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>> Today is Monday, September 14th.
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We are live from the TVPN Ultradome.
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>> That's right, we're back.
0:19
Did anything happen over the weekend in tech, or was it kind of mellow?
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>> Uh, it was a crazy weekend.
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There was a lot of news, a lot of back and forth about pacing the AI debate.
0:27
I was in the hospital cuz I got rabdo.
0:29
It's brutal, but I am recovering fortunately.
0:34
>> Explain rabdo because it sounds >> it's bad.
0:37
>> Really scary and it is bad. >> It can be very bad.
0:38
Fortunately, I I I did okay.
0:40
I got an IV, got some medicine, uh broke a fever, got through it, and I'm I'm healing up, but uh it it happens and it's the dumbest dumbest uh illness you can possibly get.
0:50
It comes from uh working out too much and not being hydrated. Very avoidable.
0:56
Hopefully AI can find a cure.
0:56
If there's even a 1% chance that AI can find a prevention for Rabdo.
1:01
I think it's worth any amount of risk. >> Pushing forward.
1:04
>> Yeah, we we must push forward.
1:04
Uh no, lots of debate about how facts we should push forward.
1:09
>> We have never missed an episode for being sick. >> Yeah.
1:14
>> And I realized that because someone's asking me the other day, what do you guys do when you're sick? We just we keep going.
1:20
>> I mean, I did talk to the doctor.
1:20
They said, do you want a Do you want a doctor's note for work? And I was like, no. I kind of laughed.
1:26
Uh but uh I do think that uh like this job can be done while sick because you're just sitting in a chair having a conversation.
1:34
But I might be a little bit slow today.
1:35
So bear with me if I uh if I'm not the sharpest on any of the questions.
1:41
I will be sharp on the ad reads though.
1:44
I'll tell you about Shopify.
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Shopify is the commerce platform that goes to your business.
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Let you sell in seconds online, in store, on mobile, on social and on marketplaces and now with AI agents.
1:53
>> We got a great show today. Hey, take us through it.
1:55
>> We have uh Nico Wetenborn from Adjacent.
1:58
Uh really incredible episode of Invest Like the Best.
2:02
I believe it was last year or the year before.
2:04
>> Uh one of the first investors in Aura >> and a bunch of other great companies.
2:09
>> Uh we got Scott from the CEO of Scout Motors, uh which we're very excited to talk to.
2:15
>> Uh Mitchell Green, our dear friend from Lead Edge coming in for some hot takes.
2:20
We got we got >> uh and then we have our friends David and Ben from Acquired rounding it out with Farage from Cognitive.
2:28
>> Yeah, we're excited for this. >> So, great show.
2:30
>> Before we get into the pacing AI debate, uh what happened with the US Open?
2:33
Give me a little tennis update. What happened?
2:37
>> Um >> it's on the cover of the Wall Street Journal, so you know it's important news.
2:39
Tennis's US Open climaxes and back and forth duel.
2:42
But there was something interesting twist.
2:45
>> Ben Shelton, the American lost. >> Okay.
2:48
Uh, and uh, what was notable is uh, hopefully I'm pronouncing his name right, >> Alexander.
2:54
It's just pronounced Alexander, I think. >> Zev, Zevrev, Zevrev.
2:56
Um, >> but anyways, the the the most notable thing uh, was that when he actually hit the winning shot and uh, and won.
3:11
>> Uh, he went back and was getting ready for the next uh, for the next um, point. >> Yeah.
3:17
And uh he starts looking around and everyone is st you can see people in the crowd are standing up uh and and and cheering and he slowly realizes that he won by checking finally looking at the scoreboard and yeah it just became very obvious that he was so focused on the next point.
3:33
He was not actually not looking at the scoreboard at all.
3:35
It was just like flow state just just playing. >> That's awesome.
3:39
Um, and I'm sure a lot of venture capitalists out there were seeing that and they're like, "Yeah, all that matters is your next investment."
3:46
If you're if you you shouldn't even know when one of your companies, your seed companies Yeah. >> are going to IPO.
3:50
You should be so focused on >> I think a lot of people that don't like VC Victory Labs would appreciate that, too. It's like, we get it.
3:56
There was an acquisition.
3:59
Uh, let's focus on what you're doing right now.
4:01
Um, I also like the cameraman work.
4:03
I saw a clip of the scoreboard was counting down.
4:05
There was 07 seconds left. What who do they cut to?
4:12
Pierce Browman 007 himself.
4:12
I thought it was nice camera work.
4:15
Shows you that there's levels to the game of live production. >> Yeah.
4:18
>> You know, you got to those little touches.
4:20
Clearly that was just spur of the moment.
4:22
That's not that's not something that's scripted.
4:24
That's just someone being creative in the moment with the tools that they have. The switcher basically.
4:29
Uh anyway, the the pacing AI debate.
4:31
I wanted to start with some history here and then we can go through the timeline of what actually happened uh since we got off stream Friday then all the news breaks of course but um uh the pacing the frontier goes back to July 28th of this year.
4:46
So there was a there was a uh pacing the frontier statement an open letter that was signed by employees and leaders from OpenAI, Anthropic, DeepMind, Meta and a bunch of other places talking about this idea of pacing the frontier.
5:01
Uh then uh the same day Sam Alman publicly said we may have to pace the rate of AI development.
5:09
Two days later, OpenAI uh tells Axios that OpenAI helped shaped shaped the position the petition's language and Altman had discussions had discussed pacing with White House officials.
5:21
So stuff was happening in DC.
5:24
This was back in basically the very beginning of August, very end of July.
5:28
Then August 18th, OpenAI uh publishes something called pacing model development in an era of cyber critical capabilities.
5:37
OpenAI said it actually slowed scaling and paused a major RL run.
5:41
There was that two-week training pause that happened.
5:43
Uh on August 31st, anthropic uh official Anthropic Post explicitly discusses pacing the frontier.
5:50
So the idea is spreading and calls for coordinating pacing mechanisms.
5:54
And then on September 12th, which was a seat, it was actually Saturday morning that that Dario dropped the essay, we must pace the frontier, turn the concept into a much bigger public anthropic campaign, uh, that everyone's talking about today.
6:07
So, uh, the the the the roll out of this was pretty pretty quick.
6:12
And there's there's a few key things from Daario's essay.
6:14
It hit the timeline at 7 a. m. Pacific. He was up early posting.
6:19
Perfect time to get a lot of likes on a banger.
6:22
You got to feel something.
6:24
No, everyone else, there's no fundraising news happening.
6:28
Drop your essay early Saturday morning.
6:30
Let people digest it with their morning coffee.
6:31
Elon was clearly engaging. By 8 a. m. , Elon endorses it. 9:30 a. m. Sam endorses it. Uh Saturday, uh 4 p. m.
6:40
Demis generally agrees with Daario's point, uh and argues that it needs some work.
6:44
remember Daario put out something pretty similar talking about uh pacing and AI development and the need for oversight generally uh months ago before transitioning out of his role as CEO of DeepMind and stepping up to I think chairman.
6:59
Um then later David Saxs on Saturday but at 8:15 has had time to process everything.
7:05
Uh he asks some questions about Dario's post goes back and forth.
7:09
Sunday morning, the Financial Times reports that Donald Trump has rejected calls from tech bosses for an AI slowdown.
7:15
Um later that day, Sunday morning, Gavin Baker rs up the weekend.
7:22
So, we can kind of go through some of this and go through those post.
7:23
Uh but what actually happened in uh Dario's essay, we must pace the frontier.
7:28
He has the three-step plan on how to how he proposes to >> number three will shock you.
7:36
Uh number one, give independent third-party evaluators access to AI companies so they can verify safety practices.
7:43
Uh he calls out Meter, which drew a lot of attention because people were debating how independent meter is.
7:51
There's some meter employees who have worked at OpenAI, have worked at Anthropic.
7:54
There's people that work at Anthropic who worked at Meter.
7:56
Like it's it's all a uh very much a a revolving door with these AI safety groups and then the AI labs.
8:04
you go back and forth depending on what you're interested in.
8:07
So, uh not as independent as like, oh yeah, we're we're we're going with a an accounting firm who, you know, doesn't really have an opinion about uh the like the AI future.
8:18
These are all people who are deeply embedded in the discourse, which could be a huge benefit because they take the stuff really seriously.
8:23
uh could also lead to some um what people flagged as like conflicts potentially but uh still uh some some optimism from the community around what that would look like.
8:35
Two is Frontier Labs in democratic companies should work together with the with the government's help to establish AI safety standards and this was the one that people were going back and forth on.
8:46
Do do the labs actually need government approval from from this?
8:51
Uh Dean Ball was talking a little bit about the Sherman Antitrust Act.
8:56
There are very clear rules about companies agreeing to do really anything in concert with each other.
9:02
Um this is the number one reason that you don't want monopolies and cartels forming.
9:06
Uh is that if all of a sudden, you know, oh uh you know, American Airlines and Delta and United all say, "Yeah, we you know, for safety reasons, we should have fewer flights."
9:20
It's like, okay, well, what would that do to the market?
9:21
Probably drive up their margins because there's less flights, charge more for them, they have fixed costs.
9:27
So, you could very clearly see that collusion in that market would lead to more profits for them and more harm for the consumer.
9:36
That's where the Sherman Antitrust Act came from.
9:38
We flagged this a week or two ago that um this might like even even though it seems like oh well if Demis and Daario and Sam and Elon all agree like this should just happen that's not a problem.
9:50
There are actual legal and federal regulatory rules that might need to be adjusted or waved for something like this to happen.
9:57
Um so that's I think that's why he's he's calling for that specifically.
10:01
He's saying we need an exception to the rules so that we can actually do this.
10:05
um because it's great to all write blog posts that we loosely agree on, but to have anything formal, we need government approval.
10:11
And then third, this is the one that will shock you apparently.
10:15
Uh the US and other democratic countries should try and coordinate with authoritarian governments.
10:20
So he wants the US and China to coordinate on AI pacing.
10:22
Of course, China still wants to catch up and there's some tricks there is like what is the what what will happen in equilibrium if both countries have the exact same capabilities?
10:36
Is that the best outcome or do you always want to be in the lead?
10:39
If you always want to be in the lead, it's very hard to negotiate with someone and say, "Oh, well, you know, we'll uh why don't you just have half as many nuclear weapons as we have and like that'll be great. Like we'll pace you."
10:49
And so you you go back to nuclear non-prololiferation and all the difficult debates there.
10:53
We obviously wound up with a multi-polar world with everyone wanting at least some capabilities there.
10:59
So uh Elon chimed in agreeing with Daario.
11:02
Then Sam and Demis also agreed.
11:04
Uh the timeline on the other hand had some questions and concerns about Daria's post.
11:07
Who will who will these third party evaluators be?
11:11
Why wait for Washington to regulate the frontier?
11:13
If Anthropic believes AI is advancing too quickly, why not simply slow down on its own?
11:17
David Saxs raised some questions on X.
11:20
And we can go to David Sax's post which I believe here is in the timeline.
11:26
He said um Daario has written that we need to quote pace the frontier and Sam has agreed.
11:31
People may be surprised by my response. Go ahead.
11:35
Uh you guys are the frontier by any reasonable metric.
11:37
Market share, revenue growth, model capability.
11:38
The two of you have a duopoly on frontier intelligence.
11:42
You've also claimed the lead is widening because of recursive self-improvement.
11:44
I don't think what you see I don't see what you see in the lab.
11:48
If the unreleased models are scary enough that you think you should slow down, I support your decision to be responsible.
11:55
But stop pretending you need anyone else's permission.
11:57
Stop pretending antitrust law has to be suspended so you can form a cartel.
12:00
Stop pretending you need a regulatory approval process that supersedes product liability.
12:05
Stop pretending meter is independent when it is intertwined with anthropics investors and staff.
12:10
Stop pretending that you need those same evaluators to police competitors who aren't even at the frontier.
12:16
And so yeah, maybe that's a little bit of an an issue.
12:18
Although yeah, I mean the the regulatory capture angle is is always like if the safety rules become super cumbersome such that you can't start a instinct like product, right?
12:36
It's like instinct is a small team.
12:39
They're not building a frontier model.
12:41
They're not training their own models, at least not yet.
12:42
But they're like doing stuff with AI.
12:44
if all of a sudden they have to spend a year negotiating with a bunch of thirdparty evaluators, have a bunch of people embedded, and then go through some sort of review process, and the government's not getting back to them, like you can't have a breakout consumer product.
12:56
Uh, and that doesn't feel like >> there's been any type of effort from anywhere to try to control uh or regulate like application layer companies and and Greg was on OddLots.
13:12
uh this uh episode came out this morning talking about not trying to uh doesn't doesn't believe there should be any sort of limits to >> um >> application layer stuff. >> Yeah.
13:21
Basically like if you're if you just want to train a model at home >> uh for your own use cases, you know, there shouldn't be limits on that. Yeah.
13:30
Uh Trump Trump uh came out yesterday.
13:30
He was pretty active over the weekend.
13:32
He said the only controller quote unquote guard rails that AI needs is a strong and smart high IQ president.
13:39
And the USA has that in spate. The Trump >> wild post.
13:49
>> The Trump administration has stopped AI people from doing bad or potentially bad things like Daario who is now pretending to be a perfect little angel and we will continue to do so.
14:00
We already have tremendous criminal and regulatory power over these companies.
14:04
There is a sick conspiracy going on against AI and data centers and the only one that is happy about it is China. Whoever wins AI wins.
14:11
We are leading China and all others and will continue to do so.
14:15
Conspiracy theorists, treasonous, traders and leakers beware.
14:20
Thank you for your attention to this matter.
14:21
Um it is funny to accuse uh to accuse like the labs of being in a conspiracy against AI. >> Yeah.
14:30
And that really really doesn't follow.
14:32
I don't Yeah, it does not make >> but uh he also followed up just 40 minutes ago said concerning AI when in the history of business capital H capital B history history of business did anyone see the leaders of an industry call for regulation that if strongly implemented would drive them into oblivion and bankruptcy.
14:50
AI is taking over the world destroying humanity and all other things bad is a hoax.
14:57
No different from Russia, Russia, Russia, Ukraine, Ukraine, Ukraine, impeachment hoax one, impeachment hoax two, and all the other hoaxes and scams that America was forced to endure.
15:05
Uh, President Xi of China just announced that China will be doing absolutely nothing to stand in the way of AI or its future.
15:14
Google has recently stated that they want to build a massive plant in Finland, all because they are finding permitting too difficult in the United States.
15:21
I'm not happy about this and want them to change their thinking.
15:24
AI and data centers will be the greatest economic development engine in history.
15:29
Bigger than oil, gold, diamonds, or even the internet.
15:31
Bigger, diamond, bigger than diamonds, like of all the technology, the internet, the internet, the transistor, the wheel, diamonds.
15:51
These are equivalent things.
15:55
It will not be stopped by brilliantly run destructive forces during the term of President Donald Trump. >> Okay.
16:04
>> Um >> well >> anyways I I'm I'm wondering what the So a bunch of hedge fun hedge funds are paying you know they paid to get access to this let's assume like a minute early something like that.
16:15
How did they trade this because it's very >> long to be?
16:22
>> Yeah, >> long long diamonds.
16:26
>> Yeah, maybe diamonds are are are underappreciated.
16:28
>> I think diamonds are actually in a really rough spot.
16:30
I think people are moving to lab grown stuff really aggressively.
16:32
So, it's a it's actually a tough tough period of time for the diamonds and I'm sure the diamond industry is calling for regulation for for sure. Um, okay. >> Oh, where were we? Um, interesting. I don't know.
16:47
Um, we were we were talking about David Saxs.
16:51
We were talking >> Oh, we gota we got to keep we got to keep going because the president was on a roll this weekend.
16:56
Uh, let's pull up this video. >> Okay. Oh, yeah.
16:59
They asked him how he used AI.
17:01
While we pull up the video, let me tell you about the New York Stock Exchange.
17:04
Want to change the world?
17:06
Raise capital at the New York Stock Exchange.
17:10
The IPO window is still wide open.
17:10
AI market a little bit down but overall handling things pretty well >> and we taking a lot of their cars car tariffs.
17:21
>> President Trump this week again there's been so much concern about AI.
17:22
Have you heard directly from any of these AI tech leaders and you seem to downplay some of the concerns that we've heard >> but it's you know it's going to be more good than bad but by a lot of them whoever wins AI and we're leading by a lot. Whoever wins AI wins.
17:42
>> Have you ever used it yourself or have you been >> AI? Yeah, I do. >> How do you use AI?
17:46
>> But, uh, I would say, >> you know, for the most part, you can use AI for a lot of things.
17:51
>> What do you use it for? >> Right away.
17:53
>> Speaking of AI, >> the funny thing is that is that like like there's AI generated slop on his social account like constantly.
17:59
Like the slop videos are obviously AI.
18:01
Like both sides of that debate or that discussion should have known that, I guess.
18:06
But I guess it's like people on his team are creating like the AI slop videos because like there will be like a new vibe coded like like uh you know some sort of simulator that they put up on White House stuff all the time.
18:20
So but I guess that's not him.
18:22
It's probably people on his team that are like I made this AI video. >> Yeah. But I don't know.
18:26
Uh Gavin Baker had a roundup of what happened.
18:28
Let's go through what's going on.
18:31
And lots of people just sort of like processing this going back and forth.
18:34
people were expecting Elon to be sort of against this, maybe anti-Dario.
18:37
He of course came out in favor and has been talking about how like he was working with Nick Bostonramm in 2014 on AI safety.
18:43
Has been very concerned about this the whole time.
18:48
Um although at various points in time Elon has been less of a doomer and more like we got to build, we got to go, we got to we we we got to you know actually compete here.
18:57
uh working both alongside labs, co-founding OpenAI, founding uh XAI, growing the the model capabilities there, but uh he's he's like firmly in favor of this.
19:09
So, let's see what Gavin Baker had to say.
19:12
He said, "Wow, 24 hours for AI and lots of different proposals have been made. TLDDR.
19:17
The only tangible new fact is that OpenAI and Enthropic are going to have embedded third-party evaluators from unknown organizations with Daria floating meter as a possibility.
19:26
Having third-party evaluators is smart as there's no section 230 style liability shield for model outputs and showing a duty of care will be important in future litigation.
19:39
Several internet companies might have gone bankrupt without section 230.
19:44
So, limiting liability really matters.
19:46
I think there are minimal investment implications from this single new fact.
19:49
But I do think that anyone who wants quote a smoother for longer cycle than most constraints uh are good wafers, watts, rail rates and spreads.
19:57
I was thinking about how the uh a lot of the safety folks are worried about just the capability buildout from the semiconductor supply chain like they they would like to restrict the amount of chips that are created.
20:10
And I'm wondering if um should we not be pacing electricity generation?
20:16
Does everyone agree that we should be building more solar, thermal, wind power right now? Is that uncontroversial?
20:24
Is there anyone who says like no, we shouldn't be doing that?
20:28
is if we wind up in a world where you're pacing frontier AI development, current models are sort of diffusing and there's some economic impact there, but you're not, you know, blitzcaling the data centers and the frontier intelligence.
20:42
Can you apply some of that capital, some of that human talent to just getting nuclear power online, getting solar power online, re re-industrializing the American energy supply chain, battery, relieving grid tension because everyone who complains about higher uh energy prices would be happy with that.
21:02
I don't think the AI safety folks would be upset about that because you could use it for a lot of things.
21:08
Worst case, it's like, okay, you wound up with like, okay, we can never build, you know, AGI or ASI because it's too dangerous.
21:16
At least we have a lot of cheap energy.
21:18
Is there any reason why you wouldn't why you would want to pace the the the build out of the American electrical grid? >> I can't see why. What do you think?
21:27
I mean at some level like yeah it makes sense because it is like an input but it's it's like seems like way too diffuse and also because like yeah it's like if you build a lot of chips like sure you can like you know make more data centers that run YouTube or whatever but like there's kind of a a narrow use case for chips. >> Yeah.
21:48
>> Where power you can kind of do whatever.
21:50
>> I wonder if you uh Yeah. Yeah.
21:50
At what point is there is there some sort of like AI safety um valve that's like we need to regulate that company in South Korea that makes toilets that also makes films for semiconductors because if we can restrict them then we can slow down the pace of AI progress uh going really really deep in the supply chain for for safety reasons potentially.
22:10
Um to summarize the events, Gavin Baker says, "Daario made the most maximalist proposal of the weekend.
22:16
Embedded third party evaluators, national regulatory regime for models beyond a certain capability, ingredient threshold, a broad international regulatory packed between democracies, stricter limits on compute distillation for China, and then a different international regulatory regime that encompasses China before there is ever a national regulatory regime.
22:36
He wants a Sherman Act waiver so that Anthropic can safely coordinate with OpenAI and other frontier labs without antitrust fears.
22:42
To be frank, this latest proposal is much less maximalist than some of his prior proposals like policy on the AI exponential where he advocated for an FAA of for AI.
22:52
Now people are talking about FINRA for AI which is more uh non-governmental regulation but industry focused.
23:00
Uh I believe he is sincere in his beliefs and despite all the protestations all of this would also probably be good for his business over the long term.
23:09
Yeah, there's a there's there's a lot of tricks here where uh people where something there if if there are if there are multiple quadrants of like actions you can take and it's like it's either good or bad for your business or it's good or bad for safety, you can land in the good for your business and good for safety quadrant and everyone will accuse you of being cynical and doing it only because it's good for your business.
23:33
And so yeah, it gets really difficult to to say, okay, yes, like the thing that I'm advocating for is good for my business.
23:39
Now, Rune had another take, which is like, no, if you're pacing the frontier, that's going to compress margins because everyone else is just going to catch up and it's going to become more oligopolistic.
23:47
So, if you hold, you know, like, yeah, there's this duopoly right now for the true frontier amongst open AI and anthropic.
23:54
But if you hold that constant like watermelon from uh MSI uh MSL is going to catch up, Deep Mind's going to catch up, like you're going to have three or four Grock is going to train to that level and so you're going to have four, five, six, seven really capable competitors.
24:09
Uh what was interesting is like Ara Carzian was saying that AI spend declined a little bit in August and that was mostly because of price cutting.
24:19
It wasn't actually people using less AI.
24:20
So, it's not like people are pulling back on their use of AI, but the there's more price competition.
24:26
So, Open AAI is discounting and people are being we saw like the Fable adoption was a little weak and a lot of it's like, hey, are we sure we want to use the million-doll model for checking the weather, like let's be a little bit more judicious about this.
24:40
And so if you wind up with a with a world where there's much more price competition, um that could compress the frontiers margins, which is not good for business.
24:53
So doesn't really put you in that top quadrant that you have to be so cynical about.
24:56
Um the interesting thing is that he said that he doesn't think that it's open- source Chinese models that are actually putting pricing pressure on the frontier.
25:05
It's more of the duopoly dynamic.
25:06
And he and I think that's because I think he sort of alluded to this that uh there's just a lot of companies that are like I am comfortable doing business with an open AAI anthropic uh a Google of course something that's on ABS something that's on Azure uh yes I could just download the weights for deepseek but uh I'm not really comfortable with that.
25:26
I don't really want to deal with that.
25:28
I don't want to deal with the scaling and uptime of that.
25:30
And so yes, there are APIs out there that are reasonable, but none of them are as mature as the as the frontier uh labs, not in terms of the intelligence, but in terms of the actual if I implement this in my business, will it reliably give me the right results?
25:46
Is there high quality SLA?
25:46
Will the service stay up?
25:48
Will uptime be good, etc.
25:50
So, um there's there is a world where you could get to a place where this is bad for the frontier companies business-wise.
25:58
And Sam has talked about that in an interview with Fortune saying like if it's bad for our business like we've we have said to our investors at every step for like a decade that like this is kind of a nonprofit.
26:10
This is a this is a this is a you know uh there are a whole bunch of different ways in which this is not purely aligned to uh shareholder interests like other companies.
26:22
I forget the actual term for uh the the structure that both Enthropic and Open use PDC's. Yeah.
26:28
Public benefit corporations.
26:31
So they so there so so so I think both Sam and Daario feel very confident about being able to go to their investors and say, "Hey, we're doing something that's going to slow down revenue growth or tank margins or, you know, just reduce the market cap of the company, but we think it's the right thing to do. So deal with it."
26:50
and you can't really sue us because you invested in a PBC.
26:54
And uh but no one's really giving them credit for that.
26:58
Everyone thinks like, "No, this is cynically what gets them to 10 trillion.
27:01
This is what gets them to 10 trillion."
27:02
And I don't know, may maybe maybe it is, but uh but it definitely seems like uh like the the if we're if we're on the midcurve, you know, bell curve meme, like the dumb guy thing is like slowing down is bad for business, right?
27:16
like like the midcurve is like slowing down is actually good for business in the 4D chess and like do you don't want to be the best and have 100% market share.
27:25
You want 20% market share because you let everyone catch up to you.
27:30
Like I I'm not I'm not super convinced of that, but you know there's plenty of people that are making that case online.
27:35
Uh anyway, let me tell you about Cisco and then we'll bring in our next guest.
27:39
Cisco critical infrastructure for the AI era.
27:42
Unlock seamless real-time experiences and new value with Cisco.
27:47
Nico, welcome to the show.
27:49
Thank you so much for taking the time.
27:51
Come on down to the TVPN Ultra Dome. >> Hello. >> What's happening?
27:56
I thought it almost looked like some merch we would make. >> I know.
27:58
I was trying to match the colors right in the background. >> Yeah.
28:03
>> Um, introduce yourself.
28:03
Give us a Let's Let's begin at the beginning.
28:06
I want to hear the story of of how you wound up uh in your current role, your mission, and then there's a million things we can talk about the market and your strategy, but uh take us back to the beginning. Where'd you grow up? >> The beginning. My beginning. >> Yeah.
28:19
>> Uh I grew up in Germany. >> Okay. >> Yeah. South of Germany. Small town. Tubingan. >> Mhm. >> Beautiful.
28:24
It was not destroyed in the war.
28:25
>> In Germany is in in Europe, right? >> It is. Uh yeah.
28:27
Just uh >> a bit east of the US. >> Yeah. Okay. Got it. Yeah.
28:33
>> Um >> my geography outside of the United States is rough. >> I can help you. >> Thank you.
28:36
And >> when did you come to the US?
28:39
>> So I ended up doing an exchange here in upstate New York.
28:42
So my junior year of high school, I ended up um in a super small town. >> Okay.
28:48
>> Three and a half hours north of um New York. >> Cool.
28:51
>> And so that's when I first got to New York and I was like, I want to live here, you know.
28:54
Um, and so I started looking for >> that's got to be like going going from small town in Germany, passing through New York City and going going three hours north has got to be like the such a trip because they're obviously you know entirely you're like I'm going to New York and then you have this idea of New York in your mind and then you end up again back in a tiny town.
29:16
>> So I opened the letter from the organization that places you >> Yeah.
29:20
>> And it's like you're going to New York, Kander, New York.
29:23
Like Where's Cander, New York? You look it up.
29:27
>> Never heard of that burrow.
29:28
>> It's small, but it was a great experience.
29:29
And and so the interesting part to that though is that so I was in the middle of nowhere >> in the US and then I also got to go to the middle of everything in the US.
29:37
And so I had a really good exposure to both sides of the US, the kind of elitist coastal >> urban life and also the you know small town living.
29:49
>> Um so that was the first first time I came here.
29:51
And I went back, I did an internship here after school >> in New York um and then studied in Germany, Singapore.
29:59
And during my studies, I started um selling refurbished iPhones.
30:05
So that so the iPhones first came out >> in like 20078 and they were locked into a into a contract in Germany. It was super expensive.
30:12
So I bought a refurbished one and I started reselling them. >> Okay.
30:16
>> Was that like jailbreaking them or unlocking them? >> Yeah.
30:18
There was a tool called Red Snow. Okay. Yeah.
30:21
And they could use on any carrier. >> Yes. Got it.
30:23
>> Because it was locked in in the beginning and locked into like a 2-year contract was very expensive.
30:28
>> Um, so so that's that's >> all I remember all the names of like software like that like red snow.
30:31
It sounds so sounds so sketchy, but it was like the names of all that kind of like >> unlocking, jailbreaking, all the all those names were >> Yeah.
30:41
That was a pineapple one. >> Yeah. >> Yeah.
30:44
So that was my first like foray into Yeah.
30:46
business, but like you know Yeah.
30:48
small internet entrepreneurship >> and then I read about a group in Berlin that was um really the pioneers of the German internet scene at the time.
30:55
So everything happened a bit later in Europe, right?
30:59
And so in like 2010 came across this firm in in in Berlin.
31:01
I just reached out to them cold. It was an incubator.
31:05
So back at back in the day it was they were building companies.
31:07
Um and then they had a small 6 million euro fund on the side >> and so they were like why don't you come during your studies and work with us on this like small investment fund.
31:15
Must have been a good cold email.
31:18
>> I mean it was I I don't I'm not I don't even remember.
31:20
It was actually I had So this it was important though because I had a offer from a consulting firm that would have paid twice as much. >> Yeah.
31:28
>> But I opted for the you know opportunity to go into startups because that's where my interest was >> and that led to this you know so it was really um an important decision back then.
31:38
Um and they gave me a shot.
31:38
Um I learned about venture.
31:42
I then finished my studies and when I came back from Singapore was which was also kind of an exchange.
31:48
Um I ended up doing a again sending an email to the same group this guy Pavle um who was working there and he um offered me to come back because they decided to spin out the fund >> and it became point which was the first institutional venture fund in Germany.
32:06
>> No not in in Berlin there was another one in in Munich.
32:10
>> Um and so I started working there straight out of school.
32:11
So I just got lucky that like at the time venture was not what it was.
32:14
It was just the start of the European venture ecosystem. Yeah.
32:18
>> And so I kind of fell into that and then it was a super small firm.
32:20
Um it's also historically the best performing early stage firm in in in Europe.
32:24
So they did super well >> cool >> early on and um I got a lot of responsibility.
32:29
I was there for 5 years and um they were originally focused on enterprise software so SAS tools.
32:36
>> They were early in Zenesk and um Loom later on here in the US >> really.
32:40
So it wasn't just limited to Europe, you were investing all over.
32:44
>> So we we called it remote VC.
32:44
So it was kind of we were based there, but we're trying to look for the best things across the globe that had, you know, that were fitting our thesis.
32:54
>> And then I was recruited by Insight. >> Oh yeah. >> Partners.
32:57
Um in 20 um 16 I left to to join Insight.
33:01
Um that that's when I moved to New York. >> That's a grinder. >> 10 years ago.
33:06
It was uh very different than the small humble.
33:10
>> It's like a hardcore culture, right, for venture.
33:12
It's like you got to be >> Well, it's it is it.
33:13
It's just, you know, the way it works is that they built they innovated this.
33:16
So, the the founder of Inside, Jeff Horing, started the firm when he was 26. >> Yeah. >> $20 million fund.
33:22
It's now hundred billion and he's still running it, right?
33:25
And so, >> founder, >> no, he's a he's a legend.
33:28
Um and he he ended up um innovating on this outbound sourcing model.
33:34
So they have analysts that are just cold calling.
33:36
It was literally the phone in the beginning.
33:39
Now it's emails and everything.
33:40
>> Sort of a price for every company in mind. >> Yeah.
33:42
And discover every company. >> Yeah. Yeah.
33:44
They want to know everything. >> Exactly. Exactly. Discover every company.
33:47
>> Very interesting model. >> Yeah.
33:48
It's it makes sense and it still works.
33:49
So they scaled that and they bet on the same on the right trend.
33:54
>> So I was there and so I had learned that at um 0.
33:55
9 I had done some SAS and I did that too.
33:58
But I was always because of this iPhone story interested in consumer software.
34:01
I was there when the Epsilo lounge and so some of my investments at both um Por 9 and at Insight were consumer mobile investments. >> Yeah.
34:10
>> And so I decided to leave Insight. I signed the separation.
34:13
It was like 2018 that we agreed on everything.
34:15
Early 2019 I left and then I started um working on adjacent and I guess what's somewhat unique at the time is that >> back then it was not normal to do it by yourself.
34:26
You know like that solo GP was not a thing. Yeah.
34:28
And I didn't opt into >> two two years later it was like the main like it was the main thing that people were talking about. >> Yeah.
34:34
And and and today um I think last year the majority of new funds were solo GP funds. >> Yeah. >> Right.
34:42
So it became a real thing and in fact that's also one of the things that I try to support now by I have invested in a lot of those funds like two dozens or so um and also anchored a first solo GP fund now with adjacent.
34:56
So I kind of like accidentally fell into this started adjacent but then also trying to build this kind of rebel alliance.
35:02
Uh what was the infrastructure like when you started as a solo GP in is 2018 2019 >> because there were some people that were using angel list for certain SPVS and and there were rolling funds and there was like there were some tools that you could use but did fractional back offices exist or did you sort of have to roll your own solutions to certain things like uh yeah what was actually required?
35:27
>> So it just started that angelists were offering services Carta starting as well. Yeah.
35:33
>> Um the big difference there was that I was actually you know looking at what um what makes sense for the structure.
35:37
I knew I wanted to be in New York but I also was looking at European structures and the infrastructure in Europe was way behind the US.
35:44
So I opted of doing it in the US and I um didn't go for the services and the reason for that was mostly that I didn't feel like they were institutional grade yet >> because I wanted to have institutional investors and there was like limited flexibility.
35:56
I think that all changed now which makes it much easier to start >> but at the time um it just started. >> Yeah.
36:04
>> So basically just like yeah just hiring law firms and accounting firms like your bigger >> you have a fund admin which is easy um then you have um you have audit as a firm separate firm um and then you now I mean now really what supercharges is AI now because you can do so much more >> you can automate things you have agents but also research like diligence and like sourcing everything.
36:25
Yeah, I was going to ask how at at what point does uh does like Insight's initial strategy just become fully democratized where like there's out of the box?
36:36
Obviously, if you're doing this yourself, you're always going to be able to find different edges and things like that, but it feels like you might have access to like a comparable level of understanding of the market with like one person. >> Yeah, I I'm not sure.
36:51
I I think that certainly it gets easier, but what they're really good at is discovering things when it's still relatively unknown, right?
36:59
So like from the outside, you don't know what a stealth or a new company is doing.
37:02
Once there's signal and press and more data, then the AI picks it up. >> Yeah.
37:08
>> But I think this like this broad sourcing still makes sense.
37:10
And then the other important aspect to it, which actually works for me too, but is that the analysts are not just sourcing, they're also relationship building, right?
37:18
So, so they're reaching out to someone and you still want a human to human interaction with a founder because they don't want to work with a computer, not yet um at least >> and so you have this relationship and you stay in touch with them over two three years and then you invest and I think that will still work for them. >> Mhm.
37:32
What was the LP strategy >> for actually raising initial fund?
37:37
>> So yeah, >> straight shots on endowments, funds, high net worth individuals. What were you thinking? What worked?
37:44
>> So my the first close was hard.
37:47
>> The the whole fundraiser was hard.
37:47
It was 18 18 months to get the first fund off.
37:51
>> And what um >> made it harder was um co started at the same time. >> Yeah.
37:58
>> And my now wife got pregnant with our first kid.
38:00
So it was just like a it was it was an intense 18 months.
38:04
>> Um but what I did is essentially I the first close I started and going back to the founders that I had invested in that had already proven and made money.
38:11
So the the founder of Revolute Nick was one of my first LPs.
38:16
of my first LPs. um the founders of column which we had invested in with with insight and um and then a bunch of GPS >> that the founders of point 9 where I started working Jeff Horing later invested as well um and then I had friendly um friendly funds like thrive and founders fund that actually helped
38:33
me with the first fund that's great >> and so that was the first close >> and then the first family office came in >> which um was SCS to give them credit they were also very early in in in both thrive and founders fund that's how the relationship started >> and And based on the first $10 million first close, I just started investing. And the second investment I did was
38:51
And the second investment I did was Speechify, which ended up doing very well. >> I love speech. >> Cliff is a character. >> He's amazing. Yeah.
38:59
>> Um and so with some proof that I could also function by myself.
39:02
I then went to the institutions and then was able to get a $40 million first fund together. >> Sure.
39:10
>> And then since then, I've been pretty consistently increasing it.
39:14
So, I'm I just started investing out of fund four now with um in this year, >> but I've been like kind of >> pacing it in some ways.
39:22
Before it was cool and in the in the growth from like 1, two, three, four, adding roughly one LP per fund. >> Sure. Nice.
39:32
>> And that has I mean gotten somewhat easier because there's more proof.
39:34
We just had Benning Spoons go public.
39:37
Um was the first >> talk about talk about that.
39:39
>> talk about talk about that. uh how did that initial investment come together and and was that always did that always feel like on you you're more thesis driven >> than than most >> VCs I would say in general like a lot >> um like VCs will say they're thesis
39:58
driven but they have like eight >> eight active you know thesis thesis was buy low sell high >> that's that one always works old reliable >> well I don't know if you're in San Francisco today that that's not what they high sell >> bending spoon buys for 10% of the peak market cap, right? So, who knows where
40:13
So, who knows where we'll end up here. That's >> true.
40:16
>> Um, but yeah, how how did that initially come together and like what what did you see?
40:21
>> Yeah, so the um so I when I started adjacent and the thesis has also evolved since then.
40:26
We can talk about that more what like led to other investments.
40:27
what like led to other investments. Um but initially I so in 2019 2020 then the co time if you remember there was this crazy SAS um >> explosion right multiples went up everybody went crazy going back to the no it's all all all cloud right um and crypto actually so those were the two things so all the new funds were doing the same y
40:49
>> and because I had success in consumer >> I ended up deciding to to start a fund initially focused on consumer and especially consumer subscription companies And that was just essentially a transfer from the SAS um and then seeing the app store and subscription launch on the app store and like being close to some of the first investments that did well there. Yeah. Yeah.
41:07
>> So I was quite differentiated in that.
41:09
So the first fund and the second fund to the most degree were very focused on consumer subscription.
41:14
>> There's one problem though with these consumer subscription companies.
41:15
I mean there's advantages disadvantages but one of the problems as opposed to SAS is that they're much more churny. >> Right.
41:23
So at one point depending on how deep the market is you hit a ceiling. Yeah. Right. Right?
41:27
And this can be at millions, tens of millions, hundreds of millions.
41:30
But if you still want to if you want to go for big outcomes, you still need to grow at a really high clip at hundreds or billions of revenue, right?
41:37
And and and Chpt to some extent has done that, right?
41:39
In the beginning, 75% of their revenue was proumer consumer.
41:43
So the thesis was good, but I'm not an open AAI, which sucks.
41:45
Um but it was just a different game.
41:47
And um I I ended up picking the right trend, but also wanting to have a little bit of um um like a hedge against it in some ways because you could see that these companies kind of get to revenue relatively quickly, pretty cash efficient.
42:02
They need much less people and opex and distribution costs than a SAS company in terms of headcount.
42:08
>> And so they were like tens of millions or hundreds of millions, but very profitable.
42:11
So we already had this thesis of like there's actually a really big play here to aggregate companies.
42:16
Um because if you can synergies Yeah.
42:19
And then we I was actually I had a an investment in a company called Blinkist which back in the day I don't know if you remember. Yeah. >> Short book. >> Exactly.
42:28
Which was very innovative at the time >> and subscription based. Yeah. >> Subscription based.
42:32
This was one of our inside investments and I knew these guys from Berlin since 0. 9 times.
42:34
And so one of the founders, Nicholas, actually um came as an entrepreneur and residence to Jason for a while and we were thinking about incubating a company that did this >> and then I was on a webinar with Luca in 2020.
42:48
And I was like, I think we should just do that, you know, like he's amazing and he was already like doing it >> and and this was pre-hatbt and then I think AI also helped them a lot in actually building the synergies and the transformation engine that actually then makes >> well it also helps them by uh you know knocking 90% off of the the market market caps of these other companies.
43:11
>> Always some luck involved. >> Yeah. >> In that. Yeah.
43:13
So that led to Bennett Spoons.
43:16
>> And then when did you actually when did you do Aura?
43:19
So, I want to I heard you say this in the beginning and I just want to make sure that I I'm I I did invest in Aura, but this was around the time of the first close. >> Yeah.
43:27
>> So, I couldn't I didn't have a fund yet.
43:29
And it was around that was like I don't know if I should even do that with the first $10 million first close. Yeah.
43:35
>> And so, I ended up investing personally with a group of friends in an SPV.
43:36
It was actually the and the friends of mine that um I did this with is um was the team that I was leading at insight um and they left also started a fund called Left Lane.
43:49
>> This guy Harley Miller. >> Yeah.
43:50
So we did it together back then. >> Yeah.
43:52
What was the initial uh portfolio construction thesis for that $10 million fund?
43:58
Uh uh well one last thing on aura is just interesting I think also that so the reason we understood aura back then even though it was a hardware device then with no subscription >> was that we had done calm and calm had inflicted by launching sleep stories.
44:13
>> So a lot of the growth actually came from people not wanting to meditate but needing to calm down before sleeping >> because sleeping was such a big problem.
44:20
It still is to a large extent right in the western world.
44:23
>> It's like the foundation of your health and psyche and everything.
44:24
And so we we did Aura and then we were pitching also the move to subscription and hardware and subscription worked and that led then also to this hardware subscription thesis which led to board backbone.
44:37
>> Um tractive a company we sold also this year. Um so how was that? >> What is that company? Tractive. >> Yeah.
44:42
Tractive was the it was probably the biggest exit in Austria ever.
44:45
So it's small small town in Austria and they built a a tracking device for pets. >> Oh okay.
44:54
>> So you put it on the color.
44:54
So, aura for pets in some but location.
44:56
So, if you're in a remote area, you know where your dog is.
44:59
You can like call them back and you see them on the map.
45:01
You see how they move, how they sleep, and things like that. >> Yeah.
45:04
It's And actually, who bought it? >> Bennington Spoons. >> No way. >> Wow. >> Like fun. Fun. >> Yeah. >> Nice. >> Yeah.
45:11
But it's great you're monetizing both sides on the way up because uh your pet doesn't come to you and say, "Hey, I want I I want a churn from this dog food." You know? >> Exactly.
45:23
But so >> no, this is but this is like this is where literally >> what Blue Apron, you know, Blue Apron was like a subscription food company and eventually people would just be like ah I want to try something different like I'm just sick of this.
45:35
>> That's why farmers dogs works. >> Yeah. Yeah. Yeah. Exactly. >> Right.
45:38
In fact the same because actually the average subscription was years. >> Yeah. Exactly. >> By purchasing it. >> Yeah.
45:43
Whereas people might even take off a Fitbit or something be like I'm out of this fat. I'm on the whoop.
45:46
I'm out of and move around a little bit.
45:48
So >> it's hard to get sticky.
45:50
the thesis has has expanded, but I want to get uh your updated updated kind of point of view on consumer right now.
45:58
I feel like um a year ago, people were really pounding the table being like now is the time for consumer >> consumer AI.
46:06
And yet, if you look at the iPhone charts, it's been the still like the time of of language models, right?
46:14
So like most of the new apps that maybe weren't in there 5 years ago are are uh various chat apps.
46:20
Uh and then the other sort of popular apps that you're seeing are like short AI drama slop stories which is um uh >> consumer >> which is yeah which is consumer but but um maybe not the explosion of of different types of of applications that I think a lot of people expected. Yeah.
46:43
And I think part part of that my my point of view is like the chat apps can just do so much.
46:47
Like there's so much um you can maybe maybe uh uh the example I use uh that that's not super relatable for most people is like checking the surf.
46:58
Like if I want to get an update understanding of like swell and tide and all these things like I actually don't need a net new app for that.
47:03
I don't need like the AI for checking the surf app.
47:07
I just need like >> chatbt or whatever someone's preferred LM.
47:11
So, how are you thinking about the the overall landscape, especially right now because you have a new, you know, horse race with with Instinct and Muse?
47:20
So, it feels like the we didn't we didn't have the end of history with consumer. Yeah. Yeah.
47:24
But >> yeah, I mean it's um it's it is definitely true that the world changed after JGPT, right?
47:32
So like 21 lounge and then the coding help.
47:34
Um it's actually so so one interesting trend is that the number of new apps.
47:39
So one of the other like proxy investments I did with fund one is a company called revenue cat which is powering 60% of the new launched apps um with the subscriptions today um and through that we can see it's just like an immense increase in new apps that are being launched.
47:53
So um for venture for me I actually had to move on somewhat from consumer at the time.
48:00
time. I think there will be new applications in consumer plus AI and I'll talk to that but um it definitely it decreased the barrier for new things significantly right so the ceiling if you think it just like theoretically the competition increases significantly because so many more new apps so getting
48:15
to a venture scale outcome is even more even harder right so even though we have more niches served >> the venture outcomes are more difficult right so I think that that like if it's very simple it doesn't make sense and there is consumer things like I invested in in popcorn which is which is a X-G telco. So they're building their own
48:30
So they're building their own core infrastructure for telco. They have an eim.
48:34
You download an app, you get the international number, but also they have AI features integrated.
48:37
So you can use a call assistant and stuff like that.
48:40
So I think if the technology goes deeper, more differentiated.
48:44
>> Never put a phone call through to me ever. >> No, what I want. >> I have an assistant. >> Yeah.
48:50
Jenny calls like instead of voicemail, she picks up and said, "What is this about? What is this about?" >> Yeah.
48:55
And then if it makes sense, >> good reason because I'm not putting you through. So many spam calls.
48:58
My phone's always do not >> disturb. Ex.
49:01
I don't I don't have I don't >> Oh, and that's so so so the most annoying thing to me is someone calls you, >> but they don't leave a voicemail.
49:09
Like I don't really want a voicemail, but if I get a call that I'm not expecting, and then there's nothing.
49:13
I'm just kind of wondering there, >> but I but I don't want to pick up the phone.
49:17
I don't want to take a random scam calls that you'd get where it would play the Chinese music in the background and then you'd hear Chinese like pitch for something.
49:27
It was like a scam call, but they specifically put like Chinese music in the background. You ever got those? >> No.
49:35
>> Where did you sign up? >> I don't know.
49:36
My my phone number goes everywhere because I've like started businesses and my phone numbers leaked all the time through like customer service and stuff.
49:43
So, I always have gotten like the weirdest spam calls ever.
49:46
But, uh, that was a fun one. >> Yeah.
49:48
So, I have now one number that's my spam number. >> Yeah.
49:51
>> That I use on the internet for twoification.
49:52
And I have my popcorn number, which nobody has except real people. >> That's good. need that for sure.
49:58
>> Um anyways, I do think there's a new era coming. Yeah.
50:01
Which um instinct I mean there's just like a lot of to instinct pulsia like there's companies that are now doing things that are proumer consumer that that are personal agents.
50:11
>> And I think I I do expect that there will be a lot of things that work there but also it's very difficult today to to understand what if that will be eaten by the labs right so how vertical can it be and then also you have meta playing for it right like the problem.
50:24
it right like the problem. So essentially it's just it's so crowded and so many big companies are playing for that that for me that wants to go in early and not at 500 million or a billion dollar valuation it's very difficult for me to play there right now you know >> and there's also like plenty of scaled
50:41
unicorn decacorn companies with founders who are live players maybe re-engaged and they are monitoring the model releases on a daily basis and saying I'm going to implement this on day one have a team that's sprinting to implement this feature so that there's not an opportunity for my SAS company plus AI getting funded because I'm doing it, you know, on day one. >> Yeah. And I think like Muse is a great >> Yeah.
51:04
And I think like Muse is a great example of that, right?
51:06
example of that, right? Like I think the the speed at which Meta moved on this personal agent trend and launched Muse is really >> it's still still unclear to me what uh when they actually started working on Muse because it feels like I mean I'm
51:20
I'm sure they tried to buy Instinct but that doesn't necessarily mean they weren't working on some months like Natt Freeman's been there for almost a year maybe more and the >> but the level to which Alex has just been like taking direct shots at Instinct all the time on the time. >> Does he have a nickname for it?
51:37
>> Does he have a nickname for it? >> What >> does he have? >> Oh, yeah. Insect. Really? >> He called it. Yeah. Yeah.
51:42
I wasn't sure if that was a typo or intentional.
51:46
>> Um, but it but rare to see a trillion dollar company like hackling >> and while cloning a like a a startup that's 11 months old. >> Yeah.
51:54
They didn't really do that with Tik Tok or Snapchat.
51:55
Like they're pretty quiet.
51:58
They were just like, "We're excited to launch stories.
51:59
We're not going to say anything about >> Well, yeah. No, no.
52:02
In that case, it was like Evan would be kind of like taking little shots. Yeah.
52:05
And that's what you'd expect, right?
52:07
You're like the dog under the dog takes a shot.
52:09
But this time, you trillion dollar country. >> Yeah. >> I don't know. >> Yeah.
52:17
>> But but that's the the reason why the the the stock market has been driven by a lot of these companies that are just still compounding.
52:22
Same with Alphabet, right?
52:24
It's like it's just it's been it's been hard for VC to actually like benchmark themselves because the market's done so great because all the tech companies are just doing amazing things.
52:33
>> How how are you thinking uh of of investing in in Europe considering that uh there was some some proposal I just saw that was saying like Europe basically needs to spend hundreds of billions of euros to try to sort of quote unquote catch up in AI.
52:47
Yeah, >> I have a buddy um uh from Austria and I was uh he's working for an American company right now, but I was like, "What are you doing?"
52:57
Not just like starting a um like a neocloud right now.
52:59
I was like, "I know people in the US that are >> dumb as rocks and they're going to be they're going to be billionaires because like they just like picked a hard problem with an exceptional amount of demand and have just been working on it for years.
53:13
And I feel like Europe's lagging a little bit.
53:15
If you just roll up your sleeves, >> you're dumb rocks. you can do this. >> No, no.
53:19
The point the point was like you you seem like very very smart and capable.
53:23
Um and uh and like if you just focus on figuring out how to get uh you know a powered shell and some chips, you're probably going to be able to figure out some some demand.
53:32
But >> um how are you how are you thinking about?
53:37
>> Well, I I look if in my career Europe has been super important.
53:40
Revolute, Bending Spoons, Aura, right?
53:41
Bending Spoons, Aura, right? like those are companies that are really important but also they often times were in the category that was was not yet very hot in the US you know so if like it's it's not easy I mean there it is true that Europe we have not done enough to support innovation and this is everything from regulation to the
53:59
bureaucracy and like um labor laws like there's a lot of problems that like startups are tied into the same >> regimes as big established companies so that doesn't allow us to move as fast right and that's a problem and I hope that changes um but I do think Europe has amazing talent ent and Europe has also the ability to build new things. AI AI completely missed it.
54:17
Um probably as a consequence of having already not done as well in software and the infrastructure build out that's required to actually do this.
54:25
Well, >> I mean just pattern matching on the last cycle.
54:28
It's it seems important that Europe never got European Facebook, but Europe did get Spotify, >> which which was which was built on top of Facebook and benefited from the Facebook network and algorithm, but it wasn't a direct clone because and when I see these things where it's like Europe needs its own LLM, I'm not entirely sure about that.
54:51
I'm not entire I'm not entirely sure.
54:53
Like if you're going to do China and you're going to do firewall, then you get the Chinese Google, the Chinese Facebook.
54:56
Europe hasn't gone far enough to actually, you know, truly create a uh an area where you could have a European Google and make it so hard for Google that they get kicked out and then European Google wins.
55:11
But you can go and do a Spotify, which is an actually new idea, wins and is not directly competitive, actually very compatible with Facebook.
55:19
They were, you know, obviously a lot of investors in common and stuff.
55:24
>> Yeah, I think it's very hard to catch up in in in in AI.
55:26
in in in in AI. hopefully will to some extent but there's also like energy um defense like we had dependencies for too long >> yeah for some of those like helling and stuff you can see that being a clear line but but when it comes to just like >> global innovation like running your own
55:42
race seems to make a ton >> you should it should be differentiated into their own strengths >> yes exactly >> and and I think that will keep going and we we started later right like there's still like we have the Spotify soon we have a revolute we have but like those companies it takes some time to trickle down Yeah. But like we acquire companies in the US,
56:03
But like we acquire companies in the US, but like we're an Italian company, right?
56:06
And like I think those like that that ecosystem the same with Daniel Ak is doing a lot now with materia to like support companies.
56:12
Helsing and Niko and stuff in Europe.
56:14
And I I think that is just like hopefully with time that also works.
56:18
And >> you spend time in Estonia?
56:21
>> Um >> birthplace of Skype. >> Um I well he Yeah.
56:23
So, um I I don't um I have one company that is actually a Ukrainian defense company.
56:29
Um they're based there, so there's become a bit of a defense hub in Estonia um for that.
56:36
>> Um but I think the the the original founder of um Kazah has built up um he he was one of the first investors in a tropic >> back then and stuff.
56:44
So there's like also there is a lot going on there.
56:46
It's just like not one of my core geographies so far. Sure.
56:50
>> What do you think about the the disconnect between what Bending Spoons will currently pay for a software business and what VCs will pay to invest in a potentially future Bending Spoons portfolio company?
57:04
>> I mean, I I I I would not be surprised if Bending Spoons buys a lot of the >> high companies. Yeah. I've just been Yeah.
57:14
No, I I I I I feel very very strongly that that will happen.
57:18
Uh even though the companies have great teams, they're growing revenue super quickly, but it's just extremely notable that when you look at some of these software businesses and you look at >> I see, you know, in some of these acquisitions, you can imagine that Bending Spoons was like the real only serious like bidder for some of these companies.
57:39
And so they get to set their price and so >> two things need to happen.
57:42
one bending spoon's thesis plays out and and people sort of globally realize, hey, we should have been like more comfortable with the risk associated with this.
57:52
Buying a software company at like three times revenue is like kind of could be stealing it.
57:57
So, >> if their thesis plays out, there becomes more buyers like bending spoons, right?
58:03
Because there's plenty of capital that could help prices come up.
58:05
But the alter, you know, that it feels like the most likely scenario is like we get these companies today where I look at them and you'll have a company, you know, $100 million of revenue trading at at in the billions and you just see like this company is, >> you know, how many more of these sort of like hype? >> Yeah.
58:26
>> Yeah. I mean like since VC works in a way that it's very fomos dri FOMO driven consensus driven everybody thinks everything is going to be very big and then we have these hype cycles where I'm not saying AI is a hype obviously the technology is super powerful and it will
58:41
change the world is changing the world and but with that always comes a lot of money chasing things that do not turn out right most of the venture bets do not turn out and they are orphaned at one point right the founders move on the VC moves on people just want to have some money back to invest into the next hot thing. >> Yeah. >> Yeah. >> Right.
59:01
And that's what the core insight is that's driving a success of a company like Bending Spoons. >> Yeah. >> Will be interesting. >> Yes.
59:10
>> But it but it but it's notable that like it's not like there were the wave of Bending Spoons big high-profile acquisitions was like 5 years ago and now we're doing it again.
59:17
It's like >> all these things are getting priced now while we're doing it all again in the same present moment.
59:23
And and it's like >> repeats the cycles repeat.
59:27
>> It's repeating in real time. >> Yeah.
59:29
>> Why uh what brought you to LA? Sure. >> Well, okay.
59:31
Last uh last question here.
59:34
Um no, I'm happy to keep going.
59:34
No, >> I wish we had more time.
59:35
No, >> um I am here uh so one of the first like breaking away from the thesis was um a company called Inversion Space that is here in in LA and they're doing a hypersonic delivery from space.
59:50
>> So they partnered with Unreal on the Golden Dome.
59:52
They just did a contract with NASA also.
59:53
So I'm here to to see them. >> Amazing.
59:56
>> And then um one of the funds um that I like a lot in in San Francisco, KTOS. Um Ian, you had Ian on? Yeah. Yeah.
1:00:02
So I'm a small LP there and he's hosting an event on Wednesday, so I'm there for that. >> Great. >> Great. Awesome.
1:00:09
>> Well, thank you so much for coming by.
1:00:10
>> Thank you so much for coming on.
1:00:11
>> We'll talk to you soon.
1:00:13
>> Let me tell you about Railway.
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1:00:23
Scott, thank you so much for taking the time to come on down to the TVP Ultradome.
1:00:27
Uh, I would love to start with an introduction on yourself, but also uh the just the story of Scout Motors.
1:00:35
It's a fascinating company, goes back decades if I'm not misinformed. Um, tell me the story. Yeah.
1:00:40
Of of of both the company and and how you got involved in where you're going next. >> Wonderful.
1:00:46
I mean, uh, I'll start with myself.
1:00:48
I think where it starts with me of course is New York uh the automotive business obviously with my last name of a Irish background.
1:00:54
My family is a classic uh American tale. Yeah.
1:00:56
They came here with a suitcase.
1:00:59
They came to Ellis Island and my dad was in Brooklyn.
1:01:02
My mom was in Rockaway and they wanted to make their way in the world. That's amazing.
1:01:06
And of course uh it brings me here to uh here to today. >> Yeah.
1:01:09
>> I think if you look at Scout Motors, how it all came about.
1:01:12
I think first and foremost as you know it's a iconic American brand.
1:01:16
basically invented the SUV segment, invented a lot of these things back in the 1960s.
1:01:22
>> I think what happened to Scout is exactly what happened to America in the 1970s, high inflation, >> uh, stopped making things, outsourced a lot of things, had troublesome labor relations, high inflation on that, and this American dream, this American icon went away.
1:01:38
>> And, uh, how it came back to life, I think it's sort of three things came together.
1:01:41
I think first and foremost was, let's say, the business necessity.
1:01:46
M uh the Volkswagen group at the time said, "How can we get more successful in America and the way to be successful in America is to go after these profit pools where the trucks and rugged SUVs are >> and of course they had purchased a company called Navastar. Yep.
1:01:59
Navastar had the heavy truck business of international.
1:02:03
Of course, they had the rights to scout. Yep.
1:02:05
>> And there came the genesis of this idea.
1:02:08
Could we bring back this magical icon with the backing of a company that knows exactly how to make things and get good cost and bring it back to life with a clean sheet and and that was the premise. >> Yeah.
1:02:19
>> And that was four years ago.
1:02:19
We had one employee and a couple of PowerPoint slides.
1:02:24
And now fast forward, we have 1,600 employees.
1:02:27
We're industrializing a factory in Blewood, South Carolina.
1:02:31
We're going to show you a pretty cool prototype car behind me in a little bit.
1:02:35
>> And uh and here we are.
1:02:35
I think the other thing that's important to look at is sort of the softer side of the thing.
1:02:41
And and for me personally, I think a lot of us uh during COVID, I drove across the country with my family.
1:02:46
When you drive across the country, right, you go to Ohio, you go through Pennsylvania, you go through Indiana, you see some of these manufacturing towns, and you do have to ask yourself, >> what happened? Yeah. Why is this?
1:02:56
I think at the same time we saw a lot of the geopolitical environment with Tavers and the resurgency of saying let's build things again, let's do things again. >> Yeah.
1:03:08
>> And then the other final sort of piece of the puzzle is Scout was a super cool glorious icon.
1:03:13
It's like why do we let these things go out of business?
1:03:15
Why do we let these things fade away?
1:03:17
Why don't we do it right?
1:03:19
And you put it all together and we're here at this magical moment doing something difficult for sure, but doing something uh really cool.
1:03:26
So that that's the background in a nutshell. >> Yeah. Yeah.
1:03:29
I mean the idea of uh re-industrialization, making cars in America today feels like there's a ton of uh tailwinds, but 2022 is a different era.
1:03:43
Is that a lot of luck just being in the right place in the right because when I think about all the tariffs and everything, I'm just like, oh, this is a win for scout.
1:03:49
This is another win for scout.
1:03:50
And I mean, we were we were watching uh the president talk about AI.
1:03:54
the literally the question right before was about making cars in America.
1:03:56
And so there's a lot of positive uh economic forces that are working.
1:04:02
Was the plan that this was this was coming and that there would be more re-industrialization movement in the future regardless of who was in the Oval Office or was this just like a lucky break that happened down the road?
1:04:19
>> Uh look, we're profound geniuses.
1:04:19
We looked into the crystal ball and we knew absolutely everything was going to happen.
1:04:25
>> No, I think there was a let's say movement sort of gentle drum beat if you were listening.
1:04:31
You saw the transition let's say from NAFTA to USMCA and clearly you can see where that was heading.
1:04:37
That was of course back in 2016. >> Sure. Sure.
1:04:40
>> You also knew from COVID that supply chains were becoming let's say tenuous for lack of a better term. It was difficult.
1:04:46
And then you knew in this segment, if you look at this segment, majority of the segment says, I want to buy things that are American.
1:04:53
I want to buy things that are made in America.
1:04:56
>> So Scout's whole premise was always going to be that.
1:04:58
But based on that, of course, a lot of other things came their way from tariffs to geopolitics, everything I know.
1:05:02
So I think it was a good core idea.
1:05:04
It's a phenomenal core idea that's gotten more >> Yeah.
1:05:10
>> more tailwinds as it's it's come, which has been great. >> Yeah.
1:05:12
I recently heard that the that the life of a new car has basically doubled since I believe the 70s and uh new cars will often last until 250,000 mi whereas it used to be 100,000 miles it's time to get a new car.
1:05:29
Uh, is that a secular pressure that you think will will be overcomeable with new technology or do you think that's something that we're going to settle into or maybe there's a world where people wind up with more cars?
1:05:44
Just I'm thinking of like what are the general pressures that you're worried about around new car purchasing?
1:05:50
>> Yeah, look, I I I think you raised a key point.
1:05:53
I think a lot of what's driving that, of course, is a high cost environment where people want their cars to stay with them a long time.
1:05:59
I think that's particularly true of this segment.
1:06:03
This is a segment that's not what I'd call a flip and purchase for a vehicle that's just going to get you down mainstream.
1:06:07
It needs to do real work, real play, take you somewhere, do something.
1:06:11
So, we've fundamentally engineered the car to be super robust.
1:06:17
>> The second thing we've engineered the car for is to bring a lot of do-it-yourself type of business back into it.
1:06:22
I think a lot of people where they've engineered these cars, they're complete spaceships. Just look at them. Don't touch them. Don't touch them.
1:06:28
And I think we've intentionally brought a lot of mechanical physical characteristics back so you can do the actual work.
1:06:35
I think the other thing that's breaking down, and I remember this back in my uh Mercedes-Benz days was uh you know, electronics >> can't update them.
1:06:43
100,000 miles, it's going to be gone. Or batteries.
1:06:45
That was the one on batteries, right? They're going to last.
1:06:48
And I think that myth is being broken all the time where these batteries are holding their power.
1:06:53
They're holding their charge and they're holding their uh robustness.
1:06:54
I think the right way to look >> You saw someone put like 300,000 miles on a Model S or something like people thought that was impossible like and and the depreciation curves are still really rough for electric vehicles.
1:07:07
We can go into that but >> um but I mean it does feel like the fear of like this battery will be impossible to repair and the car will be total because of the battery.
1:07:15
Uh that has been pretty >> how much how much does your how much does your segment care about autonomous driving and how much and do you think they'll care more about it in a couple years?
1:07:27
>> I don't think it's core to the segment.
1:07:29
I think we've engineered the vehicle where this is a vehicle that you want to have control of the narrative and control of the vehicle.
1:07:36
So we've intentionally made a vehicle where yeah, I want to put a real door handle on the thing.
1:07:40
When I get into the vehicle, I want to use real switches and get that mechanical connectivity, if you will.
1:07:46
And driving, I think it's the same exact thing.
1:07:48
This is a vehicle has to work, wants to play.
1:07:49
They want control of the vehicle.
1:07:51
Now, to that end, the Scout will have level two plus because I think where you can offer that highway convenience, if you will, where driving is more tedious. >> Yeah, >> 100%.
1:07:59
But I think this segment and what it stands for in terms of, let's say, freedom and control has much more to do.
1:08:06
And honestly, if I look at autonomous, you wouldn't build this type of vehicle.
1:08:11
You'd build a much more A to B type of vehicle.
1:08:14
Take me for here, take for there.
1:08:15
You wouldn't have solid body on frame.
1:08:17
You wouldn't have solidar axle.
1:08:19
You wouldn't have a,000 pound- feet of torque, 800 horsepower, all of these capabilities.
1:08:23
I think you'd build a much more, let's say, cyber cam, not to give sort of simplistic vehicle.
1:08:28
So, I don't think it drives this segment.
1:08:30
I think level two plus for sure is where we'll be and and what we see they want but we want to be a little bit more let's say >> old school where we can put the driver and the customer back in charge that we see as a mega trend like I want to be in charge screens aren't taking over. >> Yeah.
1:08:47
>> So you said uh what was it 2021 2022 there's one employee. >> Yeah.
1:08:51
>> There's hundreds now thousands now. What is the scale?
1:08:56
>> 600 employees >> with first customer deliveries in 2028. in 28. Exactly. >> 28.
1:09:00
So when do you actually start building out the plan to hire all those people?
1:09:05
What will the company look like in 2028 when you're doing deliveries? >> TOF.
1:09:09
So the plan is a ramp up.
1:09:09
When we look at 28 at the factory itself, we'll be roughly 3,000 employees.
1:09:15
If I look across the total workforce, we'll be roughly in the zone of 3,800 to 4,000 somewhere in there.
1:09:23
>> The preponderance of the workforce is going to be basically being doing two things.
1:09:27
You're either making a car or you're selling a car.
1:09:30
I think one of the things we've done very smart is get all of the overheads out.
1:09:33
SGNA extremely tight, overheads extremely tight because we want people doing active things which is buying a car and uh and of course uh and of course manufacturing a car at the plant itself.
1:09:45
If I look at this, 1600, more than half of that are down in the factory right now as we speak.
1:09:51
>> And that's because we're building the very first early prototypes.
1:09:53
And I think this is a pretty cool thing that we're doing.
1:09:57
What most companies would do would outsource that to a third party.
1:10:01
They would then hand you the car and you'd integrate into your plant. Okay.
1:10:05
>> Since it's a new factory, we're training new workers.
1:10:07
They've never made cars before.
1:10:08
We want to get that muscle memory now. Yeah.
1:10:10
So, we're building these prototypes.
1:10:12
We'll be It'll make us much more stable for ramp up, which as you know is critical.
1:10:18
>> What is the state of dealerships in the automotive world? How is it changing?
1:10:24
Tesla's taken a different approach, but there's still shops where you can go see a Tesla.
1:10:27
Um, what will your strategy be?
1:10:30
How has it evolved over the last couple years?
1:10:32
>> Our approach is clear.
1:10:32
We are going to go direct to consumer.
1:10:34
So, we will be selling the vehicles directly to the consumer.
1:10:38
And in my mind, I look upon it as three fronts.
1:10:40
One, there's no debate that we can handle the transaction >> far smoother and far straight with a lot more transparency.
1:10:48
We're going to build the ecosystem to do that.
1:10:50
I think if you look at a brand such as Carvana, they've without a doubt proven yeah there is a good digital path to sell a car and make it happen.
1:10:59
I think the second thing today I think there's no world where if you don't control the relationship to the customer have all the data that comes of that relationship >> you can't be successive and the third one without a doubt is we are going to do a lot of work to build the infrastructure.
1:11:14
infrastructure. I think where a lot of the brands you mentioned fell short a little bit is you have to have the service infrastructure built ahead of the wave y >> not behind the wave and those are the big things we're focused on we're executing that >> and uh it's critical think >> what is it what does that actually look
1:11:30
like I mean it seems it seems like one of the biggest challenges because you need to have service are you going to have a central service hub or I imagine that that's tough if you're having to you know ship cars around all over the US is there specific key regions that you need to be set up in I'm just curious. >> You got exactly right. Um I mean the
1:11:45
>> You got exactly right.
1:11:45
Um I mean the good news is it all starts at the factory. >> Yeah.
1:11:49
>> From the factory we've laid out nine distribution networks that we will have.
1:11:55
We can put these in very smart locations where you can have lots of space, relatively inexpensive and let's say line up the cars there. Yeah.
1:12:01
>> Then from there they'll move in to the retail stores.
1:12:03
We will build a 100 stores over time.
1:12:07
>> But this allows us to do we can be way smarter on inventory, way smarter on cost front.
1:12:12
And then what you have now is a lot of these dealerships you have extremely expensive inventory, extremely expensive parking and we can put this in much less expensive real estate.
1:12:20
I think the other thing speaking of real estate where we see the action being is we can build in sort of class A fronts where we can get off of Main Street, get off of the expensive stuff and build it in smart locations.
1:12:31
85% of the investment will go into service since that's where the most critical function is. >> Yeah.
1:12:38
>> And that's what we're building pretty much as we speak.
1:12:40
But again, if we have the data from the customer, the data into our factory, and the data into our suppliers, we can sort of get out of this world of let's build a couple of thousand cars and send them across America and hope they sell.
1:12:53
Then they sit in a parking lot, they sit there for 120 days, you throw incentives on them, the RVs collapse. >> We can avoid that.
1:13:00
We can be way smarter using data, using intelligence, using AI uh to get the right car into the place and basically hold hold pricing power. >> Yeah.
1:13:08
How important is the test drive to conversion in a direct to consumer relationship?
1:13:14
Is it unnecessarily high?
1:13:18
Like, should more consumers be buying cars without ever test driving them?
1:13:20
I feel like >> I'm I'm a psycho.
1:13:22
I've bought like probably six cars without ever test driving >> test driving them. That feels uncommon.
1:13:32
I'm sure that's But is that the future or is Jordy actually a psycho?
1:13:34
Look, I think this >> but but I but yeah, part part of that is like I grew up buying things online.
1:13:38
I'm very comfortable looking at a picture and a video and maybe a review and saying, "Cool, looks good."
1:13:45
>> And there's so many trusted car reviewers, Doug Deurro, Forest Auto Reviews, that if there's a consensus across three or four people that I trust, I'm probably just going to be happy buying the car.
1:13:54
But uh but what what does it look like now?
1:13:56
What do you think the future looks like?
1:13:58
>> Look, I I think what we're planning for we're planning for we're a startup brand that people don't know that well.
1:14:02
And in order to get to know well you're going to have to establish trust.
1:14:06
It's the number one word.
1:14:07
I think we'll have phenomenal reviews.
1:14:08
We'll have phenomenal reservations which we have already >> but when you come to these service centers we want to have an environment where you can take a test drive.
1:14:15
Beyond that we're going to set up test drives obviously in the big markets and get this done.
1:14:21
>> I think there will be a huge group that's going to say I love this car. Send it to my driveway. Done. We'll take care of that.
1:14:28
>> On the flip side there will be a group that wants verification.
1:14:29
So I think at this early phase I would say 85% is going to want to get in this vehicle, drive it, test it out.
1:14:35
We have new technology with the -v.
1:14:37
We have a new vehicle >> and I think the more we establish trust, the more units in operation, the more all of that happens, then that's going to >> it looks it just looks I can't wait to see it outside, but it just looks it looks incredible. Exactly.
1:14:49
This is like exactly one exactly what consumers want.
1:14:53
I mean, you look at um, you know, some of, you know, the new Toyota and Lexus models are are are solid and have been >> Yeah.
1:15:01
A lot of these longer, newer projects by the time they make it to market, they look outdated because, oh, like clearly the designs were from 5 years ago.
1:15:10
This feels perfectly uh where the consumer is.
1:15:12
What happens with uh it feels like the the legacy manufacturers and brands, they get very stuck on certain like interior styles and materials and they and the updates go from, you know, the everything I've seen from the interior with the Scout, it feels like you guys really consider considered materials and and patterns and the touch and feel and all and all these things >> um and have thought about it from the ground up.
1:15:41
You would think that other manufacturers would just say, "Hey, why don't we just redo why don't we when we refresh this car, why don't we fully redo the the interior?"
1:15:48
And what I typically see is he's more like, "Hey, it's like 5% different, but fundamentally it still looks exactly the same."
1:15:56
Why is it so hard to do a full basically cosmetic interior refresh for these brands? >> Look, you nailed it.
1:16:05
One of the things we loved is the power of a clean sheet is one you have to take maximum advantage on it.
1:16:12
What unfortunately happens in giant OEMs and giant companies is to make any change there's a big giant machine.
1:16:18
There's an existing factory.
1:16:20
You don't want to alter tooling.
1:16:22
You don't want to have uh new supply bases.
1:16:25
So every little thing gets so expensive and so challenging and so difficult.
1:16:29
Which is why you see a world of >> yeah these white tweaks and they say all new and all this and basically it's a tweaked fabric or whatever it is.
1:16:35
I think what you see here and I'm I'm glad you appreciate it.
1:16:39
This is a grueling labor of love, love, love.
1:16:41
We have fought every last uh thread on this vehicle.
1:16:49
And I think it started with >> boy we're bringing back this icon.
1:16:52
We do it wrong, we're going to get mocked.
1:16:54
And we couldn't just throw a scout label on a vehicle and say, "Hey, here's this >> motivation."
1:17:01
>> Because the OGs >> will honestly reject you.
1:17:02
We knew if they rejected us, we're dead. It's over.
1:17:08
>> Once we got them on board, well, then away we go.
1:17:10
And that's why we're off to the races.
1:17:12
But the reason it's so hard is you just get uh >> you get stuck in this big company world. >> Yeah.
1:17:17
With the way that the the way that the car market work moves, it often times feels like manufacturers don't listen to customers.
1:17:24
listen to customers. But I have to imagine they do look at social media comments and they are they are well aware of the feedback but is it because of the planning cycle right so I'll pick an example right so like the the um Ferrari there there's Ferrari community Ferrari community I'll say
1:17:42
>> nice mainstream example I like you know >> no and when I say Ferrari community I mean the group of people that care about the gr brand and then the group of people that care about the brand and our actual buyers but both of the groups uh are are oftentimes like confused with a lot of the the the actions >> of the brand. And I just I just have to
1:17:59
And I just I just have to imagine it's like it's >> is it the kind of thing where like the actual response from the manufacturer is like somewhat delayed where it's more like a this sort of like >> yeah we we've been aware of this issue for five to six years and now these sort of newer iterations they'll be responding to that.
1:18:18
Is that is is that just because of the supply chain or or they >> it's it's look the simplest thing is look at the end of the day let's say you want to make a change. >> Yeah.
1:18:29
>> So the two big drivers of that change is okay what's going to cost capex wise to make that change because you're going to have to retool at the supplier >> depending on how big it is and that's a few million dollars just for one slight little change.
1:18:39
Then you may have a material cost change on the bottom of the bill of the car and then you multiply that by 10 changes and all of a sudden you're talking $100 million of capex and I don't know a couple hundred dollars of material cost on the vehicle.
1:18:53
So every change is just brutal.
1:18:53
Yeah, >> I think the other thing is they work in big cycles, right?
1:18:58
You have your classic launch of the car, then your product improvement 3, four years later, and then the thing.
1:19:03
I think the other holy grail for us, and certainly Tesla has done this quite well, is can you get changes that don't impact the physical hardware of the vehicle, which is all of the OTAAS and all the thing that we'll have capable on this vehicle as well.
1:19:17
But why you don't see that >> is cost and cycle tooling and and thing.
1:19:21
It's not like uh these people are asleep at the switch and aren't aware of it.
1:19:24
They're certainly aware of it, but it's the cost, the time to go get that done. >> Period.
1:19:28
Which is why you want >> We know this is a problem.
1:19:30
We know this is a problem, but fixing it now would cost a billion dollars.
1:19:34
And if we just wait another cycle, we we'll be able to address it, but in a much more costefficient way. >> Exactly.
1:19:41
And then potentially you can find 50 of them or 40 of them or 20 and do it all at once, cycle it up and get it through the one change. Yeah.
1:19:46
Because of course depending on how extensive the change retooling the factory on top of whatever the supplier did potentially change training within the factory the knockon effects are massive.
1:19:55
Retraining your dealers to sell it depending on how big it is.
1:20:00
>> Does Scout have any history in uh like off-road racing that you're aware of?
1:20:05
>> You want to do Scout Challenge?
1:20:06
>> I do version of these. >> No. No.
1:20:08
I want to do like a BA the Scout B the Baja Scout expedition.
1:20:12
>> The car the Paris car is another another way to go. No. 100% it does.
1:20:15
Uh Scout raced back in the uh the big uh uh off-road races back in the day.
1:20:20
We've been doing something.
1:20:23
There's a cool guy up in up in Venturi here named Shan Barb.
1:20:26
I don't know if you know him.
1:20:26
And uh we sponsor him and he's taken a couple of the vintage scouts and he's done some racing and then we can't wait to get the real deal and go kick some serious.
1:20:36
>> It feels like you should try to put a hundred of them together and even get a pool of buyers that just is buying them even to for for just racing. >> Yeah. Yeah. Exactly.
1:20:44
No, we'll have to show you some stuff, but Sean's done some cool things.
1:20:47
Let's go check out the car's outside.
1:20:48
I'll let Jordy throw on that lab and we'll cool outside.
1:20:53
>> Uh, I think we have our cameras ready to rock.
1:20:56
Let's go take a look at this vehicle outside >> here. Come this way.
1:21:07
>> The outside of the TV Ultradome. We are >> outside here. We have our new signup. Here it is. the scout. Oh, look at this. Looks so good. So, this is it. I love it.
1:21:21
>> One of the first things you'll notice, we made this one the more urban version, if you will, right?
1:21:25
So, it doesn't have the uh, you know, the spare wild on the back.
1:21:29
It doesn't have the off-road packages.
1:21:30
We made this one more >> urban cool style.
1:21:34
>> I think you'll still notice, you know, 35 in wheels. >> Is that like a cork? >> Beautiful recy.
1:21:39
It's walnut, but it's uh you know, just super recycled stuff. >> Amazing.
1:21:44
>> And then Jordy, you can see kind of what I was talking about here.
1:21:46
Just like get some real switches back.
1:21:51
>> These are all for the uh accessories.
1:21:54
>> These are all for the lockers that you can control.
1:21:56
This is a lot of hardware mechanical functionality that kind of, you know, people let go a little bit on this front.
1:22:03
>> I think the other thing >> both of us >> There we go.
1:22:07
>> I love I love the two-tone. Yeah. Yeah.
1:22:10
It's super super well well done. >> This is great. >> Yeah. It'll hang on the thing.
1:22:13
And then what we didn't talk about is, you know, the magic of this vehicle is what's underneath.
1:22:18
So, it's body on frame, which means you have a frame.
1:22:19
You put the hat on top of the vehicle.
1:22:22
>> It's got a solid rear axle, which is super old school technology, but we integrated the e- motor inside the axle.
1:22:28
First time that's ever been done.
1:22:30
>> Just to give you a sense of it, this is 1,000 lb feet of torque, 800 horsepower.
1:22:35
>> This vehicle 0 to 60 in 4 seconds.
1:22:35
So, uh, it's going to be like a serious serious machine.
1:22:41
>> And will you make a like a non-performance version as well? Less power and torque? >> No.
1:22:45
What we want to do is offer one platform, one foundation.
1:22:48
We'll let your right foot, your right foot can control the canal.
1:22:52
The pedals are amazing, too. Go check that. >> Yeah.
1:22:56
You see the uh one of the other cool things, of course, is super short front overhang.
1:23:01
Very hard to do with this type of vehicle.
1:23:04
So you get the crash, you got all that, but this gives you all of the uh approach angle on this, which is awesome.
1:23:10
>> Uh, another nice little touch the designers came up with.
1:23:12
I think most brands, as you know, centers everything front and center.
1:23:17
>> We wanted to make them much more like a piece of art.
1:23:19
So right there you see scout off on the right hand side like the signature side.
1:23:24
>> And this is another nice design element.
1:23:27
>> This is the range extender.
1:23:27
So this is where the gas goes in.
1:23:29
Obviously on the other side is where the battery charge will go in.
1:23:33
This is what we call Earth's plaid.
1:23:35
So, it takes us back to, you know, the original international harvester.
1:23:38
And uh super slick uh super slick.
1:23:41
>> How does the range texture on the the fabric on the inside here is just amazing.
1:23:45
This sort of plaid so great.
1:23:48
>> So, how the uh how the range extender works, which we think this is a piece of technology America is basically looking for.
1:23:54
Both of the axles are driven like a battery car.
1:23:58
There's a E engine right here, E engine right there. Yep.
1:24:02
>> And then that is driving the car.
1:24:02
gives you the torque, gives you the instant pop, instant response.
1:24:05
And then there's a generator in the back, which is basically a uh a gas engine four-cylinder engine.
1:24:13
>> And that of course is what gives you upwards of 500 miles of total range.
1:24:18
>> So generates electricity that charges the battery, powers the car the same way. Yeah.
1:24:23
So the reverse hybrid, you're flipping the hybrid system effectively.
1:24:27
Uh which is >> the lead range anxiety.
1:24:28
You can do the cross-country trip, two minute stops for gas and you'll be totally fine.
1:24:33
Uh yeah, I've seen I've seen this pitched as the future before and uh when I saw it, I was like, America needs that immediately.
1:24:41
This is so logical and will satisfy the last remaining hurdle for so many EV buyers.
1:24:48
>> The view the view from on the back here is is just incredible. >> Yeah, really good.
1:24:51
It's it it really makes you think like we we perfected the car in the, you know, '60s and '7s and then everything everything since then has just been like, you know, we tried to do too much to change it and then and then we're just going back back to the future. >> Exactly.
1:25:05
And what we wanted to do is, you know, obviously there's cool technology now, but put it behind the curtain. >> Yeah.
1:25:11
>> As opposed to like a good one, right?
1:25:11
I just spent some time with door handles and things like that.
1:25:14
It's like there's no need to make a flush electronic door handle, right?
1:25:18
Americans know how to open it. Just make it mechanical. pull the thing away.
1:25:22
>> And everyone claims that like, oh, the range will double if you make them flush.
1:25:25
And I'm like, I don't believe that.
1:25:28
>> Maybe you're taking 2 miles off by giving me a normal door handle, but the security of actually being able to grab something and just open it like any other door is pretty uh hard to beat. Hard to beat.
1:25:39
>> And for a work vehicle that's going to be out in bad weather, you're going to have gloves on and everything else.
1:25:42
You don't want to be mucking around that time.
1:25:44
And I feel like the suburban configuration, I mean, this is I I can't exactly looks bigger than the images, but at the same time, this feels easy to park and and parallel park in a city. I don't know.
1:25:55
>> Two vehicles that you mentioned, right?
1:25:57
You mentioned the uh the Defenders.
1:25:57
You mentioned, you know, the Toyota Land Cruiser and things like that.
1:26:00
So, >> lengthwise, it's in it's in that zone.
1:26:04
It's a little bit wider than those vehicles. >> Yeah.
1:26:07
>> One of the things you don't see here, >> it's that wide body that that's so gives it so attractive.
1:26:10
The stance it's so the stance is incredible. >> Yeah.
1:26:15
And that what you don't see here, of course, is we're making a pickup truck as well. >> Yeah.
1:26:18
>> And I think the phenomenal thing about the pickup truck is basically the vehicle stays the same to here.
1:26:21
So we can get almost 75% carryover.
1:26:25
Speaking to your question of of scale and that and then bed comes back, 5 1/2 ft bed. >> Sure. >> Separate cab. And uh Yeah.
1:26:34
No, I think we've got the um we've got exactly what the market's uh looking for. It's fun.
1:26:41
Uh I assume no plans for two-door version. >> Not yet.
1:26:46
>> I've heard that twodoor uh SUVs, none of them have ever been large like widely successful for the long term.
1:26:54
They've all faced uh hurdles among customer adoption.
1:26:56
People say they want them, they get in there, they think about their family, and they want four doors. >> Exactly. Right. Exactly.
1:27:01
I mean, I I think what we can execute far easier.
1:27:05
>> It seems like the right decision would be a third row. Yeah. Third row.
1:27:06
you can easily extend the uh extend the frame and go out and put a third one there which which is something >> uh >> and even if it's a heavier and you lose a little bit of electricity on the range you can make up for with the range extender like you're still in very functional territory which is great. >> Yeah.
1:27:22
And and you mentioned a smart thing.
1:27:24
I mean the ability to upgrade the range extender is super easy, right?
1:27:26
You can either add more power to the engine, you can tweak the chemistry, you can add a bigger gas tank if you really wanted to get >> super range on the thing.
1:27:34
And so it's uh it's flexible.
1:27:37
The other thing is in the factory, right?
1:27:39
You don't have to completely retool and change the factory.
1:27:42
This can be fully electric mix can hold. >> Very cool. >> Yeah. >> Congratulations. This is awesome. >> Thank you.
1:27:48
We're doing something cool.
1:27:49
You guys have to uh you have to come down if you get a chance. Come down. >> Yeah, we'd love to.
1:27:53
>> I think everyone talks about industrializing America.
1:27:54
This is happening in the real world. >> Yeah. >> Remarkable.
1:27:59
>> The presence is is insane for this this size vehicle.
1:28:03
It feels like you have like the like the presence of like a Range Rover or Defender, but in this in this form factor that's like just perfectly sized. >> Yeah. Yeah.
1:28:14
Obviously, we didn't talk pricing, but the vehicle is going to start in the high50s.
1:28:17
And so, a vehicle this capable is is a phenomenal price.
1:28:25
>> And I think that was one of the things, you know, that makes this work is the struggle that startups has if the suppliers can never give them good cost, right?
1:28:33
until they get murdered on bomb cost.
1:28:36
>> I think we can count on the Volkswagen Group to get good parts pricing, get good material cost, make a good margin on the car right off the start, which is huge. >> Yeah.
1:28:43
This this in the in the high50s compared to when when I feel like people go chasing this style and silhouette.
1:28:50
It's almost always in the high7s that it starts >> uh transact 86. >> Yeah. Yeah. Exactly.
1:28:57
And then and then you end up with a car that doesn't feel as special from a interior standpoint or any of these things.
1:29:06
>> I'm thinking of what's the >> what's the chem that chemical company that brought back the legacy defender? >> Oh, Indio.
1:29:16
I know I know a lot of people that are going that that'll buy >> I I think the project's incredible.
1:29:19
All the cars look great and everything, but but people buying the Grenadier, they want it for that sort of silhouette and that sort of feeling and that lifestyle, but again, you're coming in much higher and it doesn't feel like it's necessarily as designed for everyday life, >> which is why the they're buying it as a daily driver, right?
1:29:38
So, you want the silhouette, but in a daily driver package.
1:29:42
>> Y >> and and at this price point, there's going to be extremely extremely competitive.
1:29:46
No, you hit it exactly right because a lot of people jump into the segment, but then it becomes >> a fourth car in the drive or it becomes a beach car or something like No, no, we want this thing to be an everyday, you know, everyday killer. >> That's great.
1:29:59
Well, thank you so much for showing it to us.
1:30:00
That's excited to drive it.
1:30:03
>> Watch you guys all the time. Appreciate it. >> Come back.
1:30:05
Come back on as you get closer to >> 100%. Thank you. Yeah. >> Cheers. Cheers.
1:30:08
We're going back in the studio >> and we will be joined by Mitchell Green.
1:30:17
>> Talk to him about the latest with the SAS Apocalypse. >> Short everything. >> Short everything. Who knows? Who knows?
1:30:25
We'll get we'll get Michael's take.
1:30:28
>> We'll get his take on everything.
1:30:28
Um, but first >> out, >> let me tell you price point. >> Yeah.
1:30:34
Really really >> extremely competitive.
1:30:34
Uh, let me tell you about Figma agents. Meet the canvas.
1:30:39
Your AI agents can now create and modify your Figma files with design system context.
1:30:43
And while we're bringing in our next guest to also tell you about CrowdStrike, your business's AI, their business is securing it.
1:30:50
CrowdStrike secures AI and stops breaches.
1:30:51
And CrowdStrike founder and CEO George Kurts uh had a very detailed thread on X today.
1:30:59
I don't know if we have time to read through it all, but we should get to it.
1:31:02
to it. you should go read it uh because he talks a lot about what pacing the frontier means for cyber security and all of the cyber security companies are uh up and to the right today in the stock market as people take the threat
1:31:16
of botn nets and AI uh malfeasants more seriously people are uh more optimistic around um around cyber security companies than ever um >> yeah and crowd strike was you know up around 100% year-to date So nice to see them up another >> another 13% or something today. >> Yeah. >> Yeah. >> Um yeah, great stuff.
1:31:37
Uh yeah, Scout Motors, very very fun.
1:31:40
I'm really uh happy that Scott was able to come by and break that down for us.
1:31:43
Uh what uh what a fun vehicle and and I think the thing that sticks out to me the most is the the gas extender.
1:31:48
I saw Forest Auto Reviews uh demo a Chinese SUV that had that technology and I was like ah they're I can't I don't want them to be ahead of us.
1:31:58
We need this technology in America.
1:32:00
I don't I don't want them to be ahead of us in in anything to do with gasoline.
1:32:03
That would just be very >> unamerican. Yeah. Yeah.
1:32:05
And and so you you know, you fill it up and then you get uh extra range.
1:32:09
And so there's just no, oh, I can't drive to San Francisco in this EV.
1:32:14
I'll have to stop for an hour and charge or whatever.
1:32:16
Uh that idea just melts away when you're just like, "Oh yeah, I can just put some gas in it and I'm good to go."
1:32:22
Uh anyway, I believe we have Mitchell Green in the waiting room.
1:32:26
Let's bring in the founder and managing partner of Lead Edge Capital back on the show.
1:32:29
Great to see him as always.
1:32:32
Mitchell, who how you doing? >> There he is.
1:32:38
>> What's going on, >> Nada? How are you? >> I'm a little tired.
1:32:42
John had a rough weekend.
1:32:44
I had a little too much time on my my new simulator. >> Oh, yeah. He's >> late late night.
1:32:49
By the way, have you had like, by the way, be careful going on it like an hour or two hours before you go to bed?
1:32:55
Cuz you'll like when you'll be like, "Oh, one more lap. One more." >> No, that that's it. That's it. >> Every sing Friday. Yeah.
1:33:02
Friday and Saturday, kids go to bed. I'm like, "Great. I'll get on the sim."
1:33:08
I look at the eventually I'm I'm, you know, driving for a while.
1:33:12
I look at the clock, it's like, you know, 10:00. I'm like, "Oh, great.
1:33:15
I can I can do go another 30 minutes and go to sleep.
1:33:17
Get a good night's sleep."
1:33:19
Next thing I know, it's past midnight.
1:33:20
My wife's texting me being like, "You're really like waking up basically in the middle of a night's sleep."
1:33:27
Being like, "Are you seriously still on the simulator?"
1:33:31
But it's the most it's the most addictive. >> One more lap. One more lap. I can do I got this. I got one more lap.
1:33:35
Then you get like the second to last turn.
1:33:36
You're like, "Ah, god darn it. Screwing it up.
1:33:39
Got to do like another lap." Yeah, I'm well.
1:33:41
And then, by the way, you're probably like pouring sweat.
1:33:42
So, you then get into bed or take a shower and you're just like, then your brain has been fried with light. So yeah. >> Yeah. Yeah. It's really nice.
1:33:51
>> People say don't look at the small iPhone screen before bed.
1:33:52
You're looking at a wraparound triple monitor setup.
1:33:56
You're you're >> But John So John um John built a a track that that will all be on screen. >> Yeah.
1:34:03
So we have a true evaluation for these AI models. We've debated a lot. How capable are they?
1:34:08
Are they actually useful?
1:34:09
I had GPT6 Astra go and find uh satellite footage of thermal and try and create a track in a setto corsa m.
1:34:22
>> Yes, I I took I took it for a spin yesterday.
1:34:24
I don't have a full simulator, so I was driving with the keyboard.
1:34:27
Not the best experience, but I'm sending it to Jordy.
1:34:28
He's going to demo tonight 2 a. m.
1:34:30
He's going to be putting up hot laps and uh we'll see how good it There's also >> So, I joke that there needs to be like an AI racing there needs to be like an AI racing league.
1:34:40
So, I've debated like some of the best GT3 drivers in the world, like pro drivers.
1:34:45
I'll be like, "Oh, you realize that like AI could build like a better car that could go around the racetrack than you guys."
1:34:51
They're like, "No, no, impossible."
1:34:53
Like, you do realize Elon Musk can land like a can like take a a missile and like land a rocket on a, you know, >> the thing the size of my like desk.
1:35:02
Trust me, we could build one.
1:35:02
And then I'm like, you know, the way we do it is each of the model companies can then sponsor a team. >> Yeah. >> Yeah. >> Yeah. Yeah.
1:35:09
I mean, Gemini is a big F1 sponsor.
1:35:12
You got Crowd Strike sponsoring.
1:35:13
I say get the big labs on there.
1:35:15
You could get like Kimmy.
1:35:15
You could have like a global Myth Girl could have one.
1:35:20
You could have a global global AI racing league where all the all the companies have to like fund their own AI racing team. Real life racing.
1:35:28
>> There might be the real test.
1:35:28
Real test is can you can you uh put a humanoid in a simulator and actually get a a competitive >> or in a real car >> lap time.
1:35:37
Yeah, real car simulator. >> A humanoid. That's pretty good. >> Yeah.
1:35:41
Look, I talked about it with a bunch of like guys that are principles of F1 teams.
1:35:47
Yeah, >> you could get like it would be the it's theoretically possible to get a not a perfect lap, but you Yes, an AI an AI could drive a lap, but like I will tell you actually on the simulator the AI um in iRacing like for practice is actually pretty darn good. Like the AI cars. >> Yeah.
1:36:05
Like I do believe in real life you could build an a with enough money some billionaire some company if they wanted to build an AI a car that would drive around the racetrack I think it would be faster than any pro.
1:36:17
>> Yeah my guess you could understand. >> Yeah.
1:36:19
But it's like but it's going to be like chess where like even once the AI is is like super human you still want to watch you know Mitchell tearing it up. >> Yeah >> that's true.
1:36:28
I know maybe not me but >> other people. Yeah. >> Yeah.
1:36:34
Um well I mean the the the AI story is growing a ton online all the debates that were pacing the frontier but uh I feel like at every moment you've been uh you've been very solidly grounded on what's happening in the real business world what's happening in these real companies.
1:36:49
So what what have you seen since we last talked over the last couple months on on the development of just software companies, the real economy, overall health of uh the investing philosophy that you've had since you started lead edge?
1:37:02
Like what what has changed?
1:37:04
What has stuck out to you as particularly notable in the last couple months?
1:37:10
>> Yeah, it's a good question.
1:37:10
I think software continues like the big enterp like sticky software.
1:37:15
like sticky software. I'll just I'll talk software and then I'll I'll talk everything and everything AI and Frank I think there's people that you have that are would know a lot more about the AI stuff than I would >> um we have but the best way to
1:37:29
understand what's happening in software companies globally is watch public company software earnings >> public off company software earnings have been pretty strong you know workday I think had said >> um I think they said like 400 600 million or something of of revenue was coming from AI an hour. It was some
1:37:46
It was some number and it was pretty large.
1:37:49
>> Um was coming from AI.
1:37:51
>> I think big companies, >> you know, big enterprise companies want their vendors ideally to like create solutions for them and work with them versus trying to rip people out and use new vendors and things like that.
1:38:04
I do think though that the pace of innovation, you know, because of of how of AI and agents and all this stuff is only going to increase.
1:38:15
And so like every company has a risk of being disrupted.
1:38:20
I don't, you know, if you're if you're Stellanthis and you got a ton of debt and Ford has no debt, well, if you believe like robotics and humanoids and AI are going to like dramatically change manufacturing, then Ford can invest and like Stalantis probably can't because they're paying their debt load down.
1:38:38
Take I think you can take that to every sector of the economy.
1:38:40
And so that people that are not innovating are going to get left behind.
1:38:44
to get left behind. And now it's yes it's it's easier to start companies now but it's also easier for incumbents to be able to develop you know new products as well like >> yeah so when I look at like public company SAS uh I am typically keying in
1:39:00
on something that's much more founder and uh or even just uh management team driven like if I see that there's a founder or a CEO who seems extremely locked in aware of what's going on they're early but they're not exactly aping talking points. They're thinking
1:39:16
They're thinking about the capabilities in a rational way.
1:39:20
That makes me more optimistic.
1:39:20
uh is is the actual capital structure and and debt load of these companies maybe underd discussed as as a >> depends I think I think it just depends on the um I think I think private equity gets unfortunately people bucket all private equity assets have to you know people bucket them as oh they have tons of leverage they're all in trouble.
1:39:44
Yeah, >> I don't think that's by the way, it's like, oh, private equity owned software assets have tons of leverage and are in trouble.
1:39:51
But again, if you're a private equityowned automotive company and you have lots of um debt or if you are a non-private equity owned asset and you have lots of debt, you can't innovate.
1:40:00
have lots of debt, you can't innovate. I think the debate needs to be more on like companies that are very very highly levered will find it harder to try to disrupt themselves and continue to innovate and just because you you're
1:40:13
spending more and more money on on interest income and by the way I mean rates are only going probably one way because the I mean I think I think one thing that's not appreciated I don't I don't think people are talking about it
1:40:24
enough and I'll actually talk about it from the car world and like you could talk about it like the collector car collector cars collector cars words like memoilia um is like you know real estate in San Francisco, real estate in Aspen, real estate in Jackson Hole, Santa Barbara,
1:40:40
LA, like how strong parts of the US economy are right now compared to like a lot of parts of Europe and you can just look at like if you look at like the Ferrari world, the same car in Europe ver like an SP >> Yeah. famous Ferrari just you know sold
1:40:54
famous Ferrari just you know sold in Pebble Beach for like 17. 8 million, right? Yeah.
1:41:00
right? Yeah. um that car in Europe had never sold for more than like €8 million euros or 7 half million euros been auction like a month before and I think it just speak and by the way you can't bring for the audience users why somebody's like why don't you bring the
1:41:14
European car to the US you can't for 25 years >> so I I think it just speaks to the strength of the economy or at least some segment of the economy in the US versus anywhere else globally >> like the amount of wealth creation that's happening is just astonishing. >> Yeah. What what is actually driving the >> Yeah.
1:41:31
What what is actually driving the wealth creation and the effects in the car market?
1:41:35
Because uh it it it feels like it's super easy to just be like it's all tech and AI money, but I feel like there aren't that many tech and AI people that are actually into the particular cars that I see. >> Yeah. Yeah.
1:41:46
Know there's a guy there's a guy who sold a big internet company who's got a lot of Porsches. Yeah.
1:41:49
Um but like uh he's done a lot and buy them in every color and every shape.
1:41:53
But um no, >> I think it's Americans, wealthy American.
1:42:02
If you were wealthy three years ago and you were in America, you owned, and this applies not only to collect cars, it applies to >> probably not art, funny enough, because the art market actually hasn't gone crazy. Oh, interesting.
1:42:15
>> But like the collector card market's gone crazy for sure, like Michael Jordans and stuff like that, but I think it is a function of >> people were wealthy three years ago living in America, and a lot of those people owned equities. >> Yeah.
1:42:28
And so today, look at the stock market. >> Yep.
1:42:31
>> They're exponentially more wealthy.
1:42:31
And they've since realized that they can't they can't die.
1:42:36
And they're not getting younger.
1:42:38
They're only getting older.
1:42:39
They can't take it with them.
1:42:41
>> They're like, you know what, my my son or my daughter is 28 or 32 or my grandson is >> 15 and is into cars or into watches or into whatever.
1:42:50
And I think it's the same reason, you know, and I think it's a combination of equity markets, >> AI, >> secondaries, and venture.
1:42:57
I think it's like it's it's all of it uh conflated together >> and people are not are just spending money. >> Yeah.
1:43:05
I heard interesting >> more concentrated here than anywhere else in the world, I think. >> Yeah.
1:43:10
I heard another interesting random thing that some family offices are allowing a portion of a trust to be invested in cars.
1:43:17
And so sometimes the second or third generation might say, "Okay, great.
1:43:22
Like we're going to allocate 3% of this massive fortune to cars.
1:43:26
I get to go to curated with a $50 million shopping list and buy one of everything."
1:43:32
And so there's there's more people sort of securitizing and seeing this as like a >> I it's not like I think it's like planes too.
1:43:40
I somebody told me that you can't even get a NetJets or Flexjet plane right now.
1:43:43
like you can't get one because if you're if you try to go become like a new NetJets customer, they'll be like we're sold out. >> Whoa.
1:43:49
>> And I it's only going to get worse.
1:43:49
Like >> somebody gave me the stat, you guys probably know it better than me, but like the number of people if you believe >> that Anthropic is worth a trillion or trillion half dollars and you believe OpenAI is worth that and where SpaceX trades, like >> those three companies create more gains than the entire internet bubble.
1:44:06
Like those people are going to go spend money. Yeah.
1:44:10
and just like if you want to know where to make money in collectibles or in cars or art or real estate, just figure out sit outside anthropic headquarters and be like, "Hey, what do you plan to do after the IPO?
1:44:21
What do you plan to spend money on?"
1:44:22
Um, but I I just think the amount of money that is and by the way, if somebody has made a crazy amount of money very quickly and you know there's a and they want to be at a house in Jackson Hole or as they want that >> or in downtown San Francisco and it's six block radius and there's three homes for sale. >> Yeah.
1:44:42
>> Well, the, you know, then the the buyer is this the buyer is just kind of like price agnostic.
1:44:46
He'll like, I don't know, I really just want to live there.
1:44:48
I just made a bunch of funny money.
1:44:48
The seller knows there's no inventory.
1:44:50
And actually, I think it's I think the big problem in in real estate right now is people are locked in the low rate mortgages from 2020 and 21.
1:44:56
There's like no incentive to sell. >> Yeah. Yeah. >> Yeah.
1:45:02
Uh hence a lot of the like the poster cars going up in value a ton.
1:45:04
If somebody had it on their poster poster of the car on their wall when they were a teenager, they make money in their 30s or something, they got to go get that car because that's the car they looked at every day when they were growing up.
1:45:17
How many uh how many uh luxury car clubs do you think that Southern California can support?
1:45:23
You have thermal thermal right now.
1:45:25
You have Elsenor Ring that's moving in.
1:45:27
You have Willis Ring and Will is that Willow Springs or is that >> No, no, these are two these are two new developments track focused driver communities, clubs, whatever you want to call them that are springing up that are bringing on hundred hundreds of new homes online. >> My guess is Tim.
1:45:44
Look, I'm a member of Thermal.
1:45:46
Tim Rogers, who runs it, is a great guy.
1:45:48
He's been at it for 15 years.
1:45:52
My my guess is he's probably like, "Good luck."
1:45:54
Like, and I think I think it's a lot harder than people think. You need to build Great.
1:45:59
You build a track, you got to get you got to get enough members there so you can have like member race weekends, you know?
1:46:06
Like, who wants to be the first five houses?
1:46:08
I I think it's I think it's tough.
1:46:10
I think it's >> a tough cold start problem.
1:46:11
I I like that the Elsnore ring had a funny brand to it that oh yeah, I know the Nurburg Ring, I'm never gonna get to Germany.
1:46:18
So if I can have that experience, but I looked at the length and it's like 15 as long as the Nurburg Ring.
1:46:25
So it's not bringing that experience necessarily.
1:46:29
It's like roughly the same length as you know the GT.
1:46:32
>> I also think people need to look I I I truly believe that it is extremely dangerous to drive um street cars on a racetrack. >> Okay.
1:46:41
I I think I mean I think the most dangerous is to drive street cars on a race on a street crazy fast. That's totally insanity. >> Um people do it.
1:46:49
I mean people also die like you know Call of Duty like you know the guy that died in LA. Yeah.
1:46:54
>> Um it's crazy dangerous.
1:46:56
>> The next thing is driving a street car on a racetrack.
1:46:58
And this the thing that's crappy about America is, you know, in Europe at least, when you buy a fancy car, like they can put four-point harness seat belts in them >> due to like, you know, European car regulation.
1:47:10
In America, you can't do it. They don't do it.
1:47:13
>> Um, >> driving a car down a racetrack at 170 mph with a lap belt, I think, is totally insane. Yeah.
1:47:22
>> Like when you can literally and and these are multi-million dollar cars.
1:47:25
When you can literally go buy a$100 to $300,000 proper race car >> that is very safe.
1:47:31
Like you look at race accidents on Instagram or YouTube and look how people walk away from these things. Yeah.
1:47:38
>> Um versus you hit, you know, you hit the wall in a street car at 100 miles an hour, you're dead. >> Yeah.
1:47:44
>> So I think that's something that people don't like appreciate enough.
1:47:46
Like I I I think a lot of these crack these country club tracks should actually not even really allow street cars on the track.
1:47:54
If you want to be a member here, you need you need to get a race car.
1:47:57
>> Yeah, >> it makes it also just makes way more sense to use track only cars on a track.
1:48:02
Like >> economically, you can get a way like if you're looking for like a specific style of car, the track only version of the car will be half the price. >> Yes. Correct. Exactly. >> So why would you not?
1:48:16
>> So what are all your guests up?
1:48:16
What are all your guests telling you guys about like AI? What's going on?
1:48:18
Like >> Well, I think I think the thing that was I'd be curious to get your opinion, but this weekend was like the most amount of infighting that I've ever seen in tech and and I I don't know throughout your career, have you ever h has there ever been a moment where you felt like there was this much sort of like fighting and disagreement from within the same industry? Right.
1:48:42
>> I couldn't believe the three the three guys that all run the companies actually all agreed though. >> Yeah.
1:48:46
which is causing a lot of people to be like, "Oh, this is a conspiracy. They're colluding.
1:48:50
They're trying to create a cartel or a monopoly."
1:48:51
And so, I think that's what people are debating.
1:48:55
They're they're both debating like, "Is the risk real?" >> I don't know.
1:48:58
Although, I don't know all three of them.
1:49:00
I actually I've heard Sam, by the way, is in the cars.
1:49:01
I don't I do not know Sam. I do not know Dario.
1:49:06
And I've don't know Elon Musk. Yeah. Never met him. >> Yeah.
1:49:09
So, um, but I would bet I would bet that those guys are like genuinely concerned >> that if this stuff advances too fast, like it's just the unknown.
1:49:20
I don't think they say they would say like we definitely know this is going to happen. Yeah.
1:49:26
>> But this stuff needs to be regulated.
1:49:28
And by the way, I also think it's valuable that we have open source models because I don't think all the power should sit in the world of three companies either.
1:49:35
>> Um, >> but let's let's bring it back to racing.
1:49:37
I mean, pacing the frontier to me, you can you can there is a racing analogy which is, you know, you can be you can be going extremely quick without risking at all. Right. >> Correct.
1:49:48
>> And I've been on the I've been on the track with you and and and you're driving at at what you feel like is a very, you know, comfortable pace and I might feel like uh, you know, we're going to go into the wall, but for you that's you're you're you're fully in control.
1:50:03
You're still you're you're you're quick.
1:50:04
Uh but but you're not you're not going to risk it every corner.
1:50:10
>> What what I do find interesting though is when the quickest guys are then telling you the car is too fast. >> Sure.
1:50:15
>> We should slow it down a little bit.
1:50:15
You probably might want to I think I think >> the halo in F1 the halo in F1 does slow the car down.
1:50:23
It is extra weight and yet it saved so many lives.
1:50:25
You could see the video of Lewis Hamilton almost taking a wheel and it hits the halo and he's fine.
1:50:30
And uh yeah, that's an example of like >> trade-off.
1:50:33
I look I I think what this really means and I we we've said this for a while this stuff is going to be regulated.
1:50:41
>> It is not it is go I think if anything the one fear is government overregulate things. Yeah.
1:50:47
>> But like when you have the best equivalent you know if you have if you had if you had Lando Norris Kimmy Anteneelli and Max Verstoppen and Lewis Hamilton and Charles L clerk >> Yeah.
1:51:01
>> and Pastry all saying Yeah.
1:51:01
Hey guys, we need to we need to do some of this stuff. >> Yep.
1:51:08
>> To maybe it might slow the race down a little bit, but we want to like we think it's important.
1:51:11
You probably should listen to them.
1:51:13
Y >> because we you effectively have the same thing now happening with these with these three with these three companies. >> Yeah.
1:51:20
>> And like you probably should listen to them.
1:51:22
Now again, it probably just means it doesn't mean that AI is not going to be important, that it's not going to change the world and all this stuff.
1:51:27
I think they're just saying like, "Hey, we probably need some regulatory frameworks."
1:51:32
And by the way, I think the Chinese I I credit these guys with saying this actually because I think China is already thinking about this stuff and I think they've been thinking about this stuff for a while on how to put in place proper proper regulatory frameworks around AI. >> Yeah. Deep Seek Foundation. >> Well, yeah.
1:51:48
And even even the AI the selloff today I didn't understand because I mean I actually understand why it's happening.
1:51:53
But if you read into their messages, it's not saying it's not saying we don't want to still go fast and still continue to innovate.
1:51:59
It's just that, you know, we don't want to hurdle off of a cliff. >> Correct.
1:52:05
I I think that they're just like, we want to work as an industry to we want to work as an industry to make sure the proper frameworks are put in place.
1:52:18
Like I mean, it's it's kind of crazy.
1:52:20
I mean that we read that like you know you read that I was funny like a month or two ago whenever the open AI hacked >> whenever the open AI model hacked Hugging Face like can you imagine if you read like oh sorry like JP Morgan accidentally hacked Goldman Sachs.
1:52:36
Yeah, it's a crazy crazy story line.
1:52:40
>> It's crazy sci-fi and >> um Yes.
1:52:42
And so like I think that these guys these people that run the guys that run these companies are like some of them are probably like genuinely concerned like and they're listen I'm not we're not saying we got to stop.
1:52:52
We're not saying we got to pause.
1:52:52
Just like let's make sure we're all on the same page and like and where things are going.
1:52:58
Um you know and by the way there will be people that use these nefariously for sure.
1:53:02
um it'll probably increase.
1:53:05
But like look, I mean I've talked about it for a long time.
1:53:08
I I it's still shocking to me that nobody's built in like the security world like I think voice fraud is going to explode. >> Yeah.
1:53:19
>> Like if you can recreate somebody's voice very easily, then think about what you can do by using somebody's voice to, you know, to commit all types of fraud.
1:53:30
And I was >> Apple still hasn't fixed the um Ryan Peterson was talking about this this morning or yesterday.
1:53:35
Apple hasn't fixed the phone call spoofing.
1:53:37
So you'll get a call from Google. >> Oh, really?
1:53:41
>> And it says on your iPhone Google. >> No way.
1:53:43
>> But it's it's it's a scammer that's trying to get you to reset.
1:53:45
And if I wasn't if I wasn't aware that that was a thing, >> I would I would be much more likely to engage with somebody >> that's just calling from Google saying, "Hey, there's an issue with your account.
1:53:59
We got to we got to reset the password."
1:54:02
>> Um, so there's there's so many of those.
1:54:04
>> I'm I'm not a we we've we've made a couple of very successful cyber security investments.
1:54:08
We backed Doug Song at Dual Security and he built a huge business.
1:54:12
uh Andrew Peterson and people sciences and literally like I think that like the biggest risk today might actually be a cyber security attack like the biggest global risk.
1:54:23
I mean totally >> think about it.
1:54:25
People get mad when for a day or for like three hours they can't buy an airplane ticket on Delta because you know this the crowd strike Microsoft update.
1:54:33
Now imagine the internet goes down for like three days.
1:54:35
Yeah, >> it would be a big big deal.
1:54:37
>> it would be a big big deal. And that was what and that was actually Daario's biggest shift was uh you know in the past he's he's talked about like existential risk and there's a lot of people at anthropic who have talked about like you know wiping out of all humanity which is such an extreme scenario you wind up having to deal with like well what about people that aren't
1:54:57
on Earth because they're in space or what about people that are on remote islands and then the Amish but uh but the but but he actually grounded it a lot more reasonably just saying like like I think that there is a small possibility that in the next year you could have a massive internet outage via a botnet that takes over the internet and that would be bad and and and that's much more tractable to get through. It's
1:55:17
It's like oh okay like yeah you just get something that's misaligned and it just gums up all the systems of everything and that's really annoying to everyone and you don't have to jump straight to like the most extreme sci-fi doomsday scenario uh to be like yeah let's avoid that.
1:55:33
>> Here's a question for you.
1:55:33
When do you think American venture capitalists band together to create a an American uh bending spoons?
1:55:41
Because >> you got to you got to imagine that there's some frustration of like, well, we invest, you know, hundreds to billions of dollars in these companies and then Mr.
1:55:50
Ferrari comes in and buys them for pennies on the dollar.
1:55:53
It'd be nice if we were also the buyer of our bets that don't actually achieve the, you know, tremendous.
1:56:00
>> By the way, you're going to get Joel Lamont.
1:56:02
I don't know him, but I know of him. >> Yeah.
1:56:05
>> Joel Lamont ran a business called Trilogy Software and did it >> like back in the 90s and 2000s like and by the way he tried to start his internet company failed and he's built a giant business.
1:56:14
I don't know what's happen I mean I know it's still a huge business but like somebody's going to do it in the states.
1:56:17
It's like by the way some of these are good businesses. just to over capitalize.
1:56:21
They were over >> well and part of in my view part of the reason why like I think that Bending Spoons is going to print on a lot of these deals is is that there aren't a lot of buyers like there aren't a lot of people that are willing to say, "Yeah, I'm going to spend a billion dollars for this company that's not growing anymore." Yeah.
1:56:40
>> Uh but when you're paying three three times revenue and you and you and you can get a lot of efficiency >> when you're pay by when you're paying when you're paying look if if you when you're bas if you're basically got a business where you pay three times
1:56:54
revenues and you think you can run it for you know you buy $100 million business but $300 million business and you think you can run it with like 70 million of ibida or 60 million of ibida well then you basically paid yourself back. I mean that's an amazing free cash
1:57:06
I mean that's an amazing free cash flow yield. >> Yeah. um on it.
1:57:09
So yeah, these people are by the way, they build like factories.
1:57:11
I somebody else you're gonna I think you'll I'm actually surprised you haven't seen more of them.
1:57:15
Um, you know, private equity backs happen, but there's a a lot of investors, private equity, venture capitalists, buyout, people, everybody like they just can't let go.
1:57:33
>> And sometimes it's just like, hey guys, we've been in this thing for 15 years. >> Yep. >> Just sell. >> Yep. who cares?
1:57:39
Just get out of this stupid thing.
1:57:41
And I think that um I think that I think people struggle with that. >> Yeah.
1:57:45
I think people have been surprised by Bennett Spoons because they're buying >> like not household names, but household names in tech as opposed to Trilogy bought a lot of companies, but a lot of smaller businesses that were not high-flying venturebacked.
1:57:58
the the founders been on podcasts and now Bending Spoons is going and saying, "Let's get, you know, these companies that, you know, and we're hot and we're backed by tier one VCs."
1:58:09
And so, it just has a different sort of flavor and narrative to it. But I agree.
1:58:13
Uh, uh, someone in the chat, John Axley's calling out Octave Capital, uh, Jeremy, >> uh, potentially working on that.
1:58:20
And I think there's other people, too. Yeah, interesting stuff.
1:58:24
>> There's a lot of assets they get to pick. I can say that.
1:58:26
They're going to be a lot more, too.
1:58:28
Um there's going to be a lot more.
1:58:31
I think look, >> there's going to be some of the world's greatest companies created over the next 20 years. Yeah.
1:58:37
>> Um who knows if they're even the anthropics and open AIS of the world.
1:58:41
Like there might be companies that never even existed.
1:58:42
I've used this analogy, but like >> had we sit here in 99, we wouldn't have talked about bite dance or Facebook or Snapchat or any of these things any the five trillion social media is a $5 trillion market today.
1:58:53
Like I think the thing and then you know like a huge amount of people that are building new companies will fail.
1:58:59
I mean it's just like the failure rate will be high and you'll have a few but like the prize is is gigantic for the guys that win.
1:59:04
And so um but you know you'll there's a lot of companies from 2012 and 2015 and 2018 sitting around in 2022 and there will be 25 in a few years that people don't know what to do with. >> Yeah.
1:59:18
And I think a lot of the founders want to move on, start a new company, do something that's with a fresh team.
1:59:22
We actually saw it with betting spoons.
1:59:23
One of the companies they acquired was able to spin out their AI products experimentation division, take the founders, some key employees who wanted to go on that journey.
1:59:32
Other folks were able to stay with the business and there's a whole different uh story and chapter emerging.
1:59:39
>> But always great to catch up.
1:59:39
Thanks so much for hopping on the show.
1:59:43
>> Talk to you soon, Mitchell. Have a good one. >> Goodbye.
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2:00:01
And we have some very special guests joining us right now.
2:00:05
We have Rosenthal Gilbert from the from Acquired.
2:00:07
I'm not even going to call it the Acquired podcast.
2:00:09
I mean, it's just Acquired.
2:00:11
Uh, we need to adjust the cameras a little bit, but thanks so much for being here.
2:00:16
Congratulations on all the progress.
2:00:18
What's the latest in your world?
2:00:22
>> You know, talking about home improvement. >> Yes.
2:00:24
>> Uh David and I have spent a lot of time.
2:00:26
>> You knew you knew what was going to be viral this weekend and you were like, "Everyone's going to want to get away from AI psychosis, >> touch graphs, and go to Home Depot."
2:00:36
>> We actually have already gotten a comment uh on our Home Depot episode just came out, which thank god something took my mind off. >> Imagine that.
2:00:43
How did you pick uh how did you pick Home Depot?
2:00:46
What stuck out to you about the company?
2:00:48
Was it just the next one in the queue or was there something that drew you to this company in particular that got your wheels turning?
2:00:55
I know you found a lot of interesting stuff during the process, but what was the inciting element?
2:01:01
>> So, it's like a top five listener requested episode.
2:01:04
There's probably a lot of people thinking that's a boring company.
2:01:07
I don't know why they did it, but we would get emails every week, David, for the last >> Yeah.
2:01:14
>> two, three years saying when are you going to do Home Depot? Okay. And where did you start?
2:01:18
What was the initial research process?
2:01:21
>> Well, the most curious thing is how large it is. Yeah.
2:01:25
>> I mean that every giant retailer does everything.
2:01:29
Walmart, Costco, Amazon, these are uh general retailers.
2:01:32
Home Depot is a specialty retailer but somehow is worth, you know, fluctuating between 300 billion and 350 billion because home improvement is just an absolutely enormous category and they own depending on how you sort of frame the market like 50% of the market. >> Yeah.
2:01:53
And so they they sort of um uh they they picked the most interesting category to be in and then they built a business that had scale economy so they could negotiate the best prices, do the most volume and so they're this giant business in a giant category. >> Is the Yeah. Yeah.
2:02:09
Is the only source of strength scale economies has that been the the story the whole time or is the brand also important like what else plays into >> college day? College game day. Okay.
2:02:24
>> Uh, no, brand has been very important. Uh, lots of things.
2:02:26
I mean, the, uh, >> come back to that in a sec, but we picked it for the reasons Ben said. Yeah.
2:02:31
>> But then when we got into researching, we realized >> Home Depot is actually the greatest total returning stock, public US public stock, since the day it went public.
2:02:42
So, like, you could have bought any other stock, Apple, Nvidia, Microsoft, whatever, >> on any other day >> since 1981.
2:02:51
Since 1981 when Home Depot went public, >> you would not make as much money as you would have if you had bought home Depot on the day of its IPO. >> They beat Domino's.
2:03:01
>> I thought Domino's was the best performing stock. >> Domino's.
2:03:03
Monsters is up there, too. >> Good. >> Yep. Yep. Monsters number two.
2:03:07
>> Even if you bought Nvidia on IPO day in 1998, that nothing will exceed your total return with dividends reinvested. >> Oh.
2:03:16
Froared against buying Home Depot on IPO day in 1981.
2:03:19
So, there were people that put in $1,000 and what do they have now? >> $17 million.
2:03:25
>> $17 million from a thousand investment.
2:03:28
Uh, and and it feels like is is Home Depot because it has a consumerish brand.
2:03:35
Uh, does it actually attract a different different cohort of investors?
2:03:40
Like, is it is it uh is the is the actual investor base more diversified?
2:03:45
Are there more employees who who uh participated in that? >> Yes.
2:03:50
Um, so they had this strategy that one of the unique things they did early on was instead of recruiting employees that you would for any retailer, you know, Walmart employees, they recruited former trades people, >> so plumbers, electricians, people that could actually help you with your home project.
2:04:08
And the goal is, hey, if if you buy, you know, a successful toilet and you manage to install it yourself, you're probably going to get interested in redoing a bathroom or building a shed or, you know, an ADU or something.
2:04:20
Um, and they their goal was to kind of level you up.
2:04:24
And they were in a category where they could take someone who was originally in to buy a 10-cent washer and eventually turn them into a $100,000 customer.
2:04:34
>> That doesn't really exist anywhere else in retail. >> Yeah.
2:04:36
And because they could do that, they kind of bet the company on being able to do it.
2:04:42
And so they built this whole engine around this like shoot the moon strategy of we're going to get really big, we're going to get big fast, and we're going to motivate our entire employee base to do so.
2:04:52
So even back in 1980, uh they were giving out uh compensation to employees like retail employees on the floor in the form of stock. >> Wow.
2:05:03
which is these people became like multi-millionaires. >> That's awesome. >> Yes.
2:05:08
>> Uh how important are the founders to the story?
2:05:10
How singular is the founding story versus uh potentially a violation of the great man theory of history?
2:05:15
Take me through the role of the founders and that journey because uh yeah to basically till today. >> Yeah.
2:05:24
I mean, Home Depot is crazy because Bernie Marcus was the CEO and sort of the the primary person, but it was this team and they all had different superpowers.
2:05:34
So, it was Bernie Marcus, Arthur Blank, who owns the Atlanta Falcons today, >> uh, guy named Pat Farah, who was the merchandiser, and then Ken Langon, some folks listening might know who Ken Langon is.
2:05:46
He was an investment banker, but he was one of the co-founders >> and like >> it was all part of this strategy, right?
2:05:54
So like Ken took the company public when it was basically a year old, two years old at this tiny valuation because he could and he helped >> $32 million million market cap at IPO. >> Wow.
2:06:09
And is that just like is that just his uh his unique ability as an investment banker to get that deal done because we've seen smaller IPOs happen through like spaxs and there's some there's some oddities out there in the market where I could see you know oh if this company thousand X's it could be a crazy story
2:06:24
but >> I've actually been surprised that we haven't seen a a super subscale company do an IPO in this in this market right because you could imagine if if you just took >> for example three decent ly smart AI, you know, uh, researchers, and you put them in a vehicle and took and took it public. >> Yeah. But it would go public at 10 >> Yeah.
2:06:45
But it would go public at 10 billion already, so you don't have the upside.
2:06:47
You can't like there's no there's no $32 million IPO. >> Well, okay. Yeah.
2:06:53
Yeah, that that's correct.
2:06:55
But but at least the bankers would be able to price it much much lower than that and then it would trade up to, you know, some some insane and it it would >> right now there's too much incentive for venture capitalists to say don't don't do that. That'd be crazy.
2:07:07
Let me give you $500 million and you can take some secondary or whatever.
2:07:12
>> Um, there's a lot of reasons not to do robust private market financing, especially not for a retail concept.
2:07:16
I mean, the retail concepts, they're capped, right?
2:07:20
How big could it possibly get?
2:07:21
But they sort of invented this like giant category and then took half of it.
2:07:26
Um, >> and it almost happened with the the VC dynamic almost happened with Home Depot because Ken Langon got famous because he took Ross Perau's company public, the EDS.
2:07:38
>> And so when he and Bernie and Arthur were starting Home Depot, Ken took him to Ross and was like, "Oh, we'll just get my buddy Ross to finance this thing."
2:07:47
And Ross, there's a deal on the table.
2:07:49
Ross Perau is going to own 70% of Home Depot and bankroll the whole thing. 70%.
2:07:54
uh which today would be worth about $230 billion. >> Yeah.
2:07:59
>> And the whole thing blew up because Ross tried to dictate the type of car that Bernie and Arthur were going to drive. They drove Cadillacs.
2:08:08
And Ross pro this is you can't make this up.
2:08:12
Ross was like uh it was like my guys don't drive Cadillacs. They drive Chevrolets.
2:08:18
If you're going to drive a Cadillac, that's going to be a problem for me. >> Okay.
2:08:22
>> And so the Home Depot guys walked away.
2:08:24
It is sort of seemingly kind of random to be Cadillac guy building.
2:08:29
>> You have to remember that back then like a Cadillac was like a Mercedes G Wagon and a Chevy was like a Ford Taurus.
2:08:34
Like the brands have now coalesed but still similar.
2:08:41
It doesn't I don't think of Cadillac as like the >> It was like, "Oh, you're of Yeah, but you're you're you're running a home home improvement, you know, contractor supply business." Like, >> no.
2:08:53
Cadillac get around on Wall Street on.
2:08:55
It's a limousine company.
2:08:57
>> No, but I just think that's notable.
2:08:59
They're not driving like an F-150 or whatever >> because they didn't because the founders, including Ken, they weren't home improvement guys.
2:09:04
the they were retail guys who saw the opportunity in this category, had gotten into it in another company in the past and then started Home Depot.
2:09:12
Home Depot was basically their prior company mashed up with Costco.
2:09:15
They knew Saul Price who had started Costco.
2:09:18
>> Oh, >> they saw what Saul was doing with Costco in San Diego and they were like, "Oh, >> we can do the same thing with Home Improvement and it'll crush." What was their rotary?
2:09:27
Like, if you want my money, you got to LAR. you have to lar.
2:09:33
Uh, so >> what was their rotisser? >> Yeah.
2:09:35
Did they ever think doing a membership model like Costco?
2:09:36
Did they ever pull anything else from Costco?
2:09:40
>> They pulled a lot from Walmart, interestingly.
2:09:42
I mean, the the obvious stuff they pulled from Costco, so it's going to be a giant warehouse.
2:09:45
We're not going to face the labels out.
2:09:46
You're going to have to go up to the pallet and, you know, just grab it off yourself however it shows up in the pallet.
2:09:52
>> Um, there there's those obvious parallels.
2:09:54
Interestingly, they got a lot from Walmart.
2:09:56
Uh the employee compensation stuff they got from Walmart.
2:10:00
And then the um >> uh what was the other thing they got? Oh, everyday low prices. Okay.
2:10:07
>> Walmart sort of invented that idea of like things don't go on sale.
2:10:09
It's just everyday low prices.
2:10:11
And obviously they moved away from that now.
2:10:13
But that was Home Depot's ethos for a while too. >> Yeah. But no, was it up only?
2:10:15
Was it up only or was there some dark days?
2:10:19
only or was there some dark days? like what what was the >> there was the company almost completely died in 20067 going into crisis but not for the reason you think you would think like oh home improvement company's probably falling
2:10:33
apart because the the macro is changing and actually housing's at the root of it >> they had brought in leadership a new CEO in 2000 who was just the first few years were good but then just absolutely the wrong person for the job and the the the culture got kind of messed up. Uh the
2:10:52
Uh the whole value proposition to customers became like less and less clear and they really tried to focus it was it was a GE guy that came in really tried to focus on six sigma.
2:11:03
We're going to be as efficient as possible.
2:11:05
We're going to have as few employees on the floor as we can.
2:11:08
Uh we're not going to hire expensive specialized employees.
2:11:10
We're going to try to get more general retail staff.
2:11:14
And it it really watered down the whole value proposition.
2:11:16
And actually, Frank Blake, who became CEO in January 2007, is credited with saving the company.
2:11:24
If you ask Ken Lango, he said, "Frank absolutely saved the company." >> Wow. >> Wow.
2:11:27
>> What was CO like for Home Depot? >> Crazy.
2:11:31
>> The greatest thing that ever happened to them? >> They they grew.
2:11:34
>> So, you're saying they may have been the behind it?
2:11:37
>> You're pointing fingers.
2:11:40
>> That would really be a conspiracy.
2:11:40
They built out an astonishing amount of supply chain and e-commerce readiness in the like 3, four years leading up to it.
2:11:51
And I mean that they just had so much capacity for everyone who was trapped at home, wanted to improve that space in their home, but also didn't really want to go to the store to get all of this stuff.
2:12:02
It was this like ridiculous perfect thing that fell into their lap.
2:12:07
How how do you square the fact that Home Depot's been on this tear?
2:12:10
America seems to be very into these DIY projects, into building things.
2:12:15
There's been this, you know, centuriesl long buildout of the American home.
2:12:19
And yet there's so many talking points about we can't build things in America.
2:12:23
That is a housing crisis.
2:12:25
There's not enough housing.
2:12:25
How can these two things coexist at the same time?
2:12:30
What's actually going on here?
2:12:31
Home Depot is the perfect end around this, at least in the early days, because it's it's DIY, okay?
2:12:35
You don't need permits when you're just doing this yourself.
2:12:39
You don't need permission.
2:12:41
That was the whole ethos of the company.
2:12:43
>> Uh contractors and pros now are half the business, but even still, it's mostly residential. Yeah.
2:12:48
>> And a lot of that just skirts around all this bureaucracy. Got it.
2:12:52
>> And I completely agree with you that America's not building enough housing, especially single family homes.
2:12:56
We're building a lot of condos and town homes, but um people want to live not necessarily in cities, but near cities and in single family homes, and we aren't building many of those.
2:13:07
>> Um >> Home Depot is experiencing like the most ridiculously awesome secular tailwind from that ever because America has a giant housing base that gets older every year. >> Oh yeah.
2:13:20
the median age of a home is up like 15 to 20 years versus when they were uh getting founded.
2:13:27
And so for them, it's just this like almost an annuity that people need be working on these old houses.
2:13:36
>> So new homes don't need as many trips to Home Depot.
2:13:38
So you think Home Depot might secretly be behind the housing crisis.
2:13:42
>> Look, you're the conspiracy theorist.
2:13:44
You keep trying to put words in your mouth. >> Uh behind you. >> Wow. This goes way deeper. goes way deeper.
2:13:50
It's the most powerful company in the world. Forget the AI companies.
2:13:54
You would have made more money investing in Home Depot than Nvidia because, >> you know, you need to apply the the the skepticism that you apply to every AI leader blog post to the Home Depot team for sure. Every move they make.
2:14:07
>> Did you guys do any did you guys do any projects to as part of your process?
2:14:09
Did you like try to >> Did you add a fourth bedroom or something in your house?
2:14:14
Personally, >> I did some shopping trips.
2:14:16
excited to do a major project, but uh >> every time I go, I'm back seven times.
2:14:22
Like that retention, it's sort of like anti- churn.
2:14:24
Like you can't get out with just one trip because you go and you're a I need a different nail.
2:14:27
I need a different screw.
2:14:29
And then you're back there a couple times.
2:14:31
>> There's so many beautiful dynamics to it. This is it.
2:14:32
Like, you know, at least for the DIYs and for the pros, >> jobs can't stop.
2:14:38
>> You know, if you're trying to get something done on a weekend yourself or if you're a pro, it's your job during the you run out of nails, >> you got to go to the Home Depot. >> Yeah. Yeah.
2:14:45
Uh what is the retail footprint strategy?
2:14:48
Have they been just growing the number of locations continuously?
2:14:54
Have they been consolidating?
2:14:56
>> This is this a leading question? Do you know the answer? It's nuts. >> Okay.
2:15:00
>> Uh Home Depot grew stores like crazy.
2:15:00
I mean, seriously, it was like the original Blitzcaling Company from 1979 until 2006. Yeah.
2:15:12
>> And we're not talking like McDonald's scale, but we're talking thousands of stores. >> 20 2300 stores. >> 2,300 stores. Okay.
2:15:18
>> And then they stopped. >> Okay. >> Dead stop in 2007.
2:15:21
And they essentially didn't build another store until two years ago. >> Whoa. >> Wow. >> That's crazy.
2:15:28
And was that just because they were >> And that had to have driven so much of the performance because you have like, you know, one of your primary costs of, you know, all this capex and then suddenly you're like, "No, we're we're pretty much good.
2:15:39
we've we have our you know storefronts >> and they just focused on e-commerce buildout and building more fulfillment centers and specialized fulfillment centers for e-commerce and I it was this like okay we already have most of the good real estate uh we're just going to focus on store efficiency and building all of this fulfillment supply chain stuff.
2:16:00
Uh and now they started building again.
2:16:02
They're like okay we took what was it a decade and a half off and time to build.
2:16:06
to build. So like they went to all the other leaders in the space told them let's just stop the expensive capex right now make sure the margins are in a good place so we can get out perform in the public markets you know tin foil they wanted to pace the frontier that's what they p the frontier
2:16:23
>> pace the frontier of their retail expansion uh is there but uh on the structure of their actual retail footprint is there a similar you know how people will McDonald's and I think you've you've you've illuminated this a lot on like is McDonald's just a re a real estate play like they own all the real estate. Does what is that dynamic
2:16:38
Does what is that dynamic with McDonald's?
2:16:40
And then is that is it the same with Home Depot?
2:16:42
Like is there a value to a company of just like getting a lot of retail space or like owning a lot of buildings or is that always just like a sideeshow that people put too much uh too much focus on?
2:16:54
>> I actually don't know for McDonald's.
2:16:57
The thing I do know for Home Depot is it's not like you just look at their real estate portfolio and say like, "Oh, that's half the market cap right there." Sure.
2:17:04
>> Uh but it does benefit them in that when they build a Home Depot somewhere, all this other stuff gets built around them and then they don't have to go renegotiate the lease in 10 years or risk losing it to their competitor.
2:17:15
So they now do own >> all or most of the stores because it's sort of a durability thing.
2:17:23
>> What what what are some examples of things that get built up around them like a HVAC repair shop or something like like what what are you what are you referring to there? >> Food, you know, food.
2:17:31
They anchor shopping centers. >> Oh, okay. Okay.
2:17:34
Like whole like there might be a Best Buy across the street or >> Target stores. Yeah.
2:17:40
>> It's not specific to what you need to do a home home.
2:17:44
>> They actually don't want you going anywhere else.
2:17:45
The whole strategy is if this should be your one-stop shop, we're going to stock an insane amount of stuff and you shouldn't have to go anywhere else for your project. Mhm.
2:17:52
I I I think that robotics are going to be another tailwind for them because if you assume that uh if you assume that a humanoid in let's say like you know let's be generous with the timeline a humanoid in like >> a thousand years >> 200 years.
2:18:08
No depends how much we pay >> 10 years.
2:18:11
10 years uh assuming you're you're walking out of your house in the morning and you can tell your humanoid like, "Hey, I actually want a fence there.
2:18:18
build just spend the day building a fence, right?
2:18:22
And it sounds crazy, but today we do a lot of digital work like this where you're like, "Hey, I want to understand I want to build this piece of software. I want to do this."
2:18:29
This is going to transition into the real world.
2:18:32
And and it's just not that hard to imagine doing a lot more because you have this sort of like latent labor capacity that you already have as like an individual, somebody, you know, with a house or whatever.
2:18:42
and you you you're going to probably want to do a lot more than if you have to coordinate with somebody and and then there's someone else's fee and all this stuff.
2:18:49
So, I think that's interesting >> and yeah, I think you're you're even more right than maybe you're thinking about because the logistics for getting this stuff to your house is quite unique.
2:19:03
Like imagine trying to put, you know, 3,000 lbs of lumber through the Amazon logistics system. Totally.
2:19:09
You know, and Amazon has built out some side channels to be able to do this, but this is all that Home Depot has been investing in for the last 20 years when they haven't been building stores.
2:19:19
Is this like you can get 3,000 lbs of lumber in two hours at your house?
2:19:24
>> Have there been any like misadventures where >> I actually need lumber.
2:19:28
>> They've where they've considered like going up market or going into uh potentially like home decoration, furniture.
2:19:35
There's a whole bunch of adjacencies that could be opportunities but also risks. >> Yeah.
2:19:42
So, the biggest one is HD Supply. Yeah.
2:19:45
>> In the early 2000s, they bought a bunch of companies and tried to sort of squish them together and then make this uh distribution business, like a different way to distribute to pros, procontractor outside of our using our physical store footprint.
2:19:58
That ended up being this like big distraction.
2:20:00
They needed to spin it off.
2:20:02
um hilariously a decade later they ended up buying the most valuable part of it back and it actually is part of the business now that they're sort of ready to do that expansion. >> Interesting.
2:20:12
>> The other one is um China and international >> uh just the culture around DIY and home improvement is not the same in most places of the world and definitely not the same in China.
2:20:24
>> So they tried to expand their footprint there and were basically unsuccessful.
2:20:29
They open a dozen plus stores, maybe dozens of stores.
2:20:31
And uh >> yeah, interestingly, in China, um it's not cool to be working on your house >> on your own.
2:20:39
Like, why can't you hire someone to do that for you?
2:20:41
Uh the wealthy people want to live in cities, which don't really need much DIY.
2:20:47
>> Um it's a very different >> buildings are new. >> Yeah.
2:20:50
>> Seems very unamerican over there. I don't get it.
2:20:54
>> Potentially a completely different country.
2:20:56
Lowe's is roughly has like roughly a third of the market cap.
2:20:59
Was there ever a period where where they were more neck and neck obviously um yeah break break down maybe that like the most kind of competitive period before they seemingly kind of ran away with it.
2:21:13
>> So Lowe's is over a century old.
2:21:13
It was Lowe's's market for the longest time and Home Depot started, you know, many decades into Lowe's's existence and then just went and basically discovered this new business model of >> giant warehouse store, five times the amount of square footage that Lowe's or any of these other sort of regional chains at the time, essentially hardware stores had.
2:21:36
Uh, and it turned out that your ROI on a giant store that had everything was much higher than your ROI on a bunch of little stores that had a limited number of things.
2:21:46
And so Lowe's, to their credit, when Home Depot passed them in 1989, Lowe's really woke up to this and said, "Okay, we're completely changing our whole business."
2:21:58
And so they started shutting down the old store concepts and building basically Home Depot clones at first.
2:22:05
and then they they kind of developed their own um twist on them, but that's why they're so similar today. >> Interesting.
2:22:10
>> Do you have an idea for how Home Depot's e-commerce penetration maps to other physical stores like a Walmart?
2:22:18
Like it just feels like the the urge to I need this particular nail.
2:22:24
I'm going there right now. The project must go on.
2:22:26
I would assume that Home Depot, even if they've been successful in e-commerce, uh they haven't been as successful as at shifting the revenue there as other uh other retailers.
2:22:38
But what's what's actually happened?
2:22:41
>> So the slight of hand there that uh you did unintentionally is for most people, >> most retailers, e-commerce equals delivery. >> Yeah.
2:22:52
>> And that is not true at Home Depot.
2:22:52
an enormous amount of their e-commerce is instore pickup >> because in your case, you know, you're home, you're doing the project, you have the wrong size nails, but like you have four hours to finish this project.
2:23:04
You got a family, you got to go do TBPN stuff.
2:23:08
Uh, and so you're not really willing to wait the extra hour to have it delivered to you.
2:23:12
You're just getting in the car, but you want to know that when you get there, it's going to be ready for you.
2:23:16
It's going to be super easy to pick up.
2:23:17
So, I don't remember the exact stat, but it might be like half of their e-commerce is actually pickup.
2:23:23
Yeah, I wonder where all this goes because uh I I recently door dashed something from Best Buy and it was an amazing experience because it was faster than me driving to Best Buy and back because they found a local driver who was able to just pick it up.
2:23:37
So, there was like no way that I could ever outperform it because >> that was the first time you ordered like local delivery or >> uh I mean it was just it was the first time I I ordered delivery that wasn't like >> John discovers discovers.
2:23:49
I'm wondering if they're more optimistic on that or drone delivery or anything else.
2:23:53
Like, do you have any idea of of where the current management team is seeing the future of Home Depot?
2:23:58
Like, what are they actually excited about?
2:24:00
Because sometimes it's just e-commerce, sometimes it's basic AI stuff, sometimes it's new delivery trends.
2:24:05
Like, all every management team always has like a a stump speech for like where they think things are going.
2:24:11
And maybe it takes a couple years to get there, but what are they excited about?
2:24:14
Well, a huge focus of the company and and most of their growth for the past decade or so, COVID excluded, uh has been from pros, from contractors and getting bigger and bigger contractors and builders more deep into their supply workflows.
2:24:34
>> Um so, and and e-commerce is actually a big part of this, too.
2:24:37
you know, a lot of the smaller contractors, residential GCs, they're already Home Depot is their primary just in time supply and increasingly like their main supplier.
2:24:51
But if you think about like really big builders, multif family, commercial, you know, cranes, all big stuff.
2:24:55
Um, historically, Home Depot has not been penetrated into that.
2:25:00
They've been penetrating a lot more into that.
2:25:02
So now, now you need like corporate relationships.
2:25:05
uh you need like orders aren't just like coming to the store.
2:25:09
You need to be able to deliver it or or go to the store, but it all needs to be in a very different enterprise kind of system. >> Yeah.
2:25:14
>> But it's not drones like it's not any of the things you were just saying. It's AI a little bit.
2:25:18
They they talk a lot in their annual report about the ways they're using AI to better help people find the right products that they want and use the website and build their IT systems and all that.
2:25:28
But um they sell big heavy stuff. >> Yeah. >> Trucks. >> Yeah.
2:25:33
I'd be a little worried if they were like, "We're getting into drone delivery."
2:25:36
It's like, "Oh, I'm happy to hear you're going to be flying with the >> Yeah, you're last.
2:25:42
>> So, uh, rentals is a big part of their business."
2:25:44
So, you think about uh you need a concrete mixer.
2:25:46
You need some kind of specialized tool. You need a backhoe. >> Okay.
2:25:51
So, I I needed this I needed this episode to I needed this episode to happen like two weeks ago because I I got a bunch of >> dirt.
2:25:59
I wanted my my uh my oldest has like an electric dirt bike thing and I was like, "Well, he's got an electric dirt bike. He needs a track."
2:26:06
So, I got all this dirt delivered thinking, "Oh, it's going to I'm just going to, you know, use a shovel or whatever."
2:26:11
I start getting out there with a shovel and it's like, "Okay, now I I'm basically doing kettle bell exercises for 4 hours straight, like moving dirt around.
2:26:19
I even had Nick on our team stop by to hang out and I was like, "Get ready to shovel some dirt up, buddy."
2:26:28
Uh felt felt bad about that one, but I I was not even aware that I could just get uh get get that equipment delivered.
2:26:34
>> Um question from the chat.
2:26:34
Is the is the smell natural or is it engineered?
2:26:40
>> Uh like like have they because that feels like it's a part of the brand now and so it's something they need to like if they lose that like they lose all the nostalgia and all all the memories that that kind of come flooding back when when you walk in there.
2:26:53
>> Does it smell mostly sawdust? Is that what it is? I don't know.
2:26:55
Anyway, what do you think?
2:26:58
>> You want to tell the store opening? >> Yeah. Yeah.
2:26:59
So, I don't know about the smell today.
2:27:02
I assume it is intentional, uh, if not engineered.
2:27:04
Um, but in the early days, there's a famous story about the first two store openings.
2:27:09
The store managers thought they were going to surprise everybody and like do a really fun thing for the store opening.
2:27:17
They hired a cleaning crew to come in and polish the floors the night before.
2:27:20
And then the founders come in at like four in the morning and they lose their tops and they're like, "What are you doing?
2:27:29
These need to be action places.
2:27:29
We can't have polished floors."
2:27:31
And so they grabbed a bunch of forklifts and started like skitting them around the floors and they sprinkled sawdust all over the place. >> Wow.
2:27:40
>> Yeah, that's super thoughtful.
2:27:40
Uh, last question for me.
2:27:43
What uh I feel like you guys are fantastic at finding uh archival images, just odd documents.
2:27:51
Was there anything from this process that stuck out as um like your favorite piece of Home Depot lore or fun fact or obscure image or document or something like that? >> Yes.
2:28:06
So, we uh we re launched a new website this year and we've been working with this fantastic designer Oh, and she uh she found this she she launched this thing called artifacts.
2:28:18
So, if you go to acquire.
2:28:18
fm/artifacts, you can see the artifacts we discovered from any given episode.
2:28:22
She found the Moody's manual from 1977 and 1978 that Ken Langon referenced when he looked at the original share price of Handy Dan, which is where the founders worked before they started Home Depot and uh and became interested in their company.
2:28:41
So, I like I thought we were pretty good at this, but what Ellie has found is nuts in terms of some of the the um old stuff that she's doing for our artifacts page.
2:28:52
Some of these annual reports are are super super cool.
2:28:54
The the visual design of the first annual report. So much imagery there.
2:28:58
I feel like uh I don't know this would get like dunked on in the modern era being like too many images, not enough facts.
2:29:04
But I I think it tells the story really really clearly. Uh this is uh acquired. fmartifactshomed depot.
2:29:13
The team's showing it on screen right now.
2:29:14
Uh, what acquired episode should people uh go listen or relisten to to have some historical?
2:29:24
>> What's the compion piece? >> No, no, no. No.
2:29:25
I was going to say historical context for this moment >> in AI where in tech where there's like extreme tension, extreme infighting, >> uh, you know, >> people that are generally aligned on a bunch of things are suddenly deeply misaligned and have different interests.
2:29:45
Anything that stands out?
2:29:49
>> This was before acquired episodes were good, so I always hesitate to recommend this one.
2:29:52
Um, we were still warming up, but Standard Oil. Oh >> yeah.
2:29:57
>> In like 2017 18 we did um uh standing. >> Yeah. >> Yeah. That's good.
2:30:02
>> And >> the other one I'd throw out is Lheed Loheed Martin. >> Okay. >> Um interesting.
2:30:08
>> Obviously coming out of you know the wars in World War II.
2:30:10
Uh but >> Last Supper's famous of the defense industry. Yeah.
2:30:17
where the the Secretary of Defense gathers all the prime contractors around at the end of the Cold War and says, "We are shrinking our procurement budget and expected to shrink basically every year for at least the next decade."
2:30:29
And so there's going to have to be less of you.
2:30:33
Uh I don't have any say over antitrust, so I'm not really advising you to do anything anti-competitive, but you need to figure out how we have less mouths to feed. >> Wow.
2:30:43
And then sort of the punch line of the whole episode which we didn't know going in but discovered is uh >> Lockheed and the military-industrial complex created Silicon Valley.
2:30:51
Like literally Loheed created the town of Sunnyvale. >> Yeah, that's crazy.
2:30:56
I love >> and I think there were something like 10 times more employees working in the secret Lockheed Lockheed missiles in space than the rest of the tech industry combined at the time.
2:31:06
I mean it's like they they literally brought everyone here and started it all.
2:31:10
All those early Silicon Valley startups selling chips.
2:31:14
Who do you think they were selling to?
2:31:15
They were selling to Lockheed and the military. >> Yeah. >> Wow. >> Yeah. >> Uh, amazing.
2:31:18
Well, we'll listen to those. Great to see you both. Let's hang out soon. >> Let's hang out soon. >> And you guys. Yeah. Congrats.
2:31:26
>> Have a good rest of your week.
2:31:27
>> We'll talk to you soon. >> Goodbye. >> Cheers, guys.
2:31:29
>> Let me tell you about console. com.
2:31:31
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2:31:37
Our next guest is with us in the waiting room.
2:31:43
We'll bring in Farage from Cognship, the founder and CEO. Welcome to the show. How are you doing? >> Great to be here.
2:31:51
Thank you so much for having me.
2:31:53
>> Thanks for hopping on.
2:31:53
Uh since it's the first time on the show, I'd love for you to kick us off with an introduction on yourself and the company. >> Sure.
2:32:00
Thank you first of all for the opportunity. My name is Farajali.
2:32:02
I'm founder and CEO of Cogni Chip.
2:32:05
I've been in this industry for over 40 years.
2:32:08
The last 30 of it in >> conductive business. >> Yeah.
2:32:14
I I started when I was only 2 years old, guys.
2:32:19
>> So, um >> straight out of the crib. >> Exactly. Yeah.
2:32:22
Prior to founding this company, I I founded a semiconductor company back in the late 90s.
2:32:30
took it public on NASDAQ and then I took another startup, built it up and took it public in NYC in 2017, sold it in 2019 to Marvel uh semiconductors.
2:32:43
semiconductors. I went on for two three years and did investing uh you know helping other entrepreneurs get their ship off the ground and that's when I learned enough about AI to uh to kind of have the light go on and and and see
2:32:58
realize that perhaps with AI I could actually solve some of the issues that I had as an entrepreneur building two semiconductor companies and uh and that's really kind of like like been the mission for me now in the last two and a half years. >> Y amazing. What is your process for >> Y amazing.
2:33:10
What is your process for finding opportunity and how has it changed?
2:33:15
Because uh are you looking at the applications of how people are using chips, where there's demand, where the bottleneck is and then going and working backwards to design a chip that improves things like you've been doing this for for so long that it's clear that there's not a one-sizefits-all solution.
2:33:31
So, what is your process for actually discovering opportunity? >> Yeah.
2:33:37
>> Yeah. So you know um a lot a lot of times you know ideas that you know you pursue in life come from your own experiences right so uh building these companies um over time I started to realize that the cost of developing any kind of chip uh it's just getting you
2:33:54
know bigger and bigger I when I started my first semiconductor company I raised 50 million when I took it public I had 17 left in the bank still >> wow >> the second one I raised 200 million and frankly I took it public because I didn't want to do another private round. I wanted to just go public and and and
2:34:09
I wanted to just go public and and and raise public money.
2:34:11
And now it takes several hundred million dollars to do a chip.
2:34:15
Chip cost of developing chips is skyrocketed. Complexity has gone up.
2:34:22
Time it takes to build a chip to design a chip.
2:34:24
It's 2 to three years and you know then it takes another year or so to get your customers up and running with year five years six you start to make some money.
2:34:33
And the problem is is that the software is moving so fast it leaves chips behind by almost six years. Right?
2:34:42
>> And so we need to close that gap.
2:34:42
And the third problem in our industry has been that we have diminishing number of uh electrical engineering students graduating to keep up the good work as the industry grows.
2:34:53
So we have you know diminishing resources more complexity on the chips higher cost and longer time and we're completely getting out of sync with software.
2:35:04
So my thought process was as I was learning more about AI by investing in AI companies and learning from other entrepreneurs in that field that it was a great intersection of these two uh really awesome technologies to be able to solve all that problem.
2:35:22
Collapse that time by a large factor.
2:35:25
Reduce the cost it takes to do a chip and then we can do these chips a lot faster and that gets the software going faster. Right?
2:35:31
So you get this essentially this flywheel working and uh and so it led to to the idea of um building a frontier model lab that focuses only on semiconductors.
2:35:43
So unless other u large frontier labs that are working on general intelligence, I set out to build artificial intelligence for chips. Mhm.
2:35:56
>> So we call it ACI, artificial chip intelligence and giving that focus and that particular um sliver of the world knowledge uh required really to bring together um you know scientists from math and physics and pair them up with people who have 20 30 years experience actually designing chips.
2:36:18
you know people in this company on the chip side have done hundreds of tape outs uh which is the process of completing a chip and sending it to a fabrication facility and then bring in other software people that can kind of encapsulate all of that knowledge and capability in an enterprise class product that then chip designers can use to make the chip design a lot faster.
2:36:40
What a lot of people don't realize is that 90% of the time in the chip business, our engineers are spending doing things that can be done by these models now, >> right?
2:36:51
And so what we need to do is to get those folks instead of wasting their time to be on the creative side where they can think about new products, new markets, new capabilities and then use this essentially these digital designers to help them get the project through.
2:37:04
So that's been really a passion of mine for the last two and a half years.
2:37:11
uh how you know we've had a bunch of new uh chip startups on the show and you were kind of mentioning this earlier just like how significant the timeline is to get from concept to tape out to to you know powered and and actually you know uh doing workloads.
2:37:30
How much like the these startups are taking some amount of technical risk obviously execution risk but then there's the other technical risk of like is the architecture still going to be relevant by the time uh and can I scale
2:37:43
up my production enough uh we we had a a founder on the team yesterday that pretty much all the labs and the hyperscalers are saying like I don't just need to know that this is going to work and be relevant when when you're ready. I need to know that you can hit
2:37:55
I need to know that you can hit you know gigawatt scale.
2:37:57
you know gigawatt scale. So how much uh right now it feels like there's just demand everywhere and so these companies are getting funded and they're getting kind of pilots and stuff like that, but how much do you worry about the sort of
2:38:11
technical risk that these teams are taking on knowing that every there's so many different players that are going to be innovating over the next 5 years that by the time they actually are ramped up, will there be will there be a real market for them? And honestly, you put
2:38:23
And honestly, you put your finger on one of the toughest jobs for people inside the industry.
2:38:31
Um, when we start a brand new project, whether you're in a small company or in a startup, when you start a new project and you know that this chip is not going to go in production for another 5 years, I mean, nobody on the planet has that kind of clarity 5 years from now, what is needed, right?
2:38:47
is needed, right? because the world is changing and you know we're all limited as human being about how how far in advance we can see and analyze and so um the risk you're taking on access acability of this device in in the market is one of the overriding things and the way we deal with it in the chip
2:39:06
business we used to deal with it is recognizing it's going to take five six years to get there is we pack these devices with a lot of things that may or may not be necessary but it's sort of like our insurance policy essentially hedging against what might change in the industry, right? And so it's a very very
2:39:20
And so it's a very very tough place to be uh because the chips get bloated, their power consumption goes up, their cost is unnecessarily high.
2:39:29
And even with all of that, you don't really know whether you're going to get there and there's going to be a you know your hunt is not whether a hunter is going to the dog is going to hunt or not.
2:39:37
So with by collapsing the time and the time, you know, the collapsing in time that it makes to do a chip, you're actually getting rid of all of those unknowns.
2:39:48
You're increasing the probability of you hitting the market dynamics that you want at the time you want it with the right kind of power and performance.
2:39:59
And that we have not had in semiconduct industry for a very very long time as shifts have gotten more complex.
2:40:04
And what I've my my vision is and what I love to do is to be able to return our indust industry back to a point where like I did with my first company, you know, four or five of us went to Sand Hill Road, raise a reasonable amount of money and we're able to bring a chip to the market and and you know, and get it get it deployed and take a company public.
2:40:24
public. that possibility needs to return back to our industry to bring the innovation back and frankly keep up with the world that is now woken up with the chip thing and they want to you know we're going to have a lot more competition in the world scale right and and so we need these kinds of
2:40:39
innovations to get us there >> uh in some there's been a variety of teams uh working on math specific models and it's been interesting over the last you know month or so as we've seen generalist models uh actually go out and solve some of the most you know important open problems and you know we saw Navier Stokes and everything. Why do you think that
2:41:02
Why do you think that semiconductor design is going to work out differently than than um you know and and why is somebody going to be able to go 0ero to one with a new chip with uh cognit chip and and not with a a more generalist model?
2:41:18
Is that because of uh having the right you know data sources you know how how how do you sort of compete over time assuming that you know the frontier will just continue to advance.
2:41:32
>> So the models are as good as the data that you use to train them.
2:41:35
If they've never seen enough of the examples then they actually don't know you know how how to get it done.
2:41:42
And so neuromount reasoning is going to get you to something you've never seen. >> Yeah. >> Right.
2:41:48
So it's very fundamental that you use the data from your industry to train these models.
2:41:54
The reason large scales LLMs are not good in chip design is because chip design data uh as an open source is actually not available very little of it available and what's available is not very useful frankly.
2:42:08
So what you need to do is to start from ground zero and build data sets that can be used to train a model and then you train that model with that data.
2:42:18
So the knowledge is inside the model the reasoning is inside the model and um in that way a specific model trained on a specific technology becomes very very powerful. Right?
2:42:33
So the reason for example uh software these LLMs do a good job in software because for the last 30 some odd years software has had a history of having open- source data widely available and that's why a lot of these large you know frontier models do pretty well in software because they're all essentially consuming the same data.
2:42:56
that doesn't exist with semiconductors.
2:42:58
And we're the first company that actually took that on and for the last two and a half years has been building a data mode that we think today is the largest data set in the industry for semiconductors.
2:43:11
So if you train them on the right data, then they get the right intelligence.
2:43:15
But that's also kind of not frankly enough because semiconductor industry is the process of getting a chip from idea formation to architectural um you know innovation all the way out to something physical that you know it's going to have transistors that are physics items right uh all put together and working well requires complete understanding of the workflow that a mature semiconductor industry goes through to ensure that everything works.
2:43:46
You know, when we talk about putting hundreds of billions of transistors on a piece of silicon and they work, they work because not one of them can be misplaced, right?
2:43:56
So, you can't, you know, make things up. It's not like poetry.
2:44:01
It's not like, you know, talking about some uh trip planning, right?
2:44:06
It needs to be you need to bring that precision and that precision of workflow really can come from people who've done it uh and putting them alongside the mathematicians who can use the train and that's that's all like how we built this company out.
2:44:19
We wanted to do the hard work because we think this is going to be for a long run a fundamental way that we're going to design chips.
2:44:26
Our industry cannot go on taking four years to design a chip and cost hundreds of millions of dollars and not know whether there's going to be a good market for it or not. That's not sustainable. That's not investable.
2:44:38
>> Yeah, it feels it feels like it we're we're going to have like biotech style or pharma style mechanics where you have this massive massive investment and then it's like almost a coin flip on whether or not >> uh or or worse on whether or not there will actually be a market there and it'll it'll function and scale.
2:44:54
Um you said you raised $50 million for your first company.
2:44:59
Uh, that was it's still a lot of money, but it was definitely a lot more money back then. What was the prehistory?
2:45:06
Why why did why were you so successful on Sand Hill? >> Yeah.
2:45:12
So, um, so this this goes back to to the days when people were using dialup modems, right?
2:45:17
And and we were inventing this new way of building a chip that uh was DSL technology.
2:45:22
Uh, it's the it's the way broadband is served to many of our homes today.
2:45:27
And um we had a um you know a good solid approach, a great team.
2:45:34
Uh it was one of the funnest times of my life when we were building that company and we went from opening the door to having a chip in hand that we were selling and generating revenue and we took the company public almost three three years to the day we opened the door.
2:45:52
>> That still holds the fastest record that semiconductor company has gone from inception to to go public.
2:45:56
But you know in in these kinds of things you need to have a good idea, you need to have a great team, you need to have good timing, you need to have good luck.
2:46:05
All of those came together for us fortunately in the first company and and and it just kind of all clicked and it was we had a hell of a time doing it and and and and so that's that's how how it came about.
2:46:17
Uh on the second company, we built um a um product for data centers.
2:46:25
Um, so data centers at the time were transitioning from 1 gig to 10 gig >> and we built those world's first 10 gig chips and that was, you know, the success there.
2:46:35
So >> this time I'm not building a chip, but I'm building a system that helps everybody else build chips faster. >> Amazing. >> Makes sense. >> Very, very cool.
2:46:44
Well, we'd love to have you back on uh as you continue to make progress and it's amazing to meet you. >> Yeah.
2:46:50
Thanks so much for hopping on the show. >> Thank you.
2:46:53
Wait, also give us what what's the what's the art on the wall that the chat was asking about.
2:46:56
Is that Tom Tom Brady on the >> That's Tom Brady. I'm a big Patriots fan. And uh Nice.
2:47:05
>> So yeah, Tom Brady all the way in the Pats. Go >> Pats. There you go.
2:47:09
I bet you could get Tom in in the next round.
2:47:12
>> Yeah, you might there be fun. >> Make it happen. Awesome. Great to meet you.
2:47:17
>> I'll talk to you soon.
2:47:20
>> Let me tell you about Codeex.
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2:47:30
Uh, >> got some breaking news.
2:47:32
>> What's the breaking news?
2:47:33
>> The president just phoned Jensen live on stage at the All-In Summit. >> Whoa.
2:47:38
>> Um, >> wait, Jensen was on stage. >> Yeah.
2:47:41
>> Or the president was on stage.
2:47:41
Jensen was on stage and he gets a call from Donald Trump.
2:47:44
Trump says, "The great thing about Jensen is that he can create the best AI chip in the world, but can't figure out how to put me on speaker phone." >> What?
2:47:55
>> That's a wild wild thing.
2:47:57
>> Very uh big big moment.
2:47:57
So anyways, that's that's crazy.
2:48:04
Apparently uh yeah, Mike Isaac says, "Okay, wow."
2:48:07
Per folks there, Trump called Jensen in the middle of his interview.
2:48:11
He was on stage and Jensen put the phone on speaker phone. >> Well, okay.
2:48:16
>> Jensen thanked Trump for his social media post this morning pouring cold water on alarmism.
2:48:22
>> Yeah, Jensen's been anti-doom for this entire cycle. We'll see.
2:48:25
We'll see where it all goes.
2:48:28
I'm sure there'll be more.
2:48:30
Uh Brad Gersonner chimed in.
2:48:30
Do we have a new Oh, there's a video.
2:48:32
Do we want to play the video?
2:48:34
Trump calling Jensen live on during the All-In Pod interview.
2:48:40
And uh I mean we just read it out so I think you know what's going to happen but this is a wild moment.
2:48:48
>> The great thing about life is that Jensen can develop the most complex computer chip in the world that nobody can copy for 10 years but he can't figure it out and put me on speaker.
2:48:58
>> He is on speaker phone. He is on speaker phone.
2:49:03
>> I think he must have had a hard time getting it set up. >> Okay. >> Mr.
2:49:05
President, >> you're now talking to the planet.
2:49:10
See, the great thing about life is that Jensen can develop the most complex. >> It's the joke again.
2:49:16
>> He can copy for 10 years, but he can't figure it out. Put me on speaker. >> An odd joke. Okay.
2:49:25
Well, anything substantive come out of it?
2:49:27
I'm sure we'll know more tomorrow. >> We'll be back.
2:49:30
>> We'll be back at 11:00 a. m. Pacific. Thank you for tuning in.
2:49:33
Leave us five stars on Apple Podcast and Spotify.
2:49:34
I'm off to go get some rest and we'll see you tomorrow. >> Our newsletter tbpn. com.