Asking the experts: how do you use expert networks?
A few months ago, I was at a meet up with some investors who I really respect and who have great track records. One thing that struck me was how much they used expert networks, and I’ve been thinking about how I use expert networks ever since. Expert networks are a big expense both in terms of dollar cost and time invested into them, and I want to make sure I’m being the most efficient / productive with that investment.
For those unfamiliar, an expert network is a service that connects experts in a field with an investor. In general, the investor will ask the expert questions, and the expert will help the investor get up to speed on whatever company or industry the investor is looking at. A classic example would be an investor looking at a company with a blockbuster drug in phase III trials; an expert network will introduce the investor to experts in the drug’s field who can help the investor decide if the drug is likely to get FDA approval or not (PS- The Diff and In Practise both had great write ups on GLG and expert networks if you’re looking for more background!).
Of course, expert networks can be ripe for abuse. Around the time of the financial crisis, expert networks were routinely being used to get experts to give out MNPI to funds. I think that’s generally been cleaned up today, but it’s possible I’m naïve! (I really do think it’s been cleaned up; a big piece of expert networks sell is to the compliance side of their customers. Expert networks can say “going through us is an easy way to get expert calls that won’t get your fund in regulatory cross hairs” and then viciously police their experts / calls).
Today expert networks generally come in two flavors. There are the traditional expert networks (like GLG), which connect investors with experts for private calls. That’s a great model to learn about a company or industry, but it’s pretty expensive. Each private call is around $1k. That cost adds up quickly, so in order to justify the cost of private expert network calls, you really need to be writing huge checks in your investments (i.e. taking over an entire company). However, there’s also the new breed of expert networks, which connect an investor with an expert, records the call, anonymizes it, and then publishes the transcript for everyone to read. This new breed (popularized by Tegus and Stream Mosiac, both of which I subscribe to, though I believe GLG and the legacy competitor are trying to copy that model) have become extremely popular among most public market investors I know (including myself!) because they’re extremely cost effective; they’ve basically brought the Netflix “all you can eat” streaming model to expert networks. For the cost of ~10 calls in the old expert networks, the new breed gives you access to a growing library of calls across basically every sector and public company. So, as more calls go into the transcript database, the value of a Tegus / Stream subscription grows, which attracts more investors onto the platform, which generates more calls for the transcript database, which increases the value, which…. You get it. Flywheel. (PS- Tegus just raised a $90m Series B; their thread on the raise is worth checking out).
There is also a spinoff model of the Tegus / Stream model, where instead of investors interviewing experts you’ll have someone from the “expert network” interviewing the executive. In Practise, which I subscribe to (and have done a podcast with one of the founders!), is a great example of this model, though there are others. I think the quality of these interviews is, on average, a better than the generic Tegus interview. The interviewer for these models is generally a trained interviewer, and they tend to bring less bias and a larger scope than just “why are margins 39% instead of 41%” to the table, but there are disadvantages to the model. First, I’d say the best Tegus-style interviews are going to be more informative than the best In Practise interviews, because you’ll have some investor with a really interesting or out there theory that he asks about (for the statistically minded, the quality of in practice interviews tends to be above average with no tails, while Tegus interview quality is more on a bell curve with fatter tails). The other big disadvantage of the In Practise model is the transcript libraries are much, much thinner. I called the Tegus / Stream model Netflix-like above, but the right comparison would probably be In Practise as Netflix, where all content is curated and generally of some minimum quality, while Tegus / Stream are YouTube, which has exponentially more content than Netflix but the content doesn’t have quite the same minimum standards. This is a somewhat stretched analogy as to get a transcript on Tegus / Stream, you need to be a subscriber which generally means you’re an institutional investor so you’re not exactly going to do a call that’s the equivalent of a fart video, but in general I think it’s a good way to think about them!
Anyway, expert networks are table stakes for most investors today to get up to speed on new companies and industries they’re researching. In general, most investors are using the expert networks to assess a company’s competitive positioning and culture as well as just diving into an industry. The best investors I know are using expert networks to build out stories to make a company more than just numbers in a spread sheet; they want the expert network to help determine why company A has margins 5% better than company B or if company D’s cheaper product can really take share from Company F.
I have great familiarity with expert networks. Prior to my current job, I was at a management consulting firm and then a private equity shop, and we used expert networks pretty extensively at both. And, as mentioned above, I currently subscribe to multiple expert network services and probably read ~5 expert calls a week. So I like to think I’m an “expert” when it comes to expert networks…. but I can’t help but wonder if I’m using expert networks inefficiently. I generally use expert networks in two ways
If I’m diving into a new company or industry, I’ll find any transcripts of recent expert calls.
I’ll read any new calls that pop up for company’s I currently follow.
I’m wondering if that makes sense. I mean, I think it does. But it’s possible that expert calls in bucket #2 are an inefficient use of time. Or maybe I should be spending more time in a third bucket that is just reading random calls in random industries to learn more about something completely new. Is reading another call on the cable industry going to teach me something new and insightful? Probably not. But reading an expert call in oncology will almost certainly teach me something new (though it also might be over my head!).
I’ve also heard a lot of investors are using expert calls to “get the word out” on under followed names. So say you’ve got a big stake in a small cap company without a lot of eyeballs on it, and you think the company is a huge winner. I’ve heard of people “seeding” expert calls on networks; basically you do an expert call and have an expert walk you through the investment thesis and why the company is so good, and then you can send the (anonymized) transcript to other investors and say “hey, look how cool this company is. this expert thinks it’s going to take over the world!”
So here’s my questions:
If you’re an expert network user, are there any tricks above the obvious to getting the most out of them?
Have you tried the “seeding” strategy above and found it useful?
Is there a particular type of company or expert that you find is really helpful or not super useful (I’ve generally found expert interviews that take place below the C-suite are much less useful, and that expert interviews in industrials or pharma are much more useful than consumer or telecom)?
Are there any “off the radar” expert networks I should check out?
Anything else I should be thinking about when it comes to expert networks?
I’m going to be asking to be asking a lot of my friends those questions in the near future; to the extent I learn anything, I’ll report back here. But if you’re a heavy user of expert interviews and have any tips or anything, I’d love to hear them.