Martin Escobari - Inside General Atlantic

“When I got promoted to chairman of the investment committee, I go to Steve Danning. He said, you should develop a checklist that captures the characteristics of a winning GA deal. Same day I go to Dave Hodgson. And the first thing he says, avoid the temptation to use a checklist. If it was as simple as a checklist, we wouldn't get paid millions of dollars to do what we do. Turns out the checklists work, but there were these super interviewers that got even better results consistently.”— Martín Escobari

Strategy & Decision Making · Psychology & Behavior

DUR_ENDURING

Educated intuition: checklist plus gut

“They're great spear fishermen. You don't chase the fish, you wait, you decide where you're gonna anchor, you drop down with no equipment other than the spear, and you hold your breath for 1 minute, for 2 minutes. You let little fish go by because you're not there to hunt little fish. You're waiting for the big fish. And then when you're almost running outta oxygen, you got 2 or 3 seconds to get the big fish and then go up. It's an exercise of waiting.”— Martín Escobari

Strategy & Decision Making · Psychology & Behavior

DUR_ENDURING

Patience plus preparation equals decisive action

“I've been going to China for 25 years and I've seen the development. It's the fastest change in terms of per capita GDP in modern history of any country at scale. One night I'm having a long dinner with an entrepreneur who was an anthropology PhD of University of Arkansas. He said, what you have to understand about the entrepreneurs you're dealing with, these generation of entrepreneurs, people who were in their 30s and 40s, they're all children of the Cultural Revolution.”— Martín Escobari

Psychology & Behavior · History & Geopolitics

DUR_ENDURING

Generational trauma fuels entrepreneurial drive

“How do you do a good reference for an investment? You do it with the family that has given you money to make investments. And you say, João, we're about to invest 200 million dollars in this entrepreneur. You know his father, you know his grandfather. Do you think we should take this risk? And he's like, no fucking way. He's a crook, son of a crook. Because he has money with you, he tells you the truth. If he didn't have money with you, he'd say, of course he's fine.”— Martín Escobari

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Align reference giver with your outcome

“There's this phrase written into our founding documents: we are good partners to each other, to our founders, and to our clients. The partnership ethos is fundamental. I ran General Atlantic's Latin America program for the first 7 or 8 years. And in all the due diligence sessions, they ask, how did you do it? How did you make money in the one neighborhood that no one makes money? I say, the reason we do well in Latin America is we don't have a Latin America fund.”— Martín Escobari

Strategy & Decision Making · Economics & Markets

DUR_ENDURING

No regional fund prevents forced deployment

“I have a genetic disorder. I bruise very easily. So getting out of bed, deciding what activity to do is a risk-reward trade-off since the age of 5. And that is a way of seeing the world that most people don't have. I'm like, I know how to price risk. I find when trying to understand a person, I do it with entrepreneurs. Seeing what their trauma was is super useful because I find a lot of the most driven people are driven because of foundational traumas. Pain is pain.”— Martín Escobari

Psychology & Behavior · Leadership & Management

DUR_ENDURING

Map entrepreneur motivation via trauma

“Guess what our loss ratio is? 4%. On capital. In venture and growth equity, loss ratios of 20 to 40% are common. But there's something about the way we deal with risk that allows us to capture what we think are reasonably good returns at a surprisingly low risk ratio. For us, a worst-case scenario, a company grows into the valuation we paid for it. And that limits what you do. It limits the timing of where you go into a new industry.”— Martín Escobari

Strategy & Decision Making · Economics & Markets

DUR_ENDURING

4% loss ratio via non-binary bets

“Persuasion equals desire minus fear. I think most humans go from FOMO to fear. One of the traps of our industry is you can only fundraise when things are very expensive because that's when everyone's on FOMO. There's always someone in the world that has excess capital, even in a time of fear, and you go there. I do this in Brazil. I ask what percent of your net worth you have in Brazil? And they're like 90 to 95%. I said, close your eyes.”— Martín Escobari

Psychology & Behavior · Business & Entrepreneurship

DUR_ENDURING

Expose home-country bias with mental exercise

“It's an apprenticeship business. Pairing them up with different people, different skills, different styles is super important. One of the tricks I used to do was I would try to understand the mind of each investment committee member and predict what they're going to ask. So I would read the memo and say, Giorgio Paolo's gonna ask this, Bill Ford's gonna ask this. By the end of a year of doing this, I was up to 80, 90%.”— Martín Escobari

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Predict IC questions to learn vicariously

“Getting in the mind of the founder, his or her motivations, why this is so special and the trajectory that got to this. I try to meet the founders outside the investor community process. Basis of competition, so true distinct competitive advantage and durability of the competitive advantage. And then I try to push people on the tails, both positive and negative. 6 bad things happen. How bad is it and how likely is it? Or if this amazing development happens, how unlikely is it?”— Martín Escobari

Strategy & Decision Making

DUR_ENDURING

10% of deals produce 50% of returns

“Every 4 or 5 years there's a once in a generation opportunity that you have to be ready and be willing to move quickly to capture. And if you do, you can create disproportionate value for your company, for your investors, for your employees. In month 3 of my first job, I said, Dennis, it's a bubble. How does it feel to be in a bubble? And he said to me, Martin, it feels better than being outside the bubble. And I was like, he's absolutely right. I have to go into this bubble.”— Martín Escobari

Strategy & Decision Making · Economics & Markets

DUR_ENDURING

Better inside bubble than outside when real

“I was looking at some stats comparing the AI wave to the dot-com and to the railroads. Looking at the ratio of CapEx to revenue and what percent of GDP was involved in this and how was this CapEx funded. CapEx to revenue is still not crazy. New revenue streams are managing. And the biggest difference relative to railroads and dot-com is the funds are coming from really rich companies.”— Martín Escobari

Economics & Markets · History & Geopolitics

DUR_CONTEXTUAL

AI funded by profits, not speculation

“This is my 4th or 5th bubble, and all bubbles are born out of a truly transformative technology. In all the previous bubbles, the promise was spectacular. The short-term was disappointing, and the long-term delivered more than expected. But in that process, a lot of fortunes were made and destroyed. So I think as a firm, we try to make different mistakes in each bubble. Our approach this time has been to be incredibly aggressive at deploying AI in the portfolio.”— Martín Escobari

Strategy & Decision Making · Technology & Engineering

DUR_CONTEXTUAL

Test new tech in portfolio before investing

“What the dot-com taught me is you can do 7 years of work in 1 year. In Submarino, within 1 year I was in charge of international. We opened Submarino in 6 countries with warehouses and customers and registrations and teams. It was done in 1 year. If you had told me how long it would take a normal person to do that, I would say 3 to 4 years going fast. And we were like, no, we have to do it. First mover will be incredibly valuable. We did it in one year.”— Martín Escobari

Operations & Execution · Strategy & Decision Making

DUR_ENDURING

Compress 7 years into 1 when stakes high

“My strategy is I don't have time to be someone's mentor for 6 years. So I have to hurt them for the mentoring to be impactful. I have to make it so obvious that it's so stupid they haven't yet focused on this that they're like, show him. And then they act on it. My mentoring sessions are very uncomfortable. I do it with a smile in my face. But it works. It's like crash therapy, like 3 years of therapy, 1 hour, no time for bull. We're going directly for the sensitive points.”— Martín Escobari

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Hurt them to make it impactful

“We have a communist system of compensation, which is you all get a percent of the total performance, not your individual performance. I was like, are you kidding me? I'm a spearfisherman. This communism didn't work in the Soviet Union. Why is that gonna work? And then I saw how it changed everything in that the level of collaboration is fantastic. The way you prevent the Soviet Union from happening is if you're not pulling your weight, you're not on the boat.”— Martín Escobari

Leadership & Management · Economics & Markets

DUR_ENDURING

Communal carry plus culling non-contributors

“We're all products of our traumas and our adventures and our dreams. On my mother's side, Jewish family had to flee the Russian Empire through Romania, then Argentina, then Bolivia. So fleeing, leaving everything behind. From my father's side, very wealthy, landed oligarchy of Bolivia. In 1952, there's a revolution. They lose everything. So on both sides, there's a sense of loss and escape. I grew up in Bolivia in the 1980s and that was chaos. 7 presidents in 10 years, including 4 coups d'état.”— Martín Escobari

Psychology & Behavior · Economics & Markets

DUR_ENDURING

35K% inflation: hourly devaluation lesson

“What's in the checklist of things we like? Huge TAMs, business models that create economic value and have moat, teams with the right go-forward capabilities, situations where there's inorganic growth to get and there's tremendous amount of strategic value, meaning someone will overpay to have this capability if we are successful. Me personally, in the deals I've led, they have to make the world better.”— Martín Escobari

Strategy & Decision Making · Philosophy & Reasoning

DUR_ENDURING

Checklist plus make-world-better filter

“You never invest a lot of money without visibility of what you're doing. There is fog and different layers of fog, and what the fog does is it slows you down. But if you look, pierce through, you see clarity, you see a monopolist at 6 times EBITDA. You see an opportunity to— it's not a shot in the dark and hope for the best. What you can't do is just shut down and say, this is too unpredictable.”— Martín Escobari

Strategy & Decision Making

DUR_ENDURING

Fog slows you; engage till clarity emerges

“The premium for US exceptionalism has never been higher. US public equities are trading at 26 times earnings for a 4% forecasted growth, which is at the 97th percentile of the last 25 years. And the US dollar is pretty much 2 standard deviations away from the neutral state. Total debt to GDP is 125% of GDP. That is the highest of the OECD. Current plans in place, within 5 years we're going to be at 145% of GDP, which is higher than Greece and Italy.”— Martín Escobari

Economics & Markets · Strategy & Decision Making

DUR_CONTEXTUAL

US at 97th percentile; EM at discounts