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Investing in proentropic companies is a key focus for Valor Equity Partners. Proentropic companies are those that are good at chaos and recover quickly from setbacks or crises. Valor seeks companies that not only exhibit resilience but also have the ability to thrive and improve in chaotic and changing environments. By investing in these companies, Valor aims to lower the risk and improve the success of their investments. They closely assess management teams to ensure that they possess the ability to navigate uncertainty and make wise decisions. By identifying and investing in proentropic companies, Valor aims to make a positive impact in the world while generating strong returns.
Valor recognizes that the world is becoming more chaotic due to various factors such as globalization, technological disruptions, climate changes, shifts in politics, and demographics. They believe that chaos will continue to increase in the future. This understanding stems from the principles of entropy and the second law of thermodynamics, which suggest that systems tend towards increased chaos over time. Valor expects that these sources of change will persist and create a world that is fundamentally different from the present. They seek investments in companies that can thrive and get better as chaos increases, while also considering the potential impact on society and the opportunities to address social problems caused by these changes.
Valor employs a rigorous process for identifying proentropic companies. They start by scenario testing different potential outcomes and assessing the company's ability to recover quickly and improve in different situations. They focus on strength during crises, adaptability, and the company's capacity to make good decisions in chaotic environments. Valor also emphasizes the importance of considering the management team's proentropic thinking. They look for leaders who can keep their probability state open and understand how to navigate uncertain and changing landscapes. The goal is to find companies and executives who can remain resilient, show strategic thinking, and make superior decisions while under pressure.
Valor places significant importance on understanding people and the psychology behind successful leaders. They have delved into psychological research to gain insights into decision-making, character evaluation, and identifying exceptional individuals. By expanding their understanding of different cognitive and emotional processes, Valor seeks to make more informed investment decisions and build strong partnerships. They acknowledge the presence of a small percentage of individuals with unique brain anomalies that can influence decision-making and risk tolerance. Valor uses this knowledge to assess individuals' alignment with their values and to differentiate between those who may be more prone to unethical behavior and those who demonstrate integrity and compassion.
Mission-driven companies, like SpaceX, attract hardworking individuals who are dedicated to a bold mission. The belief in the mission drives these individuals to work tirelessly and make a realizable vision a reality. These companies galvanize brilliant people who are passionate about making a positive impact in the world. The feeling of fellowship and shared mission among team members is crucial in creating a sense of purpose and attracting the best talent.
Bias, both cognitive and emotional, can affect decision-making in various aspects, including investment decisions and partnerships. While cognitive biases can be mitigated through effective management, emotional biases can be more challenging to address. Emotional attachment to a mission or purpose can lead to overlooking warning signs and overriding logical thinking. Managing emotional biases and striking a balance between passion and rational decision-making is essential in achieving long-term success.
Feelings of security and control play a significant role in decision-making and overall well-being. When individuals feel unsafe or lack control, their decision-making abilities can be compromised. It is important to manage these emotional states to avoid impulsive or irrational decision-making. Additionally, identity and ego can influence decisions, as individuals may act in ways that align with their self-perceived identity. Developing self-awareness, using tools like meditation and mindfulness, can help individuals manage emotional biases and make more rational decisions.
My guest today is Antonio Gracias, founder, CIO, and CEO of Valor Equity Partners. Antonio is perhaps best known for his role at Tesla, as the earliest institutional investor and Director from 2007 to 2021. But he has deep operating and investing experience, having first acquired and managed a number of manufacturing and technology companies during his 20s. And it was during those formative years that Antonio and his team developed the skills that led to Valor, which provides operational expertise to the high growth private companies they invest in.
Our conversation is a deep exploration of the drivers behind Antonio and Valor’s success. We dive into his concept of pro-entropic investing, what he learned as a 25-year-old running a manufacturing business, and trust me when I say, you don't want to miss his answer to the kindest thing ever. Please enjoy this great conversation with Antonio Gracias.
For the full show notes, transcript, and links to mentioned content, check out the episode page here.
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This episode is brought to you by Canalyst. Canalyst is the leading destination for public company data and analysis. If you're a professional equity investor and haven't talked to Canalyst recently, you should give them a shout. Learn more and try Canalyst for yourself at canalyst.com/Patrick.
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This episode is brought to you by Lemon.io. The team at Lemon.io has built a network of Eastern European developers ready to pair with fast-growing startups. We have faced challenges hiring engineering talent for various projects - and Lemon.io offered developers for one-off projects, developers for full start to finish product development, or developers that could be add-ons to the existing team. Check out lemon.io/patrick to learn more.
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Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.
Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more.
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Show Notes
[00:02:51] - [First question] - Defining what a pro-entropic company is
[00:07:26] - Understanding external forces of chaos and why they’ll continue to increase
[00:11:32] - What he’s learned about identifying and investing in pro-entropic companies
[00:13:43] - Investing with entropy in mind can be a bet on unchanging aspects of human nature
[00:15:08] - Defining durability in contrast with resiliency and entropy
[00:18:53] - Coming from a traditional background and the origin of Valor
[00:22:05] - The theory of constraints and why it’s so powerful; The Goal
[00:26:32] - Transitioning into a private equity structure and Valor’s 2001-2005 era
[00:42:02] - Decision making bias and combating bias effectively in practice
[00:44:30] - Where security and control figures into his thinking
[00:45:45] - Identity in relation to ego; the tools he uses to combat identity related decisions
[00:49:04] - Lessons learned from the Japanese language versus Western languages
[00:53:07] - Questions he returns to when he’s getting to know a company
[00:56:16] - An episode of operational deployment that most stands out in memory
[00:58:54] - Key concepts that most stick with him from working alongside Elon Musk
[01:01:32] - Why there aren’t more Musk’s or Bezos’ in the world
[01:04:20] - Ensuring Valor invests in the best companies going forward
[01:06:06] - How to pass the torch of what Valor is to others when his time is done
[01:08:25] - The kindest thing anyone has ever done for him
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