Mitchell Green on Buying What Everyone Hates

The best risk-adjusted returns come from categories everyone hates. Right now that is public software.

That is the line I could not stop thinking about after listening to Mitchell Green, founder of Lead Edge Capital, on Invest Like the Best. It is one of the best podcasts I have listened to recently.

Here were my notes.

Video

Patrick O'Shaughnessy sits down with Mitchell Green, Founder of Lead Edge Capital, to discuss building an investment firm focused on consistency rather than moonshots.

Watch the full video below or watch it on YouTube by clicking here.

Returns

This is where the returns are:

Hated categories = the best risk-adjusted returns. As Warren Buffett said, "Be fearful when others are greedy and greedy when others are fearful."

The 2020 and 2021 vintages = awful across the entire industry. People thought they were underwriting 4x in two years and are instead making a 1.6x in eight years.

Price is survivable, exit multiple is not. You can pay any price as long as you're right on the exit multiple. The mistake in 2020-2021, and now in AI, is assuming enormously high exit multiples.

The AI Capex Problem

The AI capex bubble ends badly. Apple, having not participated, may be the winner when the dust settles.

VCs have to publicly argue that software is dying, because they need to justify how much they're shoveling into AI.

That is a funding position, not a technical one. I went further on why the thesis does not hold up in Why "software is dead" and on where the real opportunity sits in AI Investing Has a New Sweet Spot.

Software's Real Moat

It is the incumbent's game to lose in software today.

Software's moat was never R&D. Microsoft could put 500 engineers on any vertical SaaS company for a month and end the business. Software company moats were always tied to distribution, sales, and customer success.

Final Thoughts

This is how good firms actually operate:

Buying is easy, selling is not. Most venture and growth firms are good at buying and bad at selling. The discipline of constantly underwriting forward IRR is rare and is where real alpha lives.

Criteria are filters, not predictors. The job of a framework is to narrow the universe fast enough to do real work on the survivors. The biggest mistakes are sins of omission.

The through line is that the money is in what other people will not look at. That is the same reason we spend our time in the unglamorous, fragmented parts of the economy at Contrarian Thinking Capital, which I laid out in Why we invest in the Dumb, Dull, Dirty & Dangerous at CT Capital. If you're building in a category everyone hates, my DMs are open.