Of our 65+ sources for the TSMC episode, one stood above the rest: a wonderful Knowledge Project episode with Brinton Johns and Jon Bathgate of NZS Capital laying out the state of the semiconductor market. When coincidentally we met Brinton a week later, we knew fate was telling us we had to dig deeper. It turns out NZS has a lot more to teach Acquired than just about semis! Here we dive into their fascinating philosophy of "complexity investing", which was born out of their interactions with the world-famous Santa Fe Institute (of W. Brian Arthur and Increasing Returns fame!)... and of course we also throw in some semiconductor shop-talk for good measure. :)Sponsors:Anrok: https://bit.ly/anrokacquiredWorkOS: https://bit.ly/workos25Statsig: https://bit.ly/acquiredstatsig24More Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!© Copyright 2015-2025 ACQ, LLCLinks:NZS Capital: https://www.nzscapital.comThe Santa Fe Institute: https://www.santafe.eduNZS's white paper on Complexity Investing:  https://static1.squarespace.com/static/5ca38f3216b6405d11e3d4b4/t/60131df6a8d27d63432ea5ff/1611865607574/Complexity_2021update-v9pt2.pdfBrinton & Jon on The Knowledge Project: https://www.youtube.com/watch?v=r6NUO_bymuATwitter: Brinton: https://twitter.com/bjohns3Jon: https://twitter.com/jbathgateBrad: https://twitter.com/bradsling ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

Brinton Johns is a co-founder of NZS Capital, a US-based investment boutique applying lessons from nature to invest in companies with the capacity to thrive in a complex adaptive world.  As the future is inherently unpredictable, Brinton and his colleagues believe it is best to focus on adaptable and innovative businesses that create more value than they take, whilst structuring the portfolio to exhibit both resilience and optionality.Those interested in learning more about NZS's Complexity investing framework should read their whitepaper (https://www.nzscapital.com/news/complexity).Show notes:[1:20] Brinton talks about how he got into the investing industry and his career at Janus Capital[5:32] The benefits of focus, a defined investment philosophy and a flat team structure[8:05] The genesis of NZS' Complexity Investing framework[9:51] The key tenets of Complexity Investing and the importance of being adaptable and creating more value than you take[13:37] Structuring the portfolio for resilience and optionality[18:01] Psychological safety and empowering creativity by being allowed to make mistakes[20:27] Texas Instruments as an example of an adaptable and resilient business providing oxygen in a digital age[22:44] Testing for adaptability and resilience at Texas Instruments[25:08] Assessing the quality of people, culture, the nature of a company's growth and valuation[28:47] Great allocators versus great operators[30:48] Understanding the asymmetry of optional investments[32:57] The power of vertical integration in disrupting horizontal incumbents[35:06] Spreading bets in the tail of the portfolio[36:15] A culture of candour for limiting biases and recognising mistakes[39:04] Companies that graduate from being optional to resilient and vice versa[41:02] Investing in optional businesses allows for greater mental plasticity[42:31] Web3.0[44:00] Be curious and open-minded

This is Matt Reustle and today we are breaking down Cadence Design Systems. Cadence operates in the semiconductor ecosystem where they offer electronic design automation software - also known as EDA software - which is used for chip design. Putting that in much simpler terms - our phones now carry an entire 1980s Radio Shack inside them, and Cadence makes that possible with software to design smaller and more powerful chips.  To break down Cadence, I'm joined by two well-known tech investors and experts in the semiconductor space, Brinton Johns and Jon Bathgate of NZS Capital. We cover the value chain of semiconductors, the evolution of Cadence and the EDA market, and how Cadence reduced it's cyclical exposure over the last decade. I think some of the most interesting lessons come from businesses that face adversity and truly re-invent themselves with a micro-strategic change. Cadence is a prime example. Please enjoy this breakdown of Cadence. For the full show notes, transcript, and links to the best content to learn more, check out the episode page here. ----- Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @JoinColossus | @patrick_oshag | @jspujji | @zbfuss Show Notes[00:03:15] - [First question] - Everyday products that Cadence helps bring to life[00:07:28] - The rise of Cadence and the origins of the semiconductor industry [00:10:26] - Major players in the semiconductor space back in the 80s [00:12:13] - Going from plan, to chip, to production[00:16:58] - The life cycle of a chip and the cost to design one [00:19:19] - Differences between software design and embedded software [00:21:25] - The history of Cadence and the size and scope of their business today [00:28:05] - Existing customer base and how diversified they are[00:30:55] - What a contract actually looks like between Cadence and a customer[00:35:05] - Protection, off-the-shelf IP blocks and custom IP [00:35:53] - Cadence’s revenue growth, important metrics, and their KPIs[00:37:03] - How correlated their revenue is to semiconductor cycles[00:39:30] - Unit economics and the margin profile of the business[00:42:13] - Contributing factors to growth and thoughts on pricing[00:45:46] - Benefits of scale and what they like to see as investors from their R&D spend[00:48:12] - Risks and competitors that may threaten Cadence’s success[00:50:22] - Potential scenarios where the ecosystem becomes more vertically integrated[00:52:56] - What would drive a 10x growth for Cadence in next five years[00:54:58] - Things that would affect their growth in the next five years [00:57:38] - Lessons for investors when studying Cadence[00:59:15] - How they navigated the pandemic and how it impacted their business