization is still unsophisticated but will evolve.
Jeremy believes venture capital is overpriced because there's no evidence the number of exceptional companies created per year is increasing, yet far more capital is chasing those deals.
He's skeptical of the current trend of profitable holding companies, viewing it as strange to index your own abilities by accruing mediocre assets.
Jeremy is critical of the "cult of learning" and over-optimizing routines/performance. He views much of it as procrastination and a lack of conviction about what you actually want to do.
He advocates for taking sabbaticals and time off to truly figure out what energizes you. Most people don't spend enough time deliberately thinking about how they want to spend their time.

Introduction

The conversation focuses on esoteric opportunities that exist in private markets and how misaligned incentives and coordination problems create special situations for investors like Jeremy. They also discuss a wide range of other topics including compensation advice, meeting your heroes, and Jeremy's views on various aspects of business and investing.

Topics Discussed

The Perfect Business and Investment (2:57)

Jeremy describes his idea of the "perfect business" as one where you get paid tremendously for your words and advice, like old school merchant banks and M&A boutiques. These businesses require no capital, are cash flow accretive, and allow building equity by investing in deals you advise on.

For the "perfect investment", Jeremy looks for opportunities where:

You don't need to talk to anyone or know details about the business
You can understand the circumstances, incentives, and why the opportunity exists
Many are coordination problems or "log jams" that can be unjammed
You have a very good explanation for why it came to you and why you can uniquely solve it

"If it lands on your doorstep, you're either the luckiest person in the world or everyone else has passed on it. And it's probably the latter, unless you have a very good explanation."

Current Opportunities in Venture-Backed Startups (9:48)

Jeremy discusses opportunities he sees with venture-backed startups that have raised too much money:

Founders realize they'll never make money personally due to preference stack
VCs have no incentive to tell them to shut down
Creates opportunities to broker deals between founders and VCs
Can often recapitalize the business or cut costs to make it profitable

"You can literally just talk to both of these people in private and then broker something together. And they're both relieved."

Mistakes in Buying Companies (21:55)

Jeremy shares his view on the biggest mistakes in buying companies:

Ignoring your gut feeling about the seller in the first few minutes
Not understanding if you can trust them and why they are selling
Failing to recognize you're buying from the ultimate insider who has decided this is the exact moment to divest

"Every bad deal I've ever done or seen someone ever done, in the first two minutes with meeting the owner, the principal, the seller, you could have saved yourself."

Refining the Underwriting Process (25:30)

Jeremy discusses how his underwriting process evolved over time:

Moved away from complex questions to simple ones like "What does this business do?"
Realized quantitative analysis is more of a commodity
Edge comes from qualitative understanding and experience
Good investments should "smack you in the face" and be easy to explain

"A great investment should just smack you in the face. Probably the best thing we ever took from Charlie was the two hard box. A good investment is just something should be really easy to sell to the team."

Hiring CEOs and Evaluating Talent (42:58)

On hiring CEOs and evaluating talent:

Most companies don't need the "best in the world" - just someone with the specific skill set
Often best to find someone who has done it before at a bigger scale
People romanticize business as being more difficult than it is
For median business, world-class talent isn't required - just solving problems reliably

"I think people really romanticize business, especially recently in the culture, for being a lot more difficult than it is."

The Value of Having an Audience (1:06:07)

Jeremy discusses why he believes having an audience is incredibly underpriced:

Provides serendipitous opportunities and access
Don't need a huge audience - quality matters more than quantity
Can "post your way into any room in the world"
Monetization still unsophisticated but will evolve

"Posting is the last great american meritocracy. The american dream lives in posting."

Views on Venture Capital and Holding Companies (1:11:47)

Jeremy shares his skeptical views on venture capital and the trend of holding companies:

VC seems overpriced - no evidence number of exceptional companies is increasing
Holding companies becoming overrated - strange to index your own abilities
Most interesting opportunities are in areas no one is talking about

"Venture capital always makes me scratch my head because I haven't seen any good explanation or data for that matter, for why the amount of exceptional companies is going to increase, that are created per year is going to increase over time."

Criticism of the "Cult of Learning" (1:15:54)

Jeremy criticizes what he calls the "cult of learning" and over-optimizing routines/performance:

Views much of it as procrastination and lack of conviction
Advice is often unserious and cancels itself out
People optimize abstractly rather than figuring out what they actually want
Advocates for doing what you like and then solving specific problems

"There's this really weird hyper fixation on routines and performance and things. And I think these are really weird things to think about in the abstract. And I think it's indicative of just a general, very low lack of conviction that we all have."

The Value of Sabbaticals (35:23)

Jeremy discusses the value he sees in taking sabbaticals:

Allows time to think deliberately about how you want to spend your time
Lets you see what gives you energy and what's exciting
Can be painful to realize things about yourself
Most people don't spend enough time on this

"I think that almost everyone does not spend enough time thinking about how they want to spend their time."

Meeting Heroes and Mentorship (1:27:18)

On meeting heroes and mentorship:

Has met every living hero/mentor - more doable than people think
In-person meetings important to pick up nuances
Learn from how people live, not just what they say about business
Specific advice from those who know you well is most valuable

"I think exposure is really useful and important. And exposing yourself to people and their situations and stuff, you learn a ton from."

Conclusion

Jeremy Giffon provides a unique perspective on investing, particularly in finding special situations in private markets. He emphasizes the importance of understanding incentives, solving coordination problems, and having a clear explanation for why an opportunity exists. Jeremy is skeptical of many current trends in venture capital and advises a more deliberate approach to learning and career development. His insights on the value of building an audience, taking sabbaticals, and meeting one's heroes offer practical advice for personal and professional growth in the modern business world.