The Last Human Edge

Henry Ellenbogen is a growth investor who ran T. Rowe Price's New Horizons Fund (2010–2018) before founding Durable Capital Partners in 2019.

Article lines:

• "Over the nine years he ran New Horizons, he turned $8 billion into $40 billion."
• "In 2019 he left T. Rowe Price to start his own firm, Durable Capital Partners."

Nearly all returns came from about 20 stocks held for years; identifying and holding rare compounders drives outcomes.

Article lines:

• "Across 50 years and thousands of investments… only 20 stocks had mattered."
• "Every cent the fund had made came from 20 companies identified early and held long enough to turn modest positions into transformative outcomes."

Roughly 40 out of about 4,000 (~1%) in any 10-year period, with ~80% starting as small caps.

Article lines:

• "The data told him that in any 10-year period, about 40 stocks compound wealth at 20% a year. 40 out of 4,000."
• "One percent of public companies turn out to be great, and roughly 80% of those started as small companies."

Act 1: proven PMF, large TAM, sound unit economics.

Act 2: a transformative leap to a larger business via new product/market/model.

Article lines:

• "He started thinking of a company's journey in two acts."
• "Act 1 meant a company had demonstrated product-market fit… Act 2 was the leap: a significant new product, a major new market…"

Future compounders often suffer severe drawdowns during transitions; discerning "transitioning" vs "failing" and adding with conviction drives outsized returns.

Article lines:

• "Second, these rare businesses were intensely volatile… in one of those years they fell 62%."
• "The trick was in distinguishing between a company failing and a company transitioning, then having the conviction to hold through the difference."

Netflix's fixed-cost streaming transition ultimately succeeded; Rackspace's shift to public cloud failed against hyperscalers.

Article lines:

• "Netflix's Act 1 was DVD-by-mail. Act 2 was streaming. Between them came 800,000 canceled subscriptions and a stock that fell 75%."
• "Rackspace tried to become a public cloud provider… Amazon cut prices seven times in 2013. Rackspace couldn't keep up."

Two sleeves: ~2/3 "durable growth" (Act 2) and ~1/3 "emerging growth" (Act 1), with wide initial exposure then concentration as evidence accumulates.

Article lines:

• "He split his fund between Act 1 and Act 2 companies."
• "Two-thirds of New Horizons would invest in… Act 2… The other third would target emerging growth companies still in Act 1."

Tracking each year's new positions as a cohort, monitoring inflections, and resizing based on validated progress—akin to Kelly-informed dynamic bet sizing.

Article lines:

• "Then he systematized the process by tracking his portfolio through vintage analysis, the same way sports teams evaluate draft classes."
• "The 2011 vintage… He had added 75 companies that year… Then in 2013… the position doubled in size, and the vintage returned 209%."

Robots excel at speed and pattern execution; humans win by judging founders, building trust, and structuring lifeline capital in pivotal moments.

Article lines:

• "The robots owned pattern recognition, speed, emotionless execution at scale. But they couldn't understand entrepreneurs the way people could."
• "They couldn't build the trust that lets you call a CEO on a Saturday and tell him he might run out of cash, then structure a PIPE to save the company."

Mutual fund constraints forced trimming winners like Netflix despite intact theses; he wanted a structure that wouldn't force selling great compounders.

Article lines:

• "His Netflix investment haunted him… Instead, fund regulations and position limits meant Ellenbogen had to keep trimming."
• "He owned a tenth of what he once had… not because the thesis changed, but because the structure demanded it."

Amazon built disciplined core profits to fund innovation; it didn't ignore profitability but sequenced growth after cash flow credibility.

Article lines:

• "The US business consistently generated 5–7% EBIT margins. Only after establishing a predictable cash stream did Bezos invest in new initiatives like AWS…"
• "'That's interesting because that's not the Amazon story.'"

He moved early with bespoke structures (PIPEs, converts) to strengthen strong businesses and earn favorable terms.

Article lines:

• "On November 22, Netflix raised $400 million through a private investment. Ellenbogen led it…"
• "In late March, Durable invested $110 million… $70 million in common stock and $40 million in convertible preferred stock with a 5.5% annual dividend."

Focus on later-stage private companies with measurable metrics, leveraging talent-spotting and security analysis (e.g., Twitter, Workday).

Article lines:

• "They were good at talent-spotting and security analysis, which meant they should be investing in later-stage private businesses that were generating numbers you could actually measure."
• "In 2011, [Workday]… $100 million in revenue, growing 80%, valued at $2 billion."

He connected scaled public-company operators to private boards to install systems and credibility for Act 2 scaling.

Article lines:

• "Executives who had already built large public companies often made the best board members for small private companies trying to become large public companies."
• "Jeff Boyd… joined the board [of Clear]. Mylod joined the boards of Redfin and Dropbox."

Even 20% CAGR compounders often suffer a year with roughly −62% drawdown, typically during major transitions.

Article lines:

• "Second, these rare businesses were intensely volatile. Over the ten years they compounded at 20%, in one of those years they fell 62%."
• "Often this wasn't during a market crash… it was during a transition when the business tried to become something bigger."

Rapid rate hikes ended the free-money era, exposing "impostor" compounders; the team re-underwrote for balanced growth and profitability.

Article lines:

• "The Federal Reserve raised interest rates… The average loss-making company in the Russell 2000 Growth index fell over 70%."
• "In a normal decade, about 40 stocks compound… In the free money era, 120 stocks had achieved it. There were imposters in his portfolio."

He advised prioritizing profitability alongside innovation; both companies committed to and delivered improved profitability.

Article lines:

• "He told them the real story of Amazon."
• "'It probably made our company worth three times more because we increased profitability and the market rewarded it.' … 'We've just delivered on that promise,' Levchin told me."

Falling rates pushed institutions into private markets; startups stayed private longer, so he built a late-stage private investing program inside a mutual fund.

Article lines:

• "Capital that once flowed reliably into public equities and bonds began seeking private markets instead."
• "By the mid-2000s… The median age of a company going public… nearly 40% older… a significant part of a young company's growth was happening before the IPO."