Sean Mooney: [00:00:00] Welcome to the Karma School of Business, a podcast about the private equity industry, business best practices, and real-time trends. I'm Sean Mooney, BluWave's founder and CEO. In this episode, we have an awesome conversation with Bobby Ocampo, Managing Partner with Blueprint Equity. Enjoy.
I am super excited to be here today with Bobby Ocampo from Blueprint Equity. Bobby, thank you for joining us.
Bobby Ocampo: Thank you for having me, Sean. Really appreciate it.
Sean Mooney: I've been looking forward to this one for a long time, Bobby and his team have been creating something really special in a short period of time, so this is going to be an exciting, one for our listeners here.
And so Bobby, maybe as we jump right into it, can you start off and tell our listeners a little bit about the story of you? [00:01:00] Where'd you grow up? Where'd you go to college? How did you ultimately get into PE?
Bobby Ocampo: I grew up in the Bay Area. My parents immigrated from the Philippines here, and so my parents were entrepreneurs and they didn't really push me one way or another to do anything within their field.
My dad was an engineer, so he was always pushing me to be like a science sort of approach. So I was a physics major in college, but I went to Middlebury, which is a small liberal arts school in Vermont. But I didn't really know what I wanted to do. And my roommates at the time, I was a senior, they were all econ majors.
As you can imagine, most econ majors do finance right after school. And so they were applying to all these like, investment banking jobs in New York. And so I figured oh, great. Like maybe it sounds appealing. You're young and you get to work hard and make good money when you're young. That sounds appealing.
Because I didn't really know what I wanted to do. That was it. So I probably have to thank my, I don't thank [00:02:00] my roommates enough for that, but that definitely helped. I think Sean though, looking back, and again, you stop me if I'm boring you, that knowing what I know now, I just didn't know what it really meant in college to be a liberal arts school versus having like a non-liberal arts school, than having
your standard undergrad program with business and finance and all of that, it surely would've helped, I think, to have more of that background. It was a foreign world to me. I just didn't really understand it. So I remember when I, my first training day in banking, we're all there and everyone's a finance major or an econ major or accounting major, whatever, and I have no idea how to read a balance sheet.
And all these kids are just whizzing by me. The good news is it's no offense to people or those majors, being a physics major it's actually like very easy, but you just have to pick up the concepts, right? But the math, it's just simple math, right? We're not doing quantum physics here or anything. And so the first like month, it was just a pretty steep learning curve, but after that it got easy to pick up and [00:03:00] then you just spend your time just trying to hone your skills and after a while it becomes like breathing.
After that , you finish your tour. Most people go to venture private equity, corporate development, whatever it is. And so I went the venture capital route. My co-founder went the private equity route and we stayed in touch over the years and he became an operator and we were trying to figure out when he was exiting from his company.
The timing was about right when I had to make the call of keep going with my fund and sign up for another 10 years, because as you know, there's usually 10 year fund lives or we do something on our own. I'm a terrible employee, and I'll get back to that in a second about why, but the timing was right.
We're like, you know what? We get to pick our strategy. We knew where we had some success and we wanted to fly in our own banner and we did it. So we founded the fund in 2018 and we're here now.
Sean Mooney: It's a really interesting story and it's amazing how serendipitous life is, these waypoints in your life that kind of lead you along the way and you don't even know that you're on their track.
And so a West Coast [00:04:00] kid, you end up on the East Coast. In the far Northeast coast where you have this thing called winter.
Bobby Ocampo: Oh my God, I don't think I can do it again, Sean.
Sean Mooney: But what struck me as kind of your journey here was interesting and I can see some similar parallels that I went through and these chapters in people's lives.
So often where you end up in life is who you're surrounded by. I grew up in Austin, Texas, which has now turned into a tech ecosystem. But when I was growing up, it was a university town, right? And it was starting on its path to tech. But like I used to work in the back of manufacturing plants and I knew nothing about investment banking or venture capital or finance or whatever, but it just so happened that all my roommates were from Northern New Jersey and all their parents worked for Wall Street firms.
Now I think kids know what they want to be by the time they're 15, but I think maybe then it was like junior year, you start thinking about it and they go, "What are you going to do?" And, "We're going to go to investment banking. And I'm like, "What's that?" I was like, "Okay, I'll do that." And even though I went to the Georgetown's undergrad Business School, I didn't [00:05:00] have the internships that just prime all these kids like to start day one as these fully made people, like even back then people would do that.
And so I too, like even though I arrived, like the finance classes I had, you go past that on day one and so immediately I was like, uh-oh all these kids who grew up going to work with mom and dad on the weekends. What I wish I had though, which I think is such a great degree, not only for then when you were coming up, but I think in particular now with AI, is physics.
It's just such a great framework for structuring your thinking and solving problems. And so it sounds like that had a pretty big role in you being able to like, "Oh, I got this." And investment banking, it's algebra, it's not calculus.
Bobby Ocampo: Lot of parallels between our backgrounds. Maybe I wasn't meant for it, right?
Because I was not a very good physics student and so what I had to do was take a lot of non-physics classes to get my GPA up. But like I was getting run around in circles by everyone in the class. But I was always meant to [00:06:00] not be in the lab. I never was as good at it and I couldn't compete. I felt I always had more of like a business mindset.
Even when I was growing up, I would do a lot of things that were like odd jobs, or like I'd have all these basketball and baseball cards, I'd go outside of my house and try to sell them to people. I'd run lotteries, right? So it was more, for some reason, that always interested me more. You are right though that there are parallels.
It teaches you, "Oh man, this is hard and I've got to pick it up. And I think that the skills around that were probably more important.
Sean Mooney: And that is a common thing as we talk to so many people in private equity. Were you, the kid with the paper route, with the lawn duty, with like selling things, at school to classmates?
That commercial mindset, it almost inevitably leads you to where you are today as a business builder and we'll go more into that. But Bobby, one of the things I always love to ask in addition to your life story is like, what's one of the things that we'd know you better if we knew about, in addition to what's on maybe your resume?
Bobby Ocampo: I think bottom line, and not that I'm an entrepreneur, what I picked up on [00:07:00] kind of later in life in my thirties, so being in the workforce for 10+ years, is that I am not like a good employee. And I even tell our LPs that our limited partners, our investors, I'm not a good employee. I'm just not a very good soldier in that if I'm going to work hard, if I don't have a share in the upside of it, then I have very little motivation other than to keep my job, to want to make this work.
And so I think I picked up on that later, like, you know what, this is part of why, a big reason why we founded a Blueprint is that, because our strategy is like a mix of a few different funds and all that. And we picked up the best of what we picked up on throughout our careers of here's what we like, here's what we don't like, here's what we're going to avoid.
But ultimately why Sheldon and I founded the fund was we want to do it under our own banner. We get to run our own strategy, we get to pick the people we work with, we get to set the culture. All of that is hugely important to me. I know I'm not going to be doing this forever, and I would very much want to [00:08:00] leave this in a great spot for the younger people at our fund when they have the keys.
I think where you see every, throughout your career, where a lot of these funds die are when the founders just hoard it all. Then that's why they leave. They start the next Blueprint. They get big, fat and happy. Their employees do a lot of the work, leave, found the next Blueprint. We're trying to avoid like two trends, like that's one trend.
And the other is we do not want this to be an asset gathering machine where we get to generate mediocre returns, and it's fine because it benefits our lives and lifestyles. Those two things I think have killed so many funds and are going to kill a lot of funds right now. And you see it in the numbers.
Unless you're in the best fund, it's actually a very mediocre or not great asset class. You're locking my money up for 10 years to generate a return that I could have done much better in the public market and I'm liquid. It's not worth my time as a [00:09:00] GP to be generating returns worse than the market, public market.
It's not worth your time as an LP take on the risk with me. We try to have a very high bar here, but the market is certainly changing and we'll get into it a little bit and we have to evolve with it. I like to think Blueprint, when we first were founded, we're a good surfer on a pretty unknown, untouched wave, and we've got to get better and better because no one else was touching that wave.
We improved and it made us look really good because no one got to surf that way. Now, the problem is that our asset class at growth equity within private equity has gotten really popular. Good news for us in that the market is so terrible to be fundraising as a new fund that you can't do it. That's great for us.
But there are a lot of other later stage private equity firms and even venture capital bleeding into our asset class because they've seen how our attractive their returns are, [00:10:00] can they execute in strategy? TBD, right? But there's still a lot of noise. And then you have what's going on with AI and so you have those forces, right?
All coming together. Now all of a sudden we might now be a world-class surfer, but the wave isn't as good. So what do you do? Like you can be the, it doesn't matter if your wave went from 20 feet to 8 feet. Is it going to look as good in a poster? Probably not. So we have to continue to evolve and evolve our thinking, otherwise, our returns are going to suffer.
Sean Mooney: Hey, as a quick interlude, this is Sean here. Wanted to address one quick question that we regularly get. We often get people who show up at our website, call our account executives to say, "Hey, I'm not private equity. Can I still use BluWave to get connected with resources?" And the short answer is, yes.
Even though we're mostly and largely used by hundreds of private equity firms, thousands of their portfolio company leaders, every day we get calls from everyday top proactive business leaders at public companies, independent companies, family [00:11:00] companies. So absolutely you can use this as well. If you want to use the exact same resources that are trusted in being deployed and perfectly calibrated for your business needs, give us a call,
visit our website at BluWave.net. Thanks. Back to the episode.
What you share there I think is so important to the industry. So I was in the industry and starting in the late 90s, like working within an investment bank's private equity affiliate, and then going there and like the earlier days, it wasn't easy, but it was easier. There's so much information asymmetry, but the returns were like in the 40s,
right? And part of what you're saying here is like, the private equity industry has evolved and matured just like any industry. It used to be there were arbitrages, there was asymmetry. You could get in on these things. You were creating the molds that exist today. It wasn't like a layup by any means, and the people before both of us are the ones who made those molds, and we [00:12:00] benefited over time.
But then what happened is it started maturing. And to your point earlier, is there used to be that one or two people started a PE firm. They made a huge gamble either by leaving a very good job that they had in investment banking or management consulting. And then they started this new thing back in the day, which was very like atypical.
You never left that job. And to their credit, and that's why they benefited I think immensely in their early days because they created an industry. But then what happened is like capital's agile. People flow to it. The reason why I came to it, I didn't create that industry. I knew my boss, who was a managing director at the investment bank grabbed me by the collar and said, you're coming to this fund with me.
And so it was "Oh, okay. This sounds better." The way that you're approaching Blueprint as I'm listening, is it's like the business of private equity's turning into a business. You're like, "I'm setting the culture, I'm setting the way we're doing things. I'm setting the resources. We're going to do it our way, and then we're going to benefit from the upside, just like any business would be."
And then we're [00:13:00] going to also think, not just like a limited people prevail, just like you would with a portfolio company. You're bringing the economics down in a way that causes broader incentives, that creates better outcomes for you and everyone else. So I think that's really insightful about where the industry has come, but also where it's going, and where you have to be to succeed in the future normal. And we'll talk a little bit about that, but before we get there, I'd love to talk a bit maybe about how you foundationally look at companies within Blueprint. I think every investor, every business builder has in some ways a framework or a scorecard in their mind.
Like these are the attributes that I'm looking for a company that they do have, or could, or should, or will have under our partnership. And so maybe Bobby, what are those things that you like first look for, and then I'd love to segue into how do you then help and then take them on that journey?
Bobby Ocampo: Sure. So Blueprint is a growth equity fund and within growth equity, we are like early [00:14:00] growth equity, and I'll go into that in a second. At the earliest end, you have venture capital and you are betting on moonshots, you're betting on Uber, on Airbnb, on Anthropic, on OpenAI, and all that. You're swinging for home runs and grand slams every time.
You are not trying to just eek by and make two, three times your money or three, four times your money. So high loss-rate and every company you invest in, you're hoping will return the fund or multiples of the fund. Then you have on the other extreme end is private equity. They're usually Steady Eddie businesses or profitable.
They're probably growing 10, 20% at most using leveraged buyouts and using debt to take private the acquisition, whatever it is, and use the company's cash flow to pay off the debt. In my view, it's a lot of financial engineering and maybe a little bit of optimization and cost cutting to get you to that.
How do I make my 15, 20% net IRR? But you're never, ever swinging for the fence. If you told a private equity firm, especially a [00:15:00] mid-market or mega-cap, you're making two times your money in 10 years on every deal, they would take that in a heartbeat. And what we have in growth equity is that kind of middle territory.
These companies might not be growing 1000%. They're growing like 50% to 200%. So pretty interesting, so really interesting. Still, they're not mature enough to be generating steady cash flows, but they're also on the venture side. You have an entrepreneur who might have bootstrapped the company, not taken on venture capital, and doesn't want to swing for the fence, right?
They don't want to be like a hundred billion dollar company or they don't want them to get diluted ten ways to Sunday to try to get there. That's where we sit. So you have this early business where it's growing nicely and doing well on their own, and they need something more. They have a good little kernel of a business and we want to make it a bigger kernel and have it be like, turn it into popcorn.
That's where we sit. So where we're trying to underwrite, hey, can we make a minimum four to five times our money in three to five years? If things go fine [00:16:00] and if it really goes well, there's potentially venture upside. We're making 10, 20 times our money. I'll be lying if I told you we're trying to make a hundred times more money.
If that happens, we got lucky. What do we look for generally on the tangibles? Obviously it's got to be growing organically on its own, so generally 50 to 100, 150%. We look for this ratio, what we call 'revenue to the capital raised', and we generally want the company to be 1:1 or a lot better. And so if you've gotten to 2, 3, 4, $5 million in revenue on a couple hundred thousand in capital raised, that's like a really good sign for us that you've been able to do a lot with a little.
A flip side is every venture backed business where, "Oh, I got to 2, $3 million, but I raised 10, 20, $30 million to get there." There's not a lot of fruit You can pick off the tree when you've bullied your way in to get to that little revenue, and now you need more money to fund a lot of burn.
Like that's not our thing. Of course, like the natural things are, you don't want a lot of customer concentration. You want a tier-one retention, meaning [00:17:00] your current customers are expanding over time without you doing anything and even netting out expansion. Your gross revenue retention or what you retain netting out expansion is also very strong,
typically 90% plus, those are like the things we look for. Our companies tend to be 1 to $7 million in revenue with all those attributes on the sectors and the intangibles. We at Blueprint are vertical focused. Very few, if any, of our companies are horizontal. And the reason why is because usually horizontal markets are significantly bigger, and you tend to have a lot of venture capital allocated and competing with that company, and that makes it hard for us to operate where, okay, you're in 50 different markets and you've got hundreds of billions of venture capital competing with you on different verticals, right?
It's hard for us to see our way to doing well when you're up against that current. So our companies tend to operate in a specific vertical where they are the emerging market leader, but are still much, much smaller than the incumbent. [00:18:00] And the incumbent usually is sleepy. A large business that's part of a parent company might have been acquired by private equity years ago and they're just running their plays and just getting a little bit bigger, not rock the boat, product is stale and we're trying to disrupt that. And the other things we like are we like the founder has, if they, he or she, has been in that category all their operating career, and now founded the business to solve the pain point they witnessed firsthand as an operator. So we really like that, Sean, where they are this mini-celebrity in the space, right? And why do they buy from Sean? "Oh, Sean was in my category for 15 years. I know him and trust him. He's built a product that understands my needs." Wherever you go, you have a sort of mini-following. We really like that sort of community aspect. So what we don't like is, "Oh, I went to Y Combinator." Great.
Like it's fantastic, right? It's an awesome place. I'd never be able to get in there. And, "I dropped out of school [00:19:00] and now I founded this company and all of a sudden I'm selling in this really tightly incestuous space that no one knows me, but I have a great product that might win." But that's not us. Usually you need the founder to have some sort of gravitas within that space, right?
We have a good product. I guess the last thing is like, can we make the deal economics work? So we are largely a minority investor. You know what we try to underwrite too? Are we aligned with the founder on what we want to do together and can we go. That's really it.
Sean Mooney: Hi, Karma School of Business listeners, Sean here. Wanted to shine another spotlight on one of the most important ways PE firms assess opportunities. They are the most active users of a product called commercial due diligence, also known as market studies. Why? Because they know the market always wins. And if you're confident that you have a good market, a solid strategy combined with a good team that can execute,
the odds of success go way [00:20:00] up. They also understand that specialized insights from focused providers are critical, because beta and average insights aren't good enough anymore. As a result, top PE firms call us pretty much every single day to get connected with the best-of-the-best right fit providers in the world.
This product is not just for those who do M&A. One source of alpha and edge is to do a commercial due diligence, including a growth strategy assessment on your own company, and you'll be amazed how much your insights and go-to-market plan will improve. Give us a call or visit our website at BluWave.net, and we can give you excellence and alpha with ease. Back to the show.
I liked so much about what you said and it very personally resonates. And so, I was in PE for 20 years. I was a partner of this PE firm. You don't leave that, you, when you started your firm, like you've got a partner job at another really successful firm. It's really unusual for people to jump off that ferris wheel, and like you didn't start your own [00:21:00] company, which is Blueprint, but for me it was this whole idea of like, "Okay, I have this idea.
It solves the problem I had. It's a big market. It hasn't been done. It's not going to be easy to do." But I was like, "There's no way I'm going to take a 1% chance risk on a venture capital model where I'm going to raise a bunch of odds and then maybe if I throw spaghetti against the wall everywhere, I'm able to find the one patch which sticks before I run out of money. But otherwise, like it's okay because I tried hard." Some people they have that risk profile. I didn't. I called it what you articulated, it's like it was the private equity version of venture capital, which turned in to be called growth capital, where it's like, "No, we're going to raise a little bit of friends and family money. We're going to relentlessly reread Jim Collins' Good to Great. We're going to fire aiming rounds left and right. Every dollar is going to be cherished and we're going to use that dollar so much further. We might grow a little slower, not vertical, but we're going to go at a 45 degree angle. But the probability of success is going to be so much [00:22:00] higher."
And then what you articulated in your scorecard is like you're identifying the companies that are able to use capital efficiently, which increases the odds of success. They're growing without that capital because they found product-market fit, which means it's a pretty darn good company and the products are growing without needing you to put millions of dollars to force a rock up a hill, and as soon as you take that capital away, the rock rolls down. For business owners, I think it's just such a great lesson in terms of like, chase expected value. It's not just the size of the opportunity, but what's the probability of success?
Bobby Ocampo: We want that probability to be as close to 100% as possible. It's not likely to happen,
right? At minimum, Sean, if we're underwriting, even if the company doesn't do that great, we try to at minimum, where maybe it's a two to three times return, and that could be fine for the founder, right? We're not going to high-five about it here, but hey, founder did well here. She worked hard and they monetized it eventually.
It didn't hit our ultimate end goal, but, and [00:23:00] that can't happen in venture. What will happen in venture is if the entrepreneur proposes that, they'll say, "No, go back to work. We'll fund it more. We'll cram your equity down. We'll find a new CEO. We'll try to create more alpha out of it instead of being able to skate toward that kick save of a return."
And that's the unfortunate part of venture capital.
Sean Mooney: And what I really liked as well about what you said is also just thinking from my current chapter in my life as an entrepreneur. As you're bootstrapping, you can do it, but you're making a lot of deliberate choices about sequencing things. But there are times when the opportunities align in like this Napoleonic glance where you're like, we need to yell, charge in, go take the field because everything's lining up and the ROI is higher if you don't sequence it.
And so, like, your firm gives such a great opportunity and it's like, wait. We can accelerate what we're doing and net-net is going to be much more ROI positive [00:24:00] to have a partner that provides the fuel we need to get to where we're going with a higher degree of success. Even by this kind of bootstrap sequencing you're going.
And so I think the way that you're sharing this is also a really good lesson for entrepreneurs. If you're doing this, there's a point in time when you've done this thing where you need to look for a partner like Bobby in Blueprint, because they're going to actually then further increase the odds of getting to where you want to be.
Bobby Ocampo: That's right. And I'll throw in one more thing, and I know that we have a lot of other great stuff to cover, but I think the problem too, Sean, is that when venture bleeds into our market, the way they underwrite is so different from us, right? And so like, do they care about the entry price? Not really.
If they believe that the company might get to a trillion dollar outcome. And so what happens though is that hey, you get a lot of money and our category maybe from venture, they now put a 50 to 200% premium on what growth equity would value the business at. And if I get it, if I'm a bootstrapped entrepreneur and I'm getting that kind of number, [00:25:00] oh yeah, like it's really hard for me to not take it. But you've got to know that now you've got to 10x from there or more. It's very easy to fall in love with that because I get to tell everyone, like, "Look at what I'm worth," but you've got to 10x that or more for you to actually make it worth it for your VC, otherwise you could be gone from the company. Your equity might go to nothing. But it's really hard in the moment when you have offers here, I'm going to turn down the offer here to go here to hopefully get to 100% probability of success for me and my family versus like a 5 to 10% chance here.
But in that moment in time, it's better for me here and that I get to tell everyone about it, right? It's really hard to do.
Sean Mooney: And I'll tell you, having gone through that process last year when we brought in growth equity, what Bobby's saying is right, beware of the trap. You get those lofty numbers and you can get stuck under them.
It could even cause a wipe out if you can't get over that preference and then you choke out. So play chess, not checkers, when you're [00:26:00] thinking about your partners because that really does matter.
If we turn the page here on our conversation, you've identified the company with these attributes. You have a great entrepreneur who's built a company that's successful and has opportunity. They've demonstrated product-market fit. They're growing, they need some fuel. How do you all then approach value creation and how do you support them on this next phase where you're going to be even bigger, better, safe, or stronger, more valuable?
Bobby Ocampo: Yeah. One attribute I forgot to mention, we'll hit on it now, is that usually when we invest, the company has zero or very limited go-to-market. And so what does that mean? We've been in companies where there've been zero salespeople. So the product has just grown off of word of mouth, which we really like.
There might be one salesperson, that person might be the niece or nephew of the CEO. No experience in software. And it's great. Like they've been able to grow off of nothing. And we really like that because it means they've been doing something [00:27:00] right, even though they're running this playbook that is not built to scale or last.
What we do largely is we try to recruit and implement our whole go-to-market engine, to get this scale ready. It might be a 2, 3, $4 million business, but what are the foundational tools you need to get to a 10, 20, $30 million number? So it can be with our head of talent. Okay. We know you need a VP of Sales, CRO, you likely need your first pod of Account Executives and SDRs.
We're going to recruit around that for you end-to-end. Okay, great. Now we brought them on, we'll train them around, you're probably familiar with them, and then sales like playbooks of the challenger methodology or his Sandler method and all that. Okay? We're going to train your entire AESDR team of how to sell.
Then we have another part of team where, okay, well you used to collect and you still do collect business cards in your fishbowl at the conference. That's how you got your leads. Now we're actually going to run like a proper, okay, [00:28:00] like "How do I build my own database, right? How do I implement my marketing automation to do my outreach?
How do I get them through the funnel? What systems and tools and process do I need instead of it being a fishbowl in the business cards," the kind of thing to, "Okay, now I have a real engine in place to ingest leads for my team." How to get them, how to ingest it, how to run it, that whole process, right? So from end-to-end, Sean, it's meant to lay the foundational blocks of that for every company we invest in.
It's usually like a one-to-three quarter engagement. And our team is usually very heavy in that first kind of 6 to 12 months of getting that engine going for a company. And once we think it's in a good spot, then we'll have that team move on to a new PortCo. So it's usually like a three to five company engagement at a time or value creation team, which we call our build team spending with our portfolio doing that.
And then once we get in a good spot, then it becomes more of like advisory. Or, "Okay, let me tweak here and [00:29:00] there. You had an issue here and there. We'll fix it." That's usually, Sean, how we get really down and dirty in the beginning is getting that engine in a spot where that first cohort is trained and ready to go, and is hopefully building some reputability to the process.
Sean Mooney: It's such a great approach to it. You're getting these businesses that I used to call and people then gave, the nickname to me was like, 'companies that are successful in spite of themselves.'
Bobby Ocampo: Yes, exactly.
Sean Mooney: And all the people I worked with.
Bobby Ocampo: That's what you want!
Sean Mooney: Yeah. Yeah.
Bobby Ocampo: You want that!
Sean Mooney: Yeah. It's like growing like crazy and there's all these other things they can do in addition to that.
Bobby Ocampo: Right. Some people don't like that, they actually bet the other way. That's nice, right? But you don't want all the low-hanging fruit to be picked off already, and then the trees bear and then now you're really reaching. Like, we want a lot of trees and you're picking off a little fruit, but I don't have time to pick off more fruit, and you've got a whole forest out there. We really like that dynamic.
Sean Mooney: The number one correlate, whether it's private equity, which is learn this or growth or venture, it's still [00:30:00] growth. Even in PE, the number one correlate to valuation is growth, and so where are you investing your chips in your companies that are probably leaving their college age and getting into adulthood, or high school, going to college, whatever the metaphor is, it's like, let's get the right people in place that you need and then let's get the growth engine going. And growth solves a lot of problems, particularly profitable growth.
Bobby Ocampo: If you're growing like a weed, it forgives a lot of sins, and then the less you're growing, you've got to be very efficient. There's no in-between. Our companies are well trained and coached around that. The market certainly changed, right? And I think different from 2021, where every company was backed, all you needed was halfway good numbers to invest in a company, it's really changed now. So you have that, and going back to your question of what we look for, okay, you have all those tangibles and intangibles that we like.
I think what's changed in the last year is with regards to AI. Okay, like are you, CEO and development team, [00:31:00] AI-ready and AI-accepting, or on the forefront of everything with regards to AI? That means, well, the entire way to develop software has changed. What are you doing to prepare? Are you already at the forefront of it?
And tell me how and why. And then what is our AI plan for next three to five years? Because our contention, it might be wrong, I think that there's been like an overreaction to what's going on in public SaaS land. And I think we'd all be stupid to think that all these multi-billion dollar software companies with a lot of cash flow and thousands of engineers are just sitting there not doing anything.
They're so well positioned to benefit from this. But if you don't have the AI-forward plan and a strategy and a CEO is pushing that down quickly, you're going to get run over. But these companies, they have the incumbency, they've gone through procurement, they're trusted, they have multi-year contracts, hundreds of millions of dollars in cash flow, maybe [00:32:00] billions of dollars in cash.
They're so well positioned to do great and I think people now are just putting that kind of company into, oh, AI is going to disrupt that. Well, you might be able to vibe code in a couple months, but you, Stanford dropout, Are you really going to get a Fortune 500 company to buy you? Probably not. And so I think that if these companies can just continue to innovate, they're going to do great.
But we're just getting caught up into what's going on with AI. Then now every public SaaS company we're just saying, "Oh, they're all going to go away." And I don't think that's the truth.
Sean Mooney: I think there's an interesting topic to dig into here. One of the things that is going to happen with these, with any company, right? Particularly software companies and particularly these big, large kind of enterprise businesses, AI is going to dramatically improve the unit economics of those businesses. Their billion dollars of cash they have now goes three times further if they run towards it. I [00:33:00] think the big question for these big companies, really any companies is, do they have the audacity to run towards it?
Or are they going to be so afraid to tear down what they already have and rebuild it, that they get paralyzed and don't take action? Change is scary, and this is, in my mind, probably the biggest tectonic shift in the commercial world since the steam engine. There's a lot of horse-drawn equivalent carriages so far that are going to see some river boats and railroads coming through.
And if they run towards it and they have the incumbency, they're going to be so successful. But a lot of them won't have the courage or the audacity to do it.
Bobby Ocampo: That's a great point. And you have to break a few eggs, right? And if not, these companies are going to get run over. I think the other thing too, though, Sean, is that, and we're seeing it even at Blueprint, how we're using all these different AI tools all every day, all day, is like, the compute and the token usage.
The analogy, I think, is what we talk about internally about those early days of Uber and Lyft, where you can drive two hours, like a $5 ride. [00:34:00] All of our rides at that time, 15 years ago, were subsidized by venture capital. You saw it in the early days of OpenAI and Anthropic. And it still is like all land grab and people selling what costs $1 for 10 cents.
And now people are realizing, "Oh man, you know what? Like here's my gross margins. If I don't charge this, I'm perpetually going to be losing money." It's just a lot of energy, right? And I don't know how we're going to get around that. Like that's the foundation of AI. And so now you're seeing these usage-based pricing come out with the tokens and all that.
The bills are coming back, and now everyone got around, "Oh, I've got to use everything AI. Oh, I'm getting the bill. Here was my budget for the year. It's April. I'm already through my budget." This is going to be the interesting part of like the early ROI on AI. Is it powerful? It's powerful, but is it translating to any real, real, real hard revenue?
I think we're still in the early days of that and the retention profile, we don't know [00:35:00] yet. But, now we're seeing like the energy costs and the cost of running. Like it's astronomical. I'm very curious to see when you jack up the price 10, 50, 100 times, what is it really going to be? I would bet I think a lot of people are going to wish we went back that flat fee SaaS pricing, because I can budget for that. I can't budget for 100x increase in token costs.
Sean Mooney: I think it's such a good point for all the business builders out there. This is a, having lived through it. This was the 90s, right? The internet comes out. It was win at all costs, and we are going to give everything away for as close to free as possible.
And there was a period of about five years, and I think this is changing faster this time around, where it was amazing, because you got all this great stuff for near free. In 2001, the field was swept and consolidated, and then suddenly all the prices went up and everyone's models changed. And I think you bring a really great point, and we were talking about this internally, it's like, as everyone switches to Claude, guess what? Claude's [00:36:00] really good at the consumption model, getting you to do token, token, token. And in the back of my mind I'm like, is this the right move? Because ChatGPT's still giving it away at a different price point and like, are we going to find ourselves totally dependent on Claude versus others? And then suddenly the unit economics drastically change.
Bobby Ocampo: Right. It's going to be really interesting to see. What China's doing really well is, well, what can I do on like a model that might be 95% as good, that is one 50th or one 100th the cost, I think it's probably going to end up there. Maybe there's some use case if you're whatever company, I can afford to pay that much to have incrementally more if these companies go public, and you're going to see the numbers right, I'd be very interested and they're all going to obfuscate it.
Tell me like the unit economics on like an individual person like you and me, they are losing tons of money and then replicate that to however many hundreds of millions of users or billions of users. [00:37:00] Ultimately though, like as you said, growth is everything, and so when you're growing at that scale and you have pent-up IPO demand, I think people are just going to get caught up in that frenzy and then we're going to see for the next couple years, okay, what are they going to be doing to make this actually attractive for the public market investor? Because they're going to ask the tough questions that you and I are going to ask around how is this ever going to be a rational, like profitable business if you're burning tens of billions of dollars a month?
Sean Mooney: And I'll tell you, I don't know about your companies, but like right now I have our Chief Product and Technology Officer looking at, do we go back to the future and do we start hosting our own servers and then putting open source models on it so we're not in the token game for the lower level needs that we have. And so it'll be real curious if there's like what's old is new.
Bobby Ocampo: Exactly. Can you imagine?
Sean Mooney: There's probably a good stock play in there.
Bobby Ocampo: Oh my gosh. They have the racks and we go back to racks in the server room and...
Sean Mooney: Hardware's back!
Bobby Ocampo: It could happen. It's actually not like [00:38:00] a bad bet.
Sean Mooney: We're doing the research on it right now. But I think you brought a really good point, it's like, there's going to be a reckoning. We're going to benefit it for a while, but then it's going to be different and we've got to be ready.
As we wrap up our conversation here, one of the things I love doing is getting kind of wisdom from other people who have earned it and learned it before me, so that I can avoid my hapless self as much as possible. So Bob, if you could go back to your 22-year-old self, and give yourself a piece of advice that you wish you knew then, what might one of those pieces of advice be?
Bobby Ocampo: So aside from like buying Facebook and Tesla and all those stocks, right? I could do a few things, right? Like one, I remember when I was first in banking, and our office was in San Francisco and Palo Alto, one of them and, this company, like Facebook was getting hot in Palo Alto and people were valuing it at the time, like a couple hundred million dollars, right?
And no one could believe, like everyone thought it was [00:39:00] outrageous, right? Then look at where it is now. That was 20 years ago, and like a hundred million dollars valuation to whatever it is today. If I'm my younger self or anyone, if you see opportunity, I think when you're young, you should jump on it at any cost.
I think we're seeing now with college and everything, like I feel that even for me, because I'm not quite retired yet, but what do you go to school for? What do you study? I don't know. And so. I think if you see an opportunity to get into the ground floor somewhere, even if the time of your life is not right, as long as you don't have like a family to support, I would say to jump on that rocket ship and do your learning and experimenting early.
I don't think Sheldon and I would've been able to found Blueprint now, and we saw the opportunity eight years ago. I think the opportunity is still good. It's not great. It's good, but we've all got to go to where the puck is heading, where the current's going to be strong behind you. [00:40:00] I would just say like, at any time, you've just got to be able to make that jump, make that move, as long as you don't have like a lot of responsibility, right? And you don't have it. Like, Sheldon and I founded the fund, like we didn't have it as much as we do now. So I'd say that.
The other thing I would say to go back is to probably be a better like employee, right? And more like, "Hey, like accept, you're going to learn a lot and a lot of it's going to be grunt work.
There are times when you're going to actually be in a situation where you learn everything you learned in a meeting you probably wouldn't have learned in six months of doing your grunt work." So there are just times in your life when you have that acceleration, right? Man, like I, that was actually really interesting.
But you're so caught in the weeds of just trying to survive that. You lose sight of that. So I would say learn as much as you can, jump on those opportunities early if you have the opportunity, even if the timing is wrong. And yeah, just to continue to evolve. I wasn't the best employee, I'd say that, but it's largely because like, I'm pretty selfish in that I wanted to build it our own way and do things our own way.
And even if I didn't have the experience to do it [00:41:00] at the time, there are a lot of smart people out there in the world and you can go to like a pretty good school or whatever, have good grades. Now when you graduate, now you're in a place where there's a huge market of people who are smarter than you and have gone through it before.
And I had no reason to believe that I would be successful at that time. Because business is like the Olympics of like the real world or whatever, and now everyone is really good and everyone's better than you. And like, ha, how do you compete? Right?
Sean Mooney: I think it's a great answer. Particularly now, it's easy to get trapped in all the motion and commotion, but this is one of the biggest periods of opportunity probably ever.
As I reflect back on my life too. Every time I thought I didn't listen to my gut about like, this is going to be big. I look back and go, I should have listened to my gut. I've gotten more zen as I've gotten older and it's like, listen to the universe. Life it tells you things if you have the audacity to listen to it.
And I think you're so spot on. And your other point I think is also [00:42:00] incredibly important. All of the apprenticeship models are changing now. You've got to do the hard work. If you're just going to be like people on the sleds in the movie Wally, and you're just like going to the LLMs and like you're a parrot, you're going to regress to the mean really quickly. And so like that hard work, that grunt work, that's going to be so important and I think a key differentiator in the future as well. That's the way you're really going to get the perspective, the wisdom, the knowledge to actually make all these LLMs in service of you as a thinking partner, not just like getting parroted by them.
Bobby Ocampo: I 100% agree.
Sean Mooney: Absolutely. Well, Bobby, I've really appreciated you investing the time and sharing the wisdom you've earned, the knowledge you have, the way the world will unfold going forward, and that's a tremendous gift. So I appreciate you sharing it. I've learned all sorts of things I wished I knew before, and look forward to our next conversation.
Bobby Ocampo: Me too, Sean, thank you so much for having me.[00:43:00]
Sean Mooney: That's all we have for today. Special thanks to Bobby for joining. If you'd like to learn more about Bobby Ocampo and Blueprint Equity, please see the episode notes for links. Please continue to look for the Karma School of Business Podcast anywhere you find your favorite podcasts.
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