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[Music] You got to hit that multiple times right now. You're watching TVBN.

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Today is Monday, May 12th, 2025.

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We are live from the temple temple of technology, the fortress of finance, the capital of capital.

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We are wearing white suits.

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You know what that means? The market is ripping. The market is ripping.

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I never doubted it for a second.

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Never doubted America for a second.

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Never doubted the market for a second. We We were never gone. And yet we are so back. We are so back. We are so back.

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And we got a great show for you today.

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Uh we're diving into [Music] uh we got a bunch of fun stuff.

5:22

We're talking US China trade deal.

5:24

We're talking uh Trump EO on biotech.

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We have a few biotech folks coming on talking about drug prices, talking about TJ Parker himself, TJ Parker is coming on. Crem is coming on.

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Uh, a couple other folks.

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Uh, we have here here's the full breakdown.

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We're going to dive through everything.

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We're going to give you a market recap.

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Break down the US China trade deal.

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Break down the Trump EO on drug prices.

5:46

Uh, is there a new Air Force One coming in 2025?

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Poly Market has an analysis.

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There's a whole bunch of rumors.

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There's a piece in the Wall Street Journal about it.

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And of course, Perplexity is raising more money.

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They're in they've advanced from regular talks to advanced talks.

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Uh it's big news overnight success.

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It kind of is with Perplexi. It's a young company.

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Uh then we have a whole bunch of guests coming on.

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Uh Kermu, Tess, Jack, Pippa, Aen, and uh uh Gabriel.

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And then I think we got cut off at the end because we have even more people towards the back half of the show.

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uh we have maxed out the number of slots on our on our graphic and we will have to uh advance and go deeper and get a better graphic in the future.

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Anyway, uh let's kick it off with this post from Joe Weisenthal, the stalwart.

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He says, "Recession odds are way down from the highs, though still up substantially from the start of the year.

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So things are looking better than they were a week ago, two weeks ago, three weeks ago."

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Yeah, I think we got up to what was it? 60% 60% at one point.

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But we're pulling through. We're doing okay.

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And 42% probably has multiple holes in his wall this morning.

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He's just slamming slamming.

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There's a new order coming, but not today. Not today, Ray. Not today, Ray.

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Uh yeah, Joe Lisenthal summed it up.

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He said, "The two biggest losers today are people hoping for a Trump economic catastrophe." Keep going.

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Members of the big chess party who thought the terror announcement was some brilliant strategic plan that would reshape the global economy.

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So good in a way that was beneficial for the US.

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And so uh huge win for the nothing ever happens crow because we essentially roundted right back where we started.

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The market went down, the market went up, and we're back right where we started.

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Um, but yeah, the nothing ever the the nothing ever happens on on poly market for uh the nothing ever happens May poly market is sitting at 80 78% right now.

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I can't tell if you're joking.

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No, they actually nothing ever happens.

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How is that how how do they measure whether something happens?

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Well, I think we would know if something happens. You know, we know.

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Yeah, you'll definitely know if something happens.

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Here, I'm going to have I'm going to have the team pull it up, guys.

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We have a screenshot is also macro podcasters. Um, yeah. Yeah. Yeah. It's wild.

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But you got to give us credit here.

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Couple weeks ago when the tariff news hit, we were very cautiously neutral.

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I guess we were kind of in the camp of nothing ever happens.

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But I I was saying this feels given the market's off. It feels like COVID.

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It feels like the interest rate hikes. It feels like 08 crisis.

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We could eventually if this gets really bad, we could see thought leadership pieces from venture capitalists about this. But what did we say?

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We said that Sequoia didn't they didn't drop the memo first.

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They didn't drop the memo.

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They didn't drop the memo because the the nature of this was different because it was self-inflicted and therefore could always be pulled back and that's exactly what we've seen.

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And so we went uh we went there and back again and we're back where we started basically.

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Um but there's some good stuff in there. There's some bad stuff.

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I think I have some opinions and Jordy has some opinions and uh we'll we'll break through.

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Uh, but QCAP summed it up nicely.

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Said, "Come tell us about the US econ empire collapsing, honey."

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And Radalio's in the in the attic. Very sad.

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Uh, it's a great great post. Great post.

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Anyway, uh, the surprise US China trade deal gives GL global economy reprieve.

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Tariff reductions are bigger than expected.

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And Bessence says neither side wants to decouple.

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So, a few days ago, it would have seemed almost impossible. We're boys again. We're boys again.

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Did we just become boys again? Yes, seems like it.

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When the announcement went out yesterday, I read it that the one that was on the White House website, I read it as very soft.

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Like nowhere in that announcement was anyone taking any type of real victory lap if you actually read between the lines. Yeah.

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But it's soft in what way?

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Like soft like we got some things that we wanted. Okay.

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But not anything specific.

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Um, but uh anyways, we can we can go forward.

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And that's weird because normally I mean I I feel like that the the the White House press release is always going to be different from the from the Trump Truth Social post which is probably going to be claiming victory in like the most aggressive fashion.

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But yeah, even that I haven't seen very much aggressive like we won from the Trump camp broadly.

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So I don't know that's kind of weird but because we're back where we started basically close to where we started. Yeah.

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And yeah, I mean, has anything changed? I don't even know.

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There's some tariffs sticking around.

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I guess you offline earlier, you made a good point, which is that even even if nothing changed, the mindset of the American, CEO, executive team is that after this is that generally you can't bet on stability with China forever and if you're not willing to think about alternatives.

10:56

We haven't even talked about that hat. It's so good.

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You just dropped the hat. Just dropped the hat. Just no. No comment. Yes.

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So anyway, my my my my thesis here, I'm not trying to be like uh like a shill for the the the the history of the last three weeks.

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I think it is pretty chaotic.

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But um the the interesting takeaway is that uh in the intervening period you did see a lot of CEOs think seriously about what what it would take to reshore what it would take to build a new factory in America shift to a a contract manufacturer in America.

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Some of those deals probably got signed and will stick just because the the immense pressure of the 145% tariff meant that okay, let's work a deal and then enough of that happens and then maybe some of those deals stick around where yeah, sure it's not as competitive as if we went back.

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It's not as cheap as if we went back on our move to move like we moved to America.

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We could move back now because the tariff's kind of gone or it's it's dropping, but we always know that there's this risk that the tariff comes back.

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It made the idea of a really really bad trade war very uh I don't know real like it felt real.

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And so this happened at the end of Q1.

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There were a lot of Q1 board meetings that happened during that era like the the the Trump trade war era. And it was short.

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It was short but memorable, but a lot of those a lot of those people probably at least walked through the question of what would it take to decouple.

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And somebody could push back on that and say Trump could have just said, "Hey, in 2026 we're going to be implementing, you know, 145% tariffs in these industries.

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tariffs in these industries. you have a year to uh make changes so that your business survives and we can you know reshore y uh the the industries that are strategically it would have been the lower volatility option but I would say

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that volatility then yeah if you're long v you you hate that uh but I mean I mean seriously like like if if that had been the plan if it had been hey there's there's 145% tariffs coming in a year do Do you think that the Q1 board meetings would have been that serious? Because a lot of people

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Because a lot of people would have said, well, like, yeah, we probably should get started about thinking about finding a c-acker in America or think about how we route our supply chain, etc. , etc.

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, as opposed to all hands on deck, let's go and make this a priority.

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Let's go and see if there's an option here.

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So, I I I don't necessarily think it's like a good outcome.

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I don't really know, but I think there's something here.

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think there's something here. there's like a silver lining where at least most executives went through the mental exercise in the last month of what would it look like if we did decouple with China and some and some of those CEOs will say you know what let's actually just do that plan now and

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I don't know that that's going to be a huge boom in re-industrialization or completely reshape the global economy or world order but at least American companies are more prepared now so I That's like maybe I would call it a silver lining, not like a this was how it was always planned to be and this is like the good outcome. Big chess. Yeah. Big chess. Yeah. Yeah.

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I'm not I'm not a member of big chess.

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But remember we talked to Jordan Schneider at China talk and and I was like Jordan like you're you're all doom and gloom right now on these on this trade war.

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Is it possible that in six years or we're talking about this like we talked about the first trade war during Trump won which was like not great and all the economists said that one was bad but like we got through it and it was okay.

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and it was okay. I was kind of in the nothing ever happens camp and he was like no no no no this this one's different it's so much worse and I was like but Trump can just roll it back right like he could do that not saying predicting that he will but like he could and he was like oh but no it's like this is different this is way worse

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and I think I'm right I think I got him I don't know we'll have to see we'll have to roll the tape and and get him back on and actually debate it but it feels like this this could be a win for a team nothing ever happens yeah right now the market is certainly pricing that in John but it's also it's also just a 90day um pause and so it's totally possible that things heat back up, right? And then we could be talking

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And then we could be talking about uh disaster and more trade war, but hopefully not because we're buddies now. We're friends. Yeah. Yeah, we're boys again. Yeah, we're boys.

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Benchmark, go forward with your mass investment. Take it all back. Just do it. That was crazy.

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That that kind of came at the end of the week, but that the Treasury Department is investigating them.

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I'm interested to see how that that works out.

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Yeah, you really saved Sonia when I asked her that question.

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Yeah, you really put her on the spot. I I don't know. Why not?

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I'm like I have to train myself that not every VC is as loose lipped as Delian. Yeah.

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And some of them have uh decorum. Yeah. Yeah. Yeah.

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They don't like talk about other I'm just so used to like Well, yeah.

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Like Delian will talk about any deal, any company, any other VC.

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Most other VCs are diplomatic. Uh but not Delian.

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So that's why we have him on sometimes.

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That's why we have the diplomatic VCs on sometimes.

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Anyway, let's go through what actually happened with the USChina trade deal.

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Um, the world's two biggest econom biggest biggest economies unwound for now most of the tariffs they had imposed on each other since April in a tit fortat battle that was threatening to stoke US inflation, crash China's export engine, and upend the global economy.

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Stock markets in the United States and elsewhere surged on the news.

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The dollar and bond yields rose, um, reflecting expectations for faster US growth as trade tensions recede.

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Exporters breathe a sigh of relief.

16:33

I'm sure Ryan Peterson got his first sleep score above 50 in a month. He He He deserves it. He does.

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Investors and analysts said the outcome was much better for the global economy than they had expected on Saturday when the US and Chinese negotiators started two days of intensive talks at the Geneva residence of the Swiss ambassador to the United States. Great setting. Great setting.

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Probably some type of lake view, I would have to imagine.

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Be hard not to have a lake view in Switzerland, to be honest. Yeah.

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Um, Switzerland's kind of kind of set up to be this like kind of like Switzerland Switzerland of negotiation geopolitically.

17:12

Yeah, it's kind of like the Switzerland geopolitical negotiation. Exactly. That's right, John. Pretty sweet.

17:16

Uh, the US agreed to lower the base level of tariffs on most Chinese goods to 30% from 145% while China said it would cut its levies on US products to 10% from 125%.

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30% rate imposed by the US includes a levy uh levy levy uh related to China's alleged role in the fentinol crisis plaguing the US and issue in the weekend's talks.

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The US tariff on many Chinese products will be higher than 30%.

17:44

US duties on steel, aluminum, and autos remain in place as do some earlier tariffs on certain Chinese goods imposed during President Trump's first term in office and that of former President Joe Biden.

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Yeah, it's we're getting to the scalpel, not the sledgehammer.

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Everyone says, "Oh, you know, the precision Doge is too much of a sledgehammer.

18:03

Should be more of a scalpel.

18:05

There is there are things you need to cut."

18:06

Same thing with these tariffs.

18:08

They need to be targeted on specific industries that are, you know, important and strategic.

18:12

Well, you know, sometimes you got to use use a sledgehammer before you get in there with a scalpel and clean things up.

18:19

I guess break things up a bit.

18:20

just just smash it into pieces and then scalpel to kind of trim around the edges.

18:26

But uh Washington and Beijing agreed to keep the new tariff levels in place for 90 days with the goal of working toward a broader deal on tariff on trade.

18:33

In further talks, China said it would cancel or suspend some non-tariff trade measures.

18:38

It had imposed a hit back at the US potentially excluding including easing export restrictions on critical minerals used in batteries and other high-tech applications.

18:48

Speaking at a news conference, the Treasury Secretary said he was seeking a longlasting and durable trade deal.

18:53

So, it's just a, you know, a negotiation and they're renegotiating everything.

18:57

Uh, neither side wants to decouple.

18:59

He said, "We're a couple. We're couple.

19:02

We're just couple of countries. We're couple maxing. We're a couple maxing. Just a couple." Uh, yeah.

19:08

US said Besson said the US still had grave concerns about its unbalanced trading relationship with China which is legitimate.

19:18

He cited issues such as China's management of its currency and subsidies for uh manufacturing which Washington believes are a major factor driving factory job losses in the United States.

19:28

Those and other issues will be discussed in talks over the next 90 days.

19:31

days. the outcome the outcome for stalls what for now what was shaping up to be a destructive clash between the world's two biggest economies with potential ripple effects across the globe very interesting yeah this was something that um a lot of people in DC doc were paying attention to but retailers in the US were warning of empty shelves if they couldn't get Chinese products and some

19:50

small businesses were worried they would go under without easy access to China's vast factory floor economists warned higher prices and shortages risk uh reigniting inflation For China, an unrestrained trade deal with the US would threaten millions of jobs tied to serving US consumers and potentially worsen trade tensions with other countries wary of a surge in Chinese imports. China was also worried

20:11

China was also worried about losing access to some US products it still needs such as Boeing planes, aircraft parts, and certain chips. Yeah.

20:20

The other thing here is this was sort of under reportported last week, but uh that the Chinese central bank uh was cutting rates, you know, in response to the tariffs.

20:28

So they, you know, clearly, interestingly, our Fed did not as well. Yeah.

20:32

So we were kind of ready to buckle down because the market was pretty resilient.

20:36

Like if the market had truly been in freef fall and there was no, you know, buy the dip meme in America, the dens saved us.

20:43

You think the American investor, the American Djens were just like, "The prices are too low. I got to get in.

20:49

I got to mortgage my house to go long."

20:51

And and and the Fed and the Treasury Secretary, the Fed is just like, "You know what?

20:56

like we don't need to cut rates.

20:58

Like the Americans are simply too bullish.

21:00

They'll just never stop buying the dip. It's great.

21:01

But I I I mean the one thing that I that I like about this is uh I I think the I think the fentinel tariffs should be pretty bipartisan.

21:11

Like that seems like something where truly no one wins.

21:12

Like you you can make the argument about like a free market around electric vehicles and like competition being good for the electric vehicle market.

21:22

I see a lot of stuff from Chinese EV companies and I'm like, yes, I want American companies to win, but also I want those cars to be here so that there's more pressure on American companies to make cooler and cheaper cars.

21:34

Like there's that crazy car that has it's a EV, but it has a gas engine that just charges the battery.

21:40

So, it has like on a single tank you can go like 800 miles. It's like insane.

21:44

There's a Chinese car that floats.

21:46

There's those Chinese cars that have like the the LED screens on the back so you can talk to the person behind you.

21:51

say like, "Hey, stop tailgating me."

21:53

Basically, there's like all these cool features, all these insane features, some of which are silly, some of which are actually Yeah.

21:57

But I like I like competition in the market.

21:59

I like free markets generally, and I'd love to get there.

22:02

I don't feel that way about fentanyl.

22:04

Like I I I do think fentanyl is so bad that it should just be banned and like China should do everything they can to stop exporting it.

22:09

And so uh the Wall Street Journal writes through uh though the sides didn't come to an agreement over the fentinel tariffs, the US uh the US made clear in private meetings its views on the importance of combating the deadly drug.

22:22

Trump has accused China of playing a role in the illicit fentinel trade, something Beijing denies.

22:27

In a private meeting on Saturday, Besson picked up a bit of sugar out of a dish on the table and told Chinese officials that the amount he was holding could kill a person if it were fentanyl.

22:39

said a person with direct knowledge of the exchange. That's pretty dramatic.

22:42

Uh he picked up a little more sugar and said that amount could kill people across Geneva.

22:47

Then he picked up more and said that could kill people across Switzerland. So dramatic. It's good though. He's cooking. He's cooking. He's a showman.

22:57

Trump likes a yapper, a talker, somebody who can present. Yeah, it's huge. Showmanship is big.

23:03

Uh in a briefing with a small group of reporters, Besson said that although fentanyl wasn't the main focus of the trade talks, the Chinese delegation included a senior Chinese official who was able to discuss the issue in detail with the US officials.

23:16

Such an official who at later press conference Besson identified as a deputy minister isn't usually part of the trade team, Besson said, and that shows their responsiveness to our concerns.

23:26

So China actually sent someone a deputy minister to say, hey, we're not admitting guilt, but we're in the conversation.

23:33

and we're we're going to send somebody who's um who's who who can actually speak to this particular issue, which I think is good because, you know, it it it it's it's way harder to steal, man.

23:44

Like, yes, they should be able to just send as many drug like they they shouldn't be responsible for that.

23:49

And it's like our DEA can't like we like the United States goes into Mexico and like hunts down drug traffickers, right? Yeah.

23:58

Uh a lot harder to do that in China.

24:00

like they they do not want us sending our like DEA guys kicking down doors in Beijing if they're if they are doing fent. Yeah.

24:07

And to be clear, the the cartels are the ones that are basically the distributors for the fentinel and their position is we wouldn't do this if there wasn't a buyer in America, right? Yeah.

24:18

And and so naturally I think you need to go but normally upstream and put pressure on Yeah.

24:26

But the question is how much pressure, right?

24:27

because that does have a cost.

24:29

Like America has been waging a war on drugs.

24:31

There are negative externalities of that. There's a cost, right?

24:34

We have to pay for DEA agent salaries.

24:36

We have to do a lot of different things.

24:38

We wind up locking people up in jails that cost money.

24:40

We have court systems that cost money.

24:42

Like it all it all is a tax on America when we fight the drug trafficking that happens in the United States. Yeah.

24:49

We don't really have the ability or authority to do that abroad.

24:52

So we have to ask China to say, "Hey, invest in preventing fentinyl.

24:56

You you certainly invest in the local dissemination of it and and you have drug policies there, but we want you to take that as seriously even if they are just leaving your borders."

25:06

So uh so potentially a strong step forward.

25:09

I'm I'm optimistic about it.

25:11

Anyway, uh let's move on to the uh uh prescription drug executive order from Donald Trump.

25:17

He posted on He was like he's like yesterday he's like it's feeling like a slow news.

25:24

We only we only announced a potential trade deal. Yep.

25:26

Let's fast follow, you know, with with uh uh you know, a little Sunday to just shake up the biotech.

25:31

So, I'll read a little bit about what Trump actually said.

25:35

He said, "For many years, the world, capital W, has wondered why prescription drugs capitalized and pharmaceuticals in the United States of America were all caps so much higher in price than they were in any other nation.

25:48

sometimes being five to ten times more expensive than the same drug manufactured in the exact same laboratory or plant by the same company.

25:56

Question mark question mark question mark.

25:57

Uh it is a good question.

25:57

Uh I think a lot of people have asked this both on the left and the right and we'll go into Bernie Sanders plan and how that maps to Trump's plan and then we'll talk to some experts about is this are we should we be cautiously optimistic here? Is this great? Is this terrible?

26:13

uh price controls usually pretty bad from an economics perspective but uh this is something different with this most favored nation uh strategy.

26:21

So it was always difficult to explain and very embarrassing because in fact there were no correct or rightful answer.

26:26

Uh the pharmaceutical drug companies would say for years that it was the research and development costs uh and that all of these costs were and would be for no reason whatsoever born by the suckers of America alone.

26:38

Campaign contributions can do wonders but not with me, not with the Republican party.

26:42

We are going to do the right thing.

26:44

Something that the Democrats have fought for many years.

26:48

Therefore, I am pleased to announce this that tomorrow morning I will be signing one of the most consequential executive orders in our competition history.

26:53

Prescription drug and pharmaceutical prices will be reduced almost immediately by 30 to 80%.

26:56

They will rise throughout the world.

26:59

Of course, that's a prediction.

27:01

We need to figure out if that's actually going to happen because the way this is structured, they don't actually have to reduce prices.

27:06

They might just raise prices elsewhere.

27:08

Um, but of course there's a question.

27:10

The NASDAQ biotech index is up 4% today. Insane.

27:16

No one was expecting this.

27:16

Uh, and and we can go through some of these uh some of these posts.

27:20

Uh, but Delian said, "Biotech markets are going to be a blood bath on Monday.

27:26

Kicking the dog when it's already down."

27:27

I thought this was a good take. I liked it.

27:28

I posted something similar.

27:31

I wind up deleting my post because I was like, "Oh, that looks stupid now."

27:33

Um, and Sharp Shark on the next post says, uh, has the Grim Reaper going from door to door just killing biotech over and over and over again because biotech's had a hard go and seems to can't it seems that they can't catch a break.

27:46

And then Sheiel, friend of the show, says this is a policy, this pol This is policy that was proposed by Bernie Sanders in 2018. Horseshoe theory again.

27:55

Bernie Sanders new plan to bring down drug prices.

27:57

Briefly explained the plan from Sanders and Rep.

27:59

Ro, see Bernie and Trump love PJs.

28:01

Bernie was getting flak recently because he was using a PJ on the campaign trail and he said, "You really expect me to sit at a United terminal when I'm said that?" Yeah. Crazy.

28:16

So Bernie and Trump have have, you know, far more in common in many ways than uh at least many people would think. Yeah.

28:25

They're more alike than they are different. They're both Americans. They're both Americans.

28:28

Uh so TJ Parker, who's coming on the show later today, summed it up.

28:32

He said, "Uh, my initial take on the Trump drug pricing announcement.

28:35

I could probably be convinced that a global most favored nation is a reasonable approach.

28:39

The problem is even the federal government doesn't always know the actual net price of these drugs today."

28:44

That's why I've always argued uh that you have to kill rebates first.

28:48

It's the necessary precursor.

28:50

The optimistic take, forget rebates, forget margin buried in GPOs, just uh mandate a global MFN on list price and pharma will be forced to unwind the entire web of rebates, fees, and other unnecessary complexity.

29:02

My guess is that's the rough logic given the failed rebate repeal attempt in Trump 1. 0.

29:08

It will be nearly impossible to implement cleanly, but if it worked, it could be a brilliant end run around the current system.

29:14

Now, his pessimistic take.

29:17

I still believe that the best long-term strategy is to let market forces do their jobs, put power in the hands of consumers and let competition drive down price like every other retail category.

29:26

That's more consistent with our capitalist instincts and more American, but so far that hasn't worked. It's been a disaster. So maybe I'm wrong.

29:33

And so we'll have him unpack his uh his uh his takes a little bit more.

29:39

And we're also bringing on Kremx in about 20 minutes at 11:45 uh to talk about uh answer this question like does the US actually overpay for drugs.

29:47

He says common knowledge says yes but the real data says no because the US gets favorable prices for generic drugs and it primarily consumes generic drugs.

29:56

In fact they're 91% of prescriptions.

29:59

So I'm excited to talk to Kremu about some of his analysis here.

30:04

uh he's a great uh accountant and author on X.

30:07

Um so let's go through some of the Wall Street Journal uh analysis of the EO aimed at lowering drug prices and break it down for you all.

30:18

The executive order seeks to institute a policy known as most favored nation.

30:22

You guys probably know about that note.

30:23

That's the first time anyone's interacting with MFN.

30:27

When you're in founder mode, you're dealing with MFNs and the safes.

30:31

Well, now biotech companies will be dealing with the same clause globally.

30:35

There was a big moment when YC added the MFN clause. You remember that?

30:40

Yeah, maybe that's uh maybe JD got in there was like, "Hey, I've heard about these things." MFN clauses.

30:46

They're working really well in Silicon Valley. Could be a thing. Could be a thing. Could be a thing.

30:49

Uh so the US government pays prices for drugs that are tied to the prices paid by other countries.

30:54

Many other countries pay lower prices for medications because their singlepayer health care systems negotiate for deals.

31:00

Basically, what we're doing is equalizing, Trump said Monday before signing the order at the White House.

31:05

Um, he also said it was unfair for the US to shoulder the cost of research and development for pharmaceutical companies.

31:11

American patients were effectively subsidizing socialist health care systems.

31:15

American Americans often pay higher sticker prices for drugs than people of other countries.

31:21

For example, the list price of diabetes medication Jardians, I'm probably mispronouncing that, uh, was $611 for a 30-day supply last year, according to health research nonprofit KFF, compared with $70 in Switzerland and $35 in Japan.

31:36

That's a pretty big delta.

31:40

You can see why this is an issue.

31:42

So the EO directs US trade representatives and commerce department to take any appropriate action against unreasonable and discriminatory policies in foreign countries that suppress drug prices. It also gives RFK Jr.

31:52

30 days to work with pharmaceutical companies on how to lower prices.

31:57

If the drug companies don't lower prices within 180 days, the order gives Kennedy and others authority to propose rules and restrictions on drug companies and imports.

32:06

The order doesn't specify whether pricing changes would apply to Medicare or Medicaid, suggesting that its impact could be broad and apply to commercial insurance.

32:14

A White House official said that lowering the prices of drugs for those who use Medicare Part D would be a strong focus, but didn't specify which medications.

32:22

Hopefully, it's trend dball anavar just testosterone.

32:28

Just the essentials, just the essentials, just the basics we are paying.

32:33

Uh, Kremu actually posted like a post from the uh from a bodybuilder saying that like he's actually the bodybuilder is actually fine with the current structure because um uh it where is this? Let me find.

32:47

He said, "I really like the status quo with pharmaceuticals where people with good insurance and lot or lots of money get built hard to fund new research so that high agency people like me can buy cutting edge experimental drugs from a great from gray market websites for a fraction of the price.

33:06

Brutal bodybuilder the bro science always ahead of the curve. It is. Um, yeah.

33:10

One one analysis I got that I don't think is public at this point, but uh I think a number of people have had this reaction is that MFN pricing in general will likely face lawsuits on constitutional and administrative law grounds.

33:26

Uh if Congress can pass a new law, this would change.

33:31

Uh but an MFN like benchmark uh could be folded into legislation as part of some type of like Medicare price negotiation, right, which happens frequently or international reference pricing.

33:44

And um people are kind of theorizing that you could roll this like idea into legislation in the reconciliation bill in the House, but then that's just going to be another factor that could potentially get that not passed in the first place.

34:02

I think people were posting yesterday when this news rolled out like drug prices are going to drop and I don't see that happening.

34:07

But I'm interested to to talk to TJ later and just get a sense of of how real um price drops are going to be, if they're going to happen, if they are, what is the actual schedule, things like that.

34:25

Well, if you're trying to save money, switch your business to ramp. com. Time is money. Save both.

34:27

easy to use corporate cards, bill payments, accounting, and a whole lot more all in one place. Um, thank you to RAMP. Thank you to RAMP.

34:36

Uh, switch your business to RAM.

34:38

It is, I mean, it is a controversial decision because it is government price setting.

34:40

Uh, the Wall Street Journal has this quote from, uh, Alex Shrier, the senior vice president of pharmaceutical research for and manufacturers of America, trade association representing major drug drug companies.

34:52

Government price setting in any form is bad for American patients.

34:56

At a time when we are facing growing competition from China, policy makers should focus on fixing the flaws in the US system, not importing failed policies from abroad. Yeah.

35:03

So an example here is rent controls.

35:06

So uh rent control in many cities have if anything been detrimental to the poor.

35:11

A metaanalysis of over a 100 studies showed that rent control often leads to reduced supply of rental housing as it discourages new construction and investment.

35:22

So the the uh comp here would be if pharmaceuticals can't charge what they want to charge, they will invest less in R&D.

35:30

Uh whether or not that that ends up being true, uh I'm sure could be debated as well.

35:35

But a 2017 study by Stanford economists found that after rent control was expanded in San Francisco, landlords removed 30% of the newly controlled units from the rental market, leading to a 15% decrease in the city's total rent housing stocks.

35:52

uh property owners are more likely to neglect maintenance of their apartments.

35:56

Y and a national apartment association study in 2024 found that doubling the number of rent controlled units in a in a metropolitan area correlated with a 16% increase in severely inadequate housing units indicating a decline in housing quality.

36:11

So again uh just a good kind of reference when thinking about price control.

36:17

I mean, one option is that they lower prices in America, but the other option is that they just raise prices everywhere else. Yeah.

36:23

And if they do that, they might sell less drugs overall because people can't afford them in other countries.

36:30

Although, when the examples of like Switzerland and Japan, I feel like if Americans can afford $611 for a diabetes medication, like the Japanese should be able to as well because they have similar cost of living and similar GDP per capita.

36:45

So, uh, I I wonder would they really see a drop off in consumption or would they just see higher overall revenues and ultimately higher profits? Well, it's possible. It's possible.

36:57

I mean, I mean, there's so many different factors, but one scenario is that there are alternative drugs in those countries that you can get that are generic that are very inexpensive.

37:07

And so, the only way these American drugs can compete that aren't generic is to just have massively reduced prices. And so, yep.

37:15

If you're a, you know, pharmaceutical company, you're going to say, "Well, we're making this for the American market and then as a bonus, we'll sell it over here because even at $35 a dose, we still have amazing margins." Yeah. Right. It does.

37:31

It It is always odd when you run into something where it's like, you know, like you buy a car, you know, it's a big vehicle, it has a lot of metal, so you kind of expect it to be like tens of thousands of dollars.

37:41

thousands of dollars. you go to the gas station like the the gas costs money and it's very obvious that it's like well it costs money to pump it out of the ground deliver it to use so it costs certain amount of money but people always said this with like Facebook where it's like why don't they charge you like if if

37:54

you're not being charged like you are the product and with healthcare it feels like sometimes it's the opposite where it's like did it really cost $10,000 to drive me in the ambulance two miles like how did that happen and I get that my insurance paid for it but like something weird is going on here because like it just doesn't track at all. Whereas with

38:13

Whereas with many other things that you buy, you're like, "Oh, it would basically basically cost this much for this reason."

38:20

If people were paying out of pocket, they would be like, "Wow, I'm getting scammed by this company."

38:24

But they get the bill and the insurance covers it.

38:26

They're like, "Oh, like yeah, strange, but it is it is very odd.

38:31

Even even with like like there's a lot of R&D that goes into the iPhone and you buy it and it's $1,000."

38:38

And you're like, "Okay, yeah, that actually kind of makes sense that like checks out."

38:41

Yeah, like like sure, you know, they they they can manufacture these for 300 uh and they're charging 900 uh but that margin goes into the R&D and I get that, but it's weird when when it's like, you know, something that's it that costs two cents to make and they charge $10,000 for it.

38:56

So, I mean, healthcare's always been like an odd quagmire and clearly some I mean, everyone seems to agree on both sides of the aisle that like something's off in America and that it's not particularly working well.

39:08

Um and and maybe that's, you know, hey, we need to just be healthier and eat healthier.

39:12

Maybe it's we need different drug prices or different insurance policies, but um I'm sure there'll be an a lively discussion this week all about it.

39:20

Uh but if you are long biotech, you're short biotech, uh you got to express your views on public.

39:27

com investing for those who take it seriously.

39:29

They got multiasset investing, industryleading yields, trusted by millions. Let's hear it. Public. com. Anyway, let's go.

39:37

Uh they have a big launch this week which I'm excited for.

39:42

Let's go into another Trump story. There's so many.

39:45

This has been a busy weekend.

39:47

Uh Trump administration in talks to accept new Air Force One as gift from Qatar.

39:52

Uh the Qatari government says possible transfer of plane for temporary use is under consideration.

39:57

Uh obviously this is burning up the timeline.

40:00

people very uh very very confused about this because apparently America has two brand new 747s that they're actively retrofitting.

40:10

Did you see this take that they're like actively working on getting up to par and the plane is like the least expensive part of Air Force One.

40:16

It's like all the military equipment and stuff on there.

40:19

So this feels like it was designed just to cause chaos basically or something.

40:26

But it's like of all the different things.

40:28

Anyway, the the the article here is uh uh they're in talks with the Qatari government in into about accepting a luxury Qatari plane for his use as president and potentially beyond.

40:38

According to people familiar with the matter, under the potential arrangement which is raising legal and ethical concerns, the plane owned by the Qatari royal family would be used as Air Force One while Trump is in office after being retrofitted by a US defense contractor.

40:50

The US wouldn't pay for a luxury 747 style jumbo jet.

40:53

it might then be gifted to the Trump presidential library for Trump to use after he leaves office.

41:00

Uh, and so obviously people are very uh are very up in arms about this.

41:04

Uh, Sean Magcguire said, "The mainstream media has been wrong about so many things over the last few years.

41:07

So I hope this is just more fake news, but if it is accurate, it would be the first of Trump's actions in this term.

41:12

I find unequivocally wrong.

41:14

Qatar uses money to silence people and buy favor."

41:17

And Josh Wolf is quote tweeting Sean saying Qatar played him perfectly.

41:22

We will get you the American hostage.

41:24

We will get you a new shiny plane, the best plane, bigger than any other presidential plane, not just Air Force One.

41:29

Air Force One mega supreme.

41:31

And then you will retire to your library.

41:32

No president will ever afford such a beautiful huge plane.

41:35

We will help you bring peace to the Middle East and help you win a Nobel Peace.

41:38

A lot of that sounds good.

41:40

I want peace in the Middle East.

41:41

The the Obama book deal, they could have gotten a private jet, but it would have been probably Yeah.

41:50

you know, more in the this one's complicated.

41:53

Not flying international.

41:54

Yeah, it's complicated because flying through regional airports.

41:56

Obviously, I think like foreign governments should not be trying to curry favor with our elected officials, period. Yes.

42:01

But I'm a huge huge fan of giving your friends planes. Totally. Totally.

42:07

And we've actually put planes on our gift guides before. I realized that.

42:11

So, we're kind of to blame here because we advocated for this.

42:16

I believe a 747 BBJ was on our Christmas gift guide probably. What's a better gift? I know. To the right person. I know.

42:22

And so we kind of laid the playbook for this and then the Qataris just picked it up and they were like, "Oh, well, you know, TVPN saying this like we should give it a try." Uh, but we'll see.

42:32

I mean, the the good news here is like, yeah, when you think about the scale, right?

42:35

It's like, well, this would be like me getting you like a a a Red Bull, you know?

42:41

It's like literally like, "Hey, John, are you thirsty?

42:44

You want a little pickme up? Do you want a Red Bull?" Right.

42:48

It's like from a balance sheet stand now that you got me the Red Bull, I'm I'm in your pocket.

42:53

Value of the gift in con in the context of the balance sheet. Yeah.

42:58

It also is just so funny because it's not like it would be one thing if like uh I I've seen some supercars that have been made in in like in like foreign countries that don't particularly produce.

43:09

They don't have like large auto manufacturing segments.

43:13

Uh and they look very cool and it almost makes sense if you made a plane to gift one to America to be like, "Hey, like there's a there there's a there's a Kenyan supercar company that looks very cool."

43:24

I was like, "This is interesting."

43:25

It's mostly like a retrofitted Lambo.

43:26

Um, but it has like a very unique design and it's and it has like, you know, all the like the color way is designed to like mimic like I think it's from Morocco and it's very very cool and gifting something like that to America would be cool just to say like, "Hey, we appreciate you America.

43:43

You can put this in one of your museums.

43:44

Uh, we're we're entering this industry and we're excited to partner with you.

43:49

Hopefully we can distribute these in your country. We can make these."

43:51

Um, that would be one thing, but it's really just like it's an American company, Boeing, that makes a 747. you lost a plane.

43:57

We're going to give it back to the president.

43:58

And then and then America has to retrofit it because Boeing has a contract for 3.

44:01

9 billion uh to deliver a bunch of planes to Air Force One.

44:06

And then L3 Harris is a smaller defense contractor, an American company that has to overhaul the Boeing 747 that was formerly used by the guitar.

44:14

So it's like the big guitar is just like in the middle being like, "Hey, we put some nice leather seats in here." Yeah.

44:19

I mean the the where the plane gets retired to is the big question. Sure.

44:24

If it was given to the White House and it was going to be effectively you know a presidential plane on an ongoing basis, there would not be a lot of issues with it.

44:35

You could argue, okay, Trump's getting it when it's brand new or whatever.

44:39

But yeah, we'll see how this one plays out.

44:41

The other downstream thing about this is like as we're talking about, okay, maybe we shouldn't accept this plane, is it time to give back the Statue of Liberty to France?

44:54

I think France has had it's such an amazing monument and but every time you have to ask like are we making shrewd decisions with regard to France? Totally.

45:02

Are we being too nice to them because they've couried favor with us by sending us that monument?

45:06

And so if we send it back and say hey we're done.

45:11

It's going to be it's going to be a clean relationship by the numbers from here on out. Yeah.

45:15

It's surprising you'd think that that Trump would maybe try to draw attention towards that.

45:20

You give the the Statue of Liberty back to France.

45:23

Build one that's, you know, potentially five, ten times as big in its place.

45:29

I like that idea, honestly.

45:29

I mean, and it's from holding an American flag.

45:35

I would be way more down for Qar to give America a monument like the Statue of Liberty.

45:40

Like, we could have a Statue of Liberty all over the place.

45:43

There could be one in Florida.

45:43

There could be one in Alcatraz. We've talked about this. Catalina Island. Uh, put a ramp.

45:50

Put a ramp card in the Grand Canyon.

45:54

A ramp card swiping the Grand Canyon.

45:56

Swiping the Grand Canyon. That's a good idea.

45:59

That's That's actually genius.

46:03

Lifted by blimps just cruising, swiping the entire Grand Canyon. That's good. America runs on ramps.

46:10

That's That's a very That's a very American thing. There's something there.

46:13

And ifQar could help finance that so ramp doesn't need I'm so for that. Yeah.

46:18

you know, more growth equity for it.

46:18

And that feels like something that, you know, it wouldn't it wouldn't be like, oh, like, you know, Trump would have paid for that anyway, like like because the whole thing with this plane is like it takes something off of his personal balance sheet, right?

46:29

Because he gets a free plane. Yeah.

46:31

But he was never going to buy a ramp card that swipes the Grand Canyon. Yeah.

46:35

Even if he should, he should. He objectively should.

46:37

Uh, so yeah, I mean I I I think that's a great idea.

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47:03

You know, all these Oh, yeah. They're on the hat. They're getting there. Not on the V1. They came in late.

47:09

But we got ramp on there.

47:09

We got We got Wander bezel. AD quicks on there.

47:12

Uh even even Roar right here.

47:15

It's always in in my vision.

47:18

Yeah, you can see it, right? It's kind of crazy.

47:20

Uh anyway, uh speaking of news, uh AI startup Perplexity's valuation surges to 14 billion in new funding round.

47:28

You'd think this is from uh R for Rock, but it's in the Wall Street Journal.

47:32

Berber Jin got the scoop. Yep.

47:34

And uh to be clear, they are in advanced talks for a new funding round.

47:39

They've advanced from talks to advanced talks.

47:41

So, it's hard to know if this means they've signed a term sheet uh if they've done any type of handshake deal, but venture capital firm Excel is set to lead the new round, which is expected to total 500 million.

47:53

People familiar with the matter said the raise underscores investor enthusiasm for general artificial intelligence companies, some of which have begun to challenge Google's long-standing dominance over search.

48:02

Perplexity was valued at 9 billion last November, its fourth round that year. That was crazy.

48:09

They really went on a wild run.

48:09

It is one of a set of AI startups that have grown quickly after the launch of Chat GBT 3 years ago.

48:15

The San Francisco based company sells an AI powered search tool that provides summarized answer using information gathered in the web.

48:24

Perplexity is launching its own web browser called Comet. Yep.

48:26

And that is that is what got uh we we were talking about Comet. Yeah.

48:32

with Arand on the show and he answered your hypothetical and got a hit piece out of TechCrunch for it.

48:40

So, it's not a hit piece unless it comes from the hit piece region of the New York Times print edition.

48:44

But it was and it's not a docs unless it comes from the docs region, the Washington Post. Yeah.

48:51

Uh but uh Eddie Q last week made news at Apple when he said that Google searches over Safari web browser fell over the past two months for the first time in more than 20 years.

49:00

and he attributed that drop to more people using generative AI services such as chatbt and perplexity.

49:06

Uh and so uh Q said Apple has held conversations with Perplexity, OpenAI and Anthropic about adding AI search features into Safari.

49:16

And so that would be a big deal if the iPhone kind of migrated away from uh from Google.

49:20

Um but it's interesting to see where um where this goes.

49:23

I'm excited that they have so much money. I like Arvin.

49:28

It seems like a really really tough market to compete with even in this narrative of like the application layer will be what's valuable.

49:36

It's like that's true but you still have to aggregate enough demand to drive so much traffic to your application and have a flywheel there.

49:45

When you're in consumer search the it's not the same as oh like the bullcase for Harvey is that they hire a bunch of great SDRs who can go sell into law firms.

49:55

That's something that they can just scale up.

49:57

I feel like versus changing consumer habits from google.

49:59

com or Google is my autocomplete, right?

50:02

Uh so huge challenge in a huge market. Interesting.

50:07

The stuff that's interesting to me is is they're doing these live earnings transcripts which are cool. I saw that.

50:13

But is that a 14 billion business? Right.

50:16

You know, sort of subscale providing the sort of type of information that that's not necessarily hyper relevant to the average.

50:26

We'll have to get Samir Gandhi from Excel on the show because he's joining the board and we will see uh what he has to say about the deal once it closes hopefully and hopefully the rest of it goes smoothly.

50:37

But we have Kremx in the studio here to break down drug prices. Welcome to the stream. How are you? Can you hear us? I can hear it. Oh wow. Voice changer, too. Okay, let's go. We're honored. We're honored. What's new?

50:54

Oh, I think I'm using voice changer clearly.

50:57

We can't hear you at all with that thing.

51:00

Uh, is there any way we could turn this off?

51:05

Yeah, let me let me just check if I can use a pitch change effect. It's It's strong.

51:10

It's It's a little too powerful.

51:13

It's a little too powerful. Overpowered by the AI. Yeah.

51:15

Uh, we wanted to read through some of your posts, see if there's anything that we could uh break down.

51:20

That sounded a bit better. Let's hear it. Gotcha. Uh, can you hear me? This is amazing. This is way bettering. Thank you so much. Tremendous. Okay, great.

51:28

Uh, so yes, uh, what has been your take? Yes.

51:31

Absolutely shocking there.

51:33

Anyway, thanks so much for joining.

51:36

Can you break down the news, the Trump executive order?

51:38

Uh, how are you interpreting the news?

51:41

How would you explain it to a lay person?

51:45

So the idea behind the executive order is that we are getting ripped off because other countries are paying far far less for the same drugs that we buy in the US for huge amounts.

51:54

We pay $1,000 for Zimpic and Denmark pays $40 and that's just not fair.

52:01

So the idea behind this is that we're banning geographic price discrimination.

52:04

We're making it so you can only sell at, you know, the lowest rate that another developed country is willing to pay for a drug. Mhm.

52:12

And how how real is that?

52:17

Like and and what what drives that?

52:17

Like with the Ompic example, uh that's developed by Novo, a Denmark company.

52:26

Are they just doing their friends a solid by discounting in their home country, or does this apply to American companies selling abroad?

52:31

And is it just like trying to capture any possible market at at whatever price the local market will bear or is there something else going on with the the dynamics of like insurance companies?

52:42

Bladder is exactly right.

52:45

It is a group of largely American companies that are maximizing profits by selling at prices that allow them to as I said maximize profits. Yeah.

52:53

uh they're just selling at whatever the market will bear and if a country will not bear American level prices then they aren't going to be selling at those prices there just for the simple reason of supply and demand.

53:05

Why does America like why can America bear such high prices?

53:07

We were looking at the Wall Street Journal article and they were saying that uh for a particular drug for diabetes Americans were paying $611.

53:15

In Switzerland it was 60 bucks and in Japan it was 35.

53:18

But Japan has a similar co uh similar, you know, economy to America on a GDP per capita basis.

53:27

They should be able to pay $600 in theory. What's going on there?

53:28

So the thing is that GDP per capita is actually not a very great way of getting at consumption. The Japanese save more.

53:37

They actually are quite unproductive in the service industry.

53:39

Um other countries tend to have far far lower levels of consumption relative to GDP.

53:44

And this is especially true if they are a country like Ireland or Singapore for which a lot of their GDP, their exceptionally high GDP seems to be driven by profit shifting where companies bring money over and doesn't actually affect the incomes much of the people who live there.

53:57

So you'll see that Ireland for example has very uh relatively low gross national product relative to their GDP.

54:04

They are able to consume considerably less than their GDP might indicate.

54:06

But the US on the other hand consumes a lot more than you might expect because everybody else's GDP is kind of out of whack compared to ours.

54:13

We are the world's consumers and as such we consume a lot more and we are actually our the prices we pay are actually quite in line with what you would predict given our consumption which is to say that prices grow a little slower than household income growth and the US has exceptionally high household income.

54:29

The high prices and the fact that they are relatively low uh both are facts that stem from America just being really really rich.

54:39

Can you Why do you think the market uh the NASDAQ biotech index is up uh over 4% today?

54:44

Why do you think that is?

54:47

I was actually just about to do a differencing exercise with that to see if the biotechs were um up more or less than the rest of the market because they are benefiting from the fact that the tariff barriers are actually going down as well today which is uh wonderful news for them.

55:02

Yeah, they however might not be benefiting as much as the rest of the market.

55:06

So I'll have to go check that afterwards.

55:07

Um, another thing is there is a considerable expectation that this will fail.

55:12

This was attempted, there's actually a CFR entry for this from 2020 and it was uh shot down by courts and then the Biden admin came in and they uh ended the whole thing and there are a lot of people who believe that this will not be able to go anywhere because it'll run into some sort of issue.

55:27

I'm sure going to tell them no, the opposite.

55:29

It will actually succeed and it will have pernicious effects because this is totally legal. Yeah. Interesting.

55:35

Uh can you talk a little bit about the US as an early adopter and how that shapes drug pricing? Oh yes.

55:43

So a large portion of the reason that the US pays so much for drugs is because our launch lag the lag between you know getting the drug developed and getting the drug to market is so so much smaller than elsewhere.

55:53

To take an extreme example, the US's launch lag for new drugs is about 6 months versus the UK's which is about 6 years.

56:02

Uh which means that if you're if there's some new therapeutic that you really need, they'll probably approve that one pretty soon.

56:06

But if there's a thing that's like an improvement on insulin, it'll probably take them many, many years to actually get that drug to market because they're just not willing to pay for it.

56:15

They have considerable cost controls because they are a more managed care system.

56:19

Um, they provide a lot less care and if there's something new that like rules, but it's like a slight improvement on something else, they're going to go for the thing that is uh less expensive.

56:28

they're just gonna we are uh aiming to maximize their tech adoption whereas they are aiming to maxim to you know constrain their prices and do as well as they can under a certain set of a certain budget.

56:41

You talked about uh potential pernitious effects if this goes through.

56:47

Are you using what happens when uh rent control is implemented in cities as a comp here?

56:56

or do you think there's just going to be less R&D spend, less investment?

56:57

What what does that look like to you? So, two things.

57:04

We actually have wonderful models of this now and we know how this played out in 1991.

57:07

Um, I'll talk about the models first.

57:09

The models suggest that this naive expectation that we're going to lower our drug spending by 50 to 80% just cannot happen.

57:16

And because we're going to dynamically adjust prices, prices are determined in equilibrium and we're probably going to get about a 10% reduction in the US, but we're going to see a very very large increase in a bunch of our allied countries.

57:28

So, for example, Canada should be expected to see something like a 90% increase.

57:31

They're a small market and they're going to be facing a lot higher prices.

57:34

Um, that's not going to be very good for them at all.

57:36

the total farmer revenues as a result of this will fall considerably uh because the for this it forces them in order to comply with the regulation to price above the profit maximizing level in most other countries.

57:50

This is bad for their returns and it's bad for the health of those countries.

57:53

Now, when this was attempted in 1991 with the most favorite consumer model for firms, uh the prices didn't change for drugs that were under patent with no generic competition because everybody's already paying those.

58:03

And it's just that the reason that we pay more for those is because we're the ones actually buying them and the other countries aren't really buying them very much at all.

58:10

They don't do new drugs as quickly as we do. We do it way way faster.

58:14

Like sometimes it's an order of magnitude faster.

58:17

Uh there also was no change for just generic drugs in general, but there was a backfiring effect and prices rose about 4% which is not huge, but it's something for drugs facing generic competition with because of the uniform pricing under MFN.

58:29

The compliance costs were really bad and there was an M there was an IR shock such that the returns for the firms went down as a result.

58:37

It was just not good for anybody. No winners.

58:38

There okay, some winners. I should say that back.

58:42

There are some people who do win from this.

58:44

They're a minority and yeah, who wins?

58:46

the future loses out because the returns to R&D go down and they're already very low and we're if you get less R&D then you get less improvement in the future.

58:53

Uh can you can you dive deeper into R&D?

58:55

Uh as I understand it there's basic science research that's done at universities kind of the foundational research on DNA might come out of a academic lab that's uh funded as a nonprofit.

59:09

Maybe there's NAH grants that go in there.

59:11

Then at a certain point, a biotech company raises essentially venture capital uh maybe gets acquired or IPOs and rolled into one of the big pharmaceutical companies.

59:22

There's losses and losses and losses for years and years and years and then at the last second there's a blockbuster drug that makes a billion dollars and the math works out but on a 10y year, 20-year time horizon.

59:32

Uh is that in a good place?

59:36

Should that change over time?

59:38

Like what is your view on on how we as like humanity are paying for drug development right now?

59:44

We are paying way too much for drug development.

59:47

We are paying out the nose for something that is not nearly as efficient as it could be and we know it could be a lot more efficient and a lot better targeted and everything else because we know that other countries are doing it well.

59:57

Um for example, China in 2016 introduced wonderful trial reforms that we should have had.

1:00:02

I don't know why we never even had this where you can recruit people from across the country to participate in your trial.

1:00:07

In the US, if you want to do that, you're going to be constrained to one center.

1:00:10

And if you are constrained to like one hospital, uh you are probably going to be flying people in.

1:00:15

That adds a lot of extra cost.

1:00:15

You are going to probably be constraining your sample as much as you can. Yeah.

1:00:20

That adds a lot of uncertainty.

1:00:20

That makes your trials less reliable.

1:00:22

So, you're more likely to have a trial that produces a false positive or a false negative.

1:00:28

We have these reforms have been implemented in China and they've worked wonders.

1:00:32

China's actually ahead of us as of this year in terms of the number of trials they have going and the not beyond that.

1:00:38

They have a higher number and they have a higher number of people in each individual trial.

1:00:42

They are beating uh the hell out of the US because of some simple reforms that the FDA could actually implement right now.

1:00:50

They could go in, they could have a direct final rule on a bunch of these things and change this overnight to make stuff less expensive.

1:00:56

They could also reform GMP, the good manufacturing practices, in ways that take off a lot of the costs from, for example, gene therapies, like having to produce tons of placebo ahead of time is a very silly rule.

1:01:07

We could actually mimic countries like Australia, or we could do follow the who's g the World Health Organization's GMP guidelines and cut costs right away.

1:01:15

Um, the wonderful thing about the US though when it comes to R&D is that we have a good way of directing R&D funding.

1:01:22

We have lots of connections between the public sector and well I should say uh the sort of quasi public private uh R&D drives like we have universities with a lot of industry directive a lot of industry grants a lot of uh knowledge of where they should be focusing and whatnot and this leads to a situation where even our publicly public funds are able to uh be allocated to things that have good returns.

1:01:48

Uh that's why it's going to be very difficult to replace whatever happens here with public funds because it's you're going to have to figure out how are you going to uh distribute that money?

1:02:00

How are you going to uh do what the industry does which is to find areas with pretty good returns uh pretty reliably when we the elasticity of uh research funding to the returns is very very high. It is very considerable.

1:02:13

So, we're going to see a very stark reduction in R&D and that's going to have pretty major effects in the future.

1:02:21

It's also going to lead to R&D outsourcing.

1:02:23

It's going to move to other countries because of the cost angle.

1:02:26

It'll very likely move to China because they have the best R&D environment right now for pharmaceuticals and because the US uh is doing this and additionally the manufacturing is likely moved there too. Yeah.

1:02:38

A as you work through the the effects of this executive order, if it goes through, uh is that good for America? Is it good for humanity?

1:02:45

Are we closer to a cure for cancer?

1:02:48

Does this like accelerate or decelerate uh overall biotechnology progress in one way or another in your your opinion?

1:02:59

Unfortunately, this is very likely to massively decelerate things.

1:03:00

This is likely to be something that causes a lot of harm to research for many years to come.

1:03:05

The IRRa for biotech is or for pharma is already below the average cost of capital and we've recently have a little bit of rebounding but people were expecting it for many years to go basically to zero.

1:03:16

Um a little bit of rebounding due to co there was a blip and that was uh that was okay.

1:03:20

and that was uh that was okay. There's a lot of funding going into biotech for co reasons and then there's been a GLP le boom in returns as well and that's been tremendous but that has an expiration date because we know what's going to happen with the patents and we know that

1:03:34

people are very likely going to go for cheap generic Ozimpic when it comes out in 2033 or whatever um rather than the better tepatide or reach based products just because it's going to be so cheap um and at that point the GLP boom will be over and we'll have to return to the state of what's going on with pharma. Uh

1:03:51

Uh and what's going on is very very low irr that are going to go even lower due to this regulation.

1:03:59

So it's unclear if uh pharmaceutical research can actually survive in the US given this because we're already teetering on the brink and moving even lower is well it imperils the whole thing. Brutal.

1:04:10

How much did you read into the timing of all of this?

1:04:15

It felt uh initially it felt a little bit random because so much conversation had been on on trade issues, but then uh once I sat with it a little bit, it felt conveniently timed given uh where where you know Trump has and polling and and um things happening you know in Congress that that you know they would like to get through.

1:04:38

Yeah, I actually don't know when I expected this to come out, but I did expect it to come out because it was an old thing and they are trying to introduce a lot of the things that they tried to run near the end of the uh the previous admin.

1:04:48

And this was just up there.

1:04:51

Um they're basically going to redo the same thing.

1:04:52

They're going to fight the legal battles and then implement this.

1:04:55

And uh I don't know if there's anything in particular that prompted this right now, but I knew that it was coming and I didn't know exactly when, but I expected it like within a few months of the admin actually coming in. Anything else, Tori? Brutal.

1:05:07

Uh, I was hoping for a white pill in there somewhere, but uh, didn't get it.

1:05:12

I do have a white pill, please. Please, just one, sir.

1:05:16

Yes, I I'll give you a few actually.

1:05:19

So, there are a lot of efforts going on right now at the FDA and at HHS more generally to promote price transparency, which will help with the PBM based uh, delta and price.

1:05:26

Uh, they are looking to accelerate manufacturing and approvals for nearly genericable drugs.

1:05:32

They're going to be participating in generic drug user fee amendment reform, which is massive. I can go into that.

1:05:38

The GM there's GMP reform happening.

1:05:40

And there are people looking to actually lower the costs of some of our most expensive drugs in a way that is not bad for innovation by implementing Louisiana's purchasing model across the whole country.

1:05:51

There are a lot of really great things happening, and it's likely the situation will be better in the long run.

1:05:56

Uh not because of this, but because of everything else that's going on.

1:06:00

What would the Louisiana plan look like?

1:06:02

I'm not familiar with that.

1:06:03

Ah, so Louisiana did an amazing thing a few years ago.

1:06:08

They basically went to every manufacturer of EPLUSA, this wonderful drug for hepatitis C that uh is a cure.

1:06:17

And it's it was super high cost.

1:06:17

I think the cost is actually around $27,000 right now for 28 days.

1:06:21

Uh so it's not able to be done for Medicaid at a like meaningfully.

1:06:26

So what they did is they negotiated with a producer of it and they said, "You're going to be the exclusive provider for as much as we want.

1:06:34

We're going to give you $30 million and you just give us as much as we want."

1:06:38

And they they looked for people and they said, "Okay, you look like you're going to produce it all." They agreed.

1:06:43

Um, and they just produced as much as they want, they could wanted.

1:06:48

If the state demanded more, they would get more.

1:06:49

That was part of the deal.

1:06:49

So they started screening prisons.

1:06:51

They started screening Medicaid patients.

1:06:54

They started screening everyone in order to get as many people as possible this prescription for a formerly very high-cost drug that had to them zero marginal cost because of the deal.

1:07:02

Yeah, lots of pharma companies are actually willing to engage in this deal.

1:07:05

They're willing to provide zero marginal cost drugs if you give them just one big contract in exclusivity.

1:07:10

Uh and this seems to be amazing.

1:07:12

Um it worked really really well.

1:07:14

They reduced the uh rate of heepsi in the state the heepsi death rate actually by about a sixth uh in about a year which is incredible.

1:07:21

They actually saved a ton of money on it.

1:07:27

They reduced the number of organ transplants people needed.

1:07:29

They did just lots of really, really wonderful things.

1:07:33

And all they had to do was ask a manufacturer, "Hey, will you provide as much as we want if we pay you a set amount, give you exclusive rights in our state?" And yeah. Yeah.

1:07:40

Businesses predictability, right? What's that? Yeah.

1:07:45

Businesses love predictability.

1:07:46

Like it's predictable revenue.

1:07:46

And so even if it's at a lower margin, it's more guaranteed and higher volume.

1:07:49

And so all the all the math works out and the IRRa increases. Yeah.

1:07:53

And when that model goes national, it's going to basically make our high price drug problem a thing of the past if there's a generic. That's fantastic.

1:08:02

Well, that's a great white pill. Thank you. Thank you for that. This is great.

1:08:05

We'd love to have you back.

1:08:06

This was a fantastic uh I'm I'm so glad you were able to join really quickly. Yeah.

1:08:10

Thank you for making the time. Learned a lot. Thanks so much.

1:08:12

Well, and we'll talk to you soon. All right. Have a good one, guys. Bye. Cheers. Bye.

1:08:15

Uh we have our next guest hopping in the studio.

1:08:17

But quickly let me tell you about Vanta.

1:08:19

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1:08:23

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1:08:36

Anyway, thank you so much and welcome to the stream, Tess.

1:08:39

We'd love to chat with you.

1:08:42

If you're here, let's bring you in. Can you hear us? I sure can. Can you guys hear me? Okay. Yeah, you sound great. Welcome to the show. Great to meet you.

1:08:49

Thanks so much for hopping on on short notice.

1:08:51

Uh we're trying to make heads or tails out of the news.

1:08:56

Um we were just talking to one guest about uh the the latest executive order around drug pricing.

1:09:01

And we'd love to just get your a little bit of your introduction and then how you are processing the news today and what's going on in the market and just kind of your high level take. Absolutely.

1:09:11

So, uh, thanks so much for having me on.

1:09:14

So, my name is Tess Cameron.

1:09:16

I'm a principal at RA Capital Management and, uh, RA is a leading life sciences investment fund.

1:09:23

We make investments, uh, across all stages from seeding and building new companies all the way through to investing in, uh, later stage companies in the public markets.

1:09:32

And I think, um, this whole concept of most favored nation for um, you know, drug pricing, it is not something new.

1:09:40

Uh it is something that we saw in the first Trump administration actually several times in 2018.

1:09:47

2018. It came back in 2020 if first in one executive order then in another executive order and then in a rule from uh the center for Medicare and Medic uh you know center for Medicare and Medicaid um a rule that ultimately did

1:09:59

not get uh implemented uh because the rule was actually uh you know knocked down in court uh because they didn't follow um you know certain procedures that were required from an administrative procedures act standpoint in order to get the rule through. Um so

1:10:12

in order to get the rule through. Um so I think that broadly um there had been some rumors um among the uh you know biotech investment community that this is something that was coming back right Trump had made some statements about it's not fair that we are paying uh you

1:10:30

know so much more than these other countries and so I think investors were um you know anticipating that there might be something was it can break out oh sorry please jump do you think it was priced in in some way because the so right now the the NASDAQ biotech index is following the overall NASDAQ. Yeah. Yeah.

1:10:50

And everyone last night, at least the peanut gallery, myself included, were predicting blood bath in the biotech markets that didn't happen.

1:10:55

Um, are we just really stupid or did we get something wrong? I am totally with you.

1:11:03

Um so yeah I think this just shows the value of predictions in this kind of market where um but I I think it's I I think it's for fundamental reasons that uh you know biotech stocks were like biotech and pharma stocks were like actually up this morning.

1:11:17

So like my goodness like why the heck is that?

1:11:19

Um, and I think the reason is because the executive order and particularly uh the administration's language around the executive order was actually much more positive than I think people were anticipating.

1:11:32

This doesn't necessarily mean that it will be positive, right?

1:11:36

But I think it's being interpreted positively.

1:11:38

Um, and I say that for a couple reasons.

1:11:40

couple reasons. one is that um you know I think the uh you know Trump made it very clear like the focus is on other countries that aren't paying right and the focus is more on those countries than the companies and I have to say as

1:11:56

a biotech investor um you know I think all of us are like totally behind that statement right like you know the fact that the UK and you know a lot of Europe benefit from these like super low drug prices um like that isn't, you know, they should be paying a lot more. Um,

1:12:12

they should be paying a lot more. Um, there's actually a study that came out just a couple days ago that looks at the ways that a lot of these European countries set price, which is through these health technology assessments

1:12:23

where they basically, you know, say that patients lives aren't worth particularly much and they very narrowly value um, you know, the the uh, you know, the benefits of these drugs in a way that uh, you know, undervalues the societal benefit of medicines by like more than 90%. Right? So, Um these are not uh you Right?

1:12:38

90%. Right? So, Um these are not uh you know I think I think what was really positive to hear is uh you know hey the focus on getting other countries to pay more um you know someone said I I can't I think it was Trump actually who said you know hey if you want to sell your

1:12:55

cars here you have to buy you know our medicines at a you know at like market price right and in the US like we do have a competitive market um I think also as a biotech investor key thing is like we want to keep that market compet competition going in the US. That is

1:13:10

That is what drives drug prices down over time is like generic entry.

1:13:14

It's like more branded competition much much much better than like importing foreign price controls that essentially are based on math that like undervalues human life, right?

1:13:26

So good trade stuff but like bad if it results in like importing foreign price controls.

1:13:32

Are those and I think the weight of those changed uh based on the language that we heard this morning. Sure. Sure.

1:13:38

Are those are those they're the effectively the price controls that they have already are those happening at the EU level or country by country?

1:13:44

the EU level or country by country? It is country by country and um it's a very nuanced and very complicated process but essentially like when a drug gets approved US is almost always the first launch right so 85% of new medicines launched anywhere in the world those are available in the US and then it's a

1:14:05

question of what other markets do you go to and it's really complicated because all of these different many of the different countries they reference price each other right so you don't want to like start in a country that like is reference pricing another country and it's like oh no like now like you know our pricing is all you know messed up. So typically what companies do is they

1:14:22

So typically what companies do is they start with Germany right maybe they consider Japan and then you know after they get pricing in one of those markets then they go to these other markets.

1:14:30

So this is why like these countries are so staggered and they don't get the benefit of these medicines like nearly as soon as the US does.

1:14:38

They're usually delayed several years.

1:14:40

Um, but it's a very country bycountry uh, you know, decision-making process.

1:14:45

And it's not really, uh, a decision-making process.

1:14:49

It's kind of a take it or leave it, right?

1:14:50

Like drug company, do you want to launch in this market or not?

1:14:52

If you do, like, here's your price. Take it or leave it.

1:14:55

Um, and so actually having the US government step in and say like, hey, you're not just negotiating with the drug company.

1:15:01

You're negotiating with the US government now.

1:15:03

And like, if you want to sell your cars in our country, you're going to have to pay the price that I want you to pay.

1:15:09

Like that becomes a more powerful statement where like now companies can actually be in a position where they can you know start you know seeing the benefit of uh you know more uh you know more deliberate um you know trade negotiation by the US in favor of you know getting other countries to pay their share of uh research and development.

1:15:30

US has seen 75% of like you know drug biioarma research and development um is is what the US funds which is just incredible. It's like defense right?

1:15:39

It's like similar to the NATO uh similar to the NATO issue. Yeah.

1:15:42

Um is there is there something at the political level that the biotech community broadly both the large pharma companies and maybe even the the the more startup focused companies um agree on in terms of changing regulation or how the government interfaces with the biotech community?

1:16:04

Like for example, we I mean we cover tech a lot and there's been a lot of rumblings about uh the the government blocking acquisitions.

1:16:10

In general, big tech companies want to acquire startups.

1:16:14

Startups want to sell themselves to big tech.

1:16:16

And so tech as a whole has been pretty against the blocking of acquisitions.

1:16:20

But is there an analogy there to uh how the biotech community broadly thinks about um the their list of priorities in Washington?

1:16:31

And is this anywhere on that list?

1:16:31

And is this anywhere on that list? I would say like across the board um for you know uh big pharma companies and like little biotechs alike it is all about like let us compete right like market competition is like such a great

1:16:46

force for access and innovation and um you know bringing prices down in the US like let us compete and you know enable that and I think we have uh you know I think we see it in our access to medicines it is because of the dynamic

1:17:05

US market and market competition that we have so much access is because of US market competition that when generics come in uh you know prices will go down sometimes like 98% right like Medicare pays 30 cents for like you know or even

1:17:19

less I think it's 3 cents actually for like each like Lipore pillow um and so that's great right and so let us compete let us compete you know there should be government mechanisms uh you know we think for drugs to actually go generic on time Right. So like yeah, you don't

1:17:32

So like yeah, you don't want like drugs hanging out for 20 years like on patent.

1:17:36

That isn't really uh you know part of the deal, right?

1:17:39

But when we think about like you know what makes the US so dynamic and what brings patients a lot of benefit, it's like it's having that innovation and ensuring that that innovation is driven by market competition rather than government price controls actually helps like instill more natural mechanisms for prices coming down.

1:18:00

more branded competition, more generic competition.

1:18:02

If the US government just comes in and sets price, guess what's going to happen?

1:18:06

You're not gonna have, you know, a second tomarket branded product that's launching three years later, you know, coming to market and, you know, competing against this price set one because they're like, I'm not going to compete against the US government, right?

1:18:18

Like US government is going to get, you know, going to get what it wants.

1:18:21

Um, so I think that is somewhere where, uh, you know, uh, bioarma as a whole, big company, small company, I think all aligned on that.

1:18:28

Um we had the inflation reduction act right which uh is essentially instituted price controls in uh the Medicare market and uh you know the big inefficiency there was setting price for small molecule drugs at 9 years.

1:18:43

Um biologics are at 13 years.

1:18:46

Usually as investors we're counting on like 14 years of exclusivity before a drug grows generic and uh drops off obviously dependent on the quality of that patent.

1:18:54

That's a price control that we don't want.

1:18:57

that we don't want. um you know that's that's already had an impact unfortunately on small molecule innovation um so pills instead of you know shots um and uh you know we don't think that's good uh you know for Medicare beneficiaries um and we don't

1:19:13

want to see more price controls uh you know coming into this market because you know it could really cause something very special where you know America leads which is biomedical innovation to um you know have a lot more uh you know challenges and less investment. So, uh, in generally the our last guest

1:19:27

So, uh, in generally the our last guest was was, uh, sort of disappointed with with the the EO.

1:19:34

He thought it was going to have, you know, negative implications, but generally felt fair, you know, he seemed somewhat unfased.

1:19:43

Can you talk about investor sentiment in biotech right now?

1:19:46

the industry has had, you know, a rough few years and uh in many ways, you know, you could kind of just shrug this off and just say, "All right, you know, just got to get through it."

1:19:59

Um, but I'm curious, uh, you know, from your point of view, uh, are there what what are the sort of positive outlooks right now from from your standpoint?

1:20:10

And, um, what should people be paying attention to outside of this EO? Yeah, absolutely.

1:20:15

EO? Yeah, absolutely. Um so I mean I think the reaction you see it in the stocks right I think that um you know there's there's optimism that the uh impact of this policy may be a lot lower than people thought um and indeed I think some of that is just hey it looks like this is going to happen through

1:20:34

rulem instead of through um you know some other uh kind of implementation that might be more top down and that you know may impact the probability of actually getting something that is like super broad-based and like bringing pharma, you know, prices down across the board that that may lower the probability. So, I think that's kind of

1:20:52

So, I think that's kind of what we're seeing in stocks.

1:20:53

Um, you know, I think in terms of just the sector, there's a lot of like amazing stuff happening fundamentally, right?

1:21:03

And that's why as investors, um, when we see periods of volatility like this, it's very exciting from an opportunity set perspective because you have companies that have made incredible scientific progress.

1:21:14

scientific progress. Um you have companies that have uh you know that are launching uh you know transformative medicines that are making really good progress and we're seeing some real disconnects uh you know across the board uh for many uh you know for many

1:21:29

companies and uh that that you know that's a great set of opportunities for investors and um you know ultimately I think uh America does really value biomedical innovation and uh you know we'll will be rewarded for um you know companies that make fundamental progress. Can you talk a little bit about the life

1:21:47

Can you talk a little bit about the life cycle of a new drug or new B company?

1:21:51

Uh, comparing it to tech.

1:21:55

Again, it feels like there's companies older than us that are still private because the nature of the tech market is that there are venture capital firms that are set up to do $5 billion injections at a hundred billion dollar valuation.

1:22:09

And yet it feels like in biotech there's been a long history of going public at a much lower uh market cap uh the the stock moving based on FDA trials very early before revenue years on the market pre-revenue.

1:22:24

Uh is there some sort of fundamental reason why companies in biotech go public earlier or is that life cycle changing?

1:22:32

Do I even have that that characterization? You are so right.

1:22:35

No, you were absolutely right.

1:22:37

So it is a very different life cycle.

1:22:39

I mean it, you know, it can take like you know 10 years for a drug to get to market like you know even when you've gotten into the clinic 90% or more of you know what you're working on is going to fail.

1:22:50

Um so it is a really it is a really tough sector.

1:22:55

Um you know we're talking numbers in the billions like you know on a probability adjusted basis it's like you know over two and a half billion to actually get a drug to market.

1:23:03

So, we're talking big investment, very high risk.

1:23:08

Um, and you know, as a result, yeah, so you're like, why is anyone doing this?

1:23:14

You would think it would be the opposite.

1:23:14

You would think, you would think high burn, high capex, uh, high risk, leave that in the private markets, but then Stripe, which has been making tons of revenue for a decade, get them in the public markets.

1:23:25

And yet, it's the opposite in America. I'm curious.

1:23:27

I'm curious if there's any type of disconnect between the public and the private markets in the sense that hey, you can buy shares of a private company that has zero dollars in revenue at X valuation or you can buy shares of a company that's public that has drugs and that has, you know, that that are in market that has revenue. Can you talk about that?

1:23:49

You know, is that is that is that correct? Uh incorrect.

1:23:54

Typically what we see is that, you know, it's very unusual for any drug company that has a commercial product that is like marketed.

1:24:02

Very rare for those companies to be private, right?

1:24:05

It exists in a few spaces, but like very very unusual.

1:24:09

They're almost always public.

1:24:11

And the reason that biotech companies tend to go public so early is because you know it takes so long to develop these drugs and the depth of the uh you know capital markets for the uh you know biotech market.

1:24:25

It's just deeper on the public side, right?

1:24:29

There's a lot of investors who are like, "Hey, we do like public market investing and maybe they do like a little tiny bit of like private market investing, but like the pools of capital on the public side are just much larger."

1:24:39

Um, and so you see a lot of these companies going public very early.

1:24:44

Um, and uh, the private company valuations um, they tend to on a legged basis follow the public markets somewhat.

1:24:53

you know, curious if that also happens in tech, but it might be that after you see like a real draw down in the XBI, like six months later, if the XBI is still low, like private companies will be like, hm, you know, maybe that step up isn't going to be as big or like maybe I have to be like a little more flexible on like valuation.

1:25:14

Um, so it usually takes some time, but like everyone is usually looking at that because that is the exit typically before an M&A.

1:25:21

before an M&A. there is um you know certainly uh you know strategic M&A activity that happens for private companies um but usually it's after they've raised enough money to get to a point that you know a strategic is like cool like I think this drug is going to work I'm going to take that risk now um

1:25:39

and usually the company would like to be public to be able to raise the money to get to that point where they can be bought so um you know it's a it's an interesting dynamic and and certainly different I think than than the tech world can you talk about the longevity market from your point of view. In in

1:25:54

In in our world, uh every sing once somebody has at least a billion dollars of paper returns, they become very obsessed with longevity living living forever.

1:26:04

And so in tech, the companies that get attention, we had we had the the uh one of the co-founders of New Limit on last week, which was an exciting conversation, but I'm curious from your point of view, more at a high level, how you know, give us kind of kind of a broad overview of of the longevity market, which I'm sure is just one area that you guys invest. Absolutely. Yeah.

1:26:27

So, the longevity market can mean many, many different things. Oh, yeah.

1:26:29

many different things. Oh, yeah. every every drug every drug every drug if you're threatening right yeah exactly and also with many different levels of scientific validation um so RA Capital we are uh like a very datadriven uh like

1:26:46

we're a very datadriven organization right a lot of the people who work at RA Capital are like PhDs or you know uh former uh physicians or sometimes even current physicians um and so very scientifically rigorous um but you know I think we're developing and you know

1:27:03

have developed a lot of like really really interesting research on um you know scientifically oriented ways of extending like not just lifespan but health span right so when we think about uh longevity we tend to think about it not in terms of like hey do you want to

1:27:20

be um like you know hanging out on a couch like not really able to move but you're like I'm alive I'm alive like you know ideally as long as my neural link plugs in I'm As long as I can use the internet at 150 as a vegetable, I'm good. You're like, you're like, that's

1:27:34

You're like, you're like, that's probably not my jam.

1:27:36

Just being able to like use a I mean, using a computer with your eyes at 150 would still be pretty cool, but like if you could do more, that would be even more fantastic, right?

1:27:45

And so our focus has actually been more on like the health span side of things and really thinking through like, you know, we actually think that there's a lot of like existing technologies and existing, you know, it's not it's also not just about like treatment.

1:27:58

It's about, you know, prevention and how do you identify, how do you diagnose, how do you uh kind of manage risk factors like very very early.

1:28:07

Um, and so a lot of that involves having like algorithms for identification, having algorithms for like you know disease prevention.

1:28:14

Um, and identifying where there's a lot of like existing stuff that you can put to work in combination with like uh you know novel uh you know novel agents to really improve health span.

1:28:25

Um so that is an area that we're very excited about and and certainly doing uh you know certainly doing a lot of work in.

1:28:31

What does dealflow look like for you?

1:28:33

I know a lot of the best biotech companies it seems like they there's some tech transfer point out of a university lab and then uh I've seen like flagship pioneering is like incubating stuff and modern came out of that and the there's just so many different has an incubation arm too. Yeah. Yeah.

1:28:51

There's so many different formats that you don't you don't see a lot of like oh you know kid in the garage said you know what I have a problem and I'm going to solve it myself.

1:28:59

It's a very different pattern of entrepreneurship.

1:29:02

So uh what does the life cycle look like for you these days? It is very different.

1:29:05

I will tell you I would actually love to see more like garage biotechs because I think like there's you know some more like I think that there's actually um you know in some ways like the entrepreneurial process for biotech has been a little too like institutionalized. Sure. Right.

1:29:22

But let's let's talk about it because um you know the deal flow for biotech and like how companies get formed can be in a number of different ways. Um academia, right?

1:29:32

Ideas coming out of academia is like a big one.

1:29:33

Um ideas coming out of uh you know venture funds is another big one, right?

1:29:40

Um and then you have like you know business people often people who've like you know they've worked for a company, that company got sold and they're like hey I want to come back and do another one.

1:29:50

here is like these other areas and other problems to solve, right?

1:29:53

Or maybe someone's coming out of big pharma with like an idea that they couldn't prosecute in their big pharma company because they were too riskaverse and they want to start something new.

1:30:00

and they want to start something new. Um but because biotech is like so high risk and requires so much capital that process for like getting a company started is often um you know I'd say there's like a bit more like

1:30:15

institutional like process around that than I think you see in tech because it just like takes a lot of money to like go from hey I have this idea to like oh I even want to like test this in animal models and like try and get a drug out of this like that is like millions of dollars. Um so I think that is something that is

1:30:32

Um so I think that is something that is actually a real challenge for the uh and that we at RA think is like a real challenge for like the biopharm ecosystem is um you know look like we have to you know find ways that we can be more uh you know be more efficient and like try and get to some of these answers more quickly.

1:30:50

Um because when uh you know when you when you look at um you know when you look at the pace of of innovation that is coming out of China which is really uh you know pretty astonishing for biomedical innovation it's like that is a fundamentally different cost base and fundamentally different pace of iteration and uh we you know there's a lot of work that I think we need to consider for our biotech ecosystem here to adapt.

1:31:15

Can we do a quick round of like overrated, underrated? I'd love to know.

1:31:21

Uh, artificial intelligence broadly, is it speeding up drug development? Is it overhyped?

1:31:28

In Silicon Valley, everyone says, "Oh, we're just going to, you know, ask Chat GPT to cure cancer.

1:31:31

It's going to happen next year." It's a convenient line.

1:31:34

If you need to raise 30 billion yourself, but but what what is the mood in the real industry from the folks? Okay.

1:31:42

I would say that AI is like it's overhyped in the sense that like AI itself is like not like discovering and developing drugs.

1:31:51

It is underhyped in the sense that like oh my gosh like what a powerful tool like we absolutely use it.

1:31:59

Every single company worth their salt is using AI in their drug discovery process, right?

1:32:04

So it's a little bit of both.

1:32:06

Usually when someone is talking about themselves as an AI company, you should approach with like how different is this really and like but if a company is like no we don't use AI for anything.

1:32:17

I would also be like huh sense uh what about uh mRNA broadly Moerna Stefan Belle was on a TED talk saying before COVID saying mRNA is going to be a cancer cure.

1:32:28

Uh the stock's kind of gone up gone back down.

1:32:30

uh is mRNA a technology that we're going to be seeing more of in the future in different applications or should we be thinking about Maderna really just as like a uh a pandemic frontline defense firm.

1:32:41

So let me talk about RNA therapeutics more broadly because actually mRNA therapeutics are like one flavor of uh RNA therapies and I would say like RNA therapeutics overall like huge huge potential right huge opportunity.

1:32:57

Um I think that uh the challenge has been delivery, right?

1:33:01

How do you actually get these to the right biological target um and there's a lot of really awesome work uh being done that can hopefully improve on that.

1:33:11

Yeah, that makes a ton of sense. What about uh GLP1s?

1:33:12

Uh I feel like everyone has heralded them as like a cure for everything from uh diabetes to obesity to gambling to just anything being lazy.

1:33:24

I guess it cures it seems to cure everything.

1:33:26

uh uh overhyped, underhyped, uh overrated, underrated or kind of underhyped, underhyped, phenomenal drugs, phenomenal drugs.

1:33:34

Um lots of problems to solve, right?

1:33:37

The market isn't rewarding a lot of that now, but I think the market will in future.

1:33:41

So, lots of problems to solve.

1:33:43

Need to improve on accessibility, right?

1:33:46

So, how do we get like pills and patches instead of needles?

1:33:49

Um and how do we improve uh tolerability, right?

1:33:51

So, that people are actually staying on these drugs.

1:33:55

And you know a big part of that is insurance coverage as well. Uh last one for me.

1:34:00

Are you worried uh pharma IRRs on average have been uh low?

1:34:02

Uh our last guest was talking about how uh if you look at average returns that are below the cost of capital today.

1:34:12

Are you worried about net new investment in early stage biotech funds?

1:34:18

Obviously, if if there's less investment, you could imagine the returns actually going up because there's less competition for for deals.

1:34:27

Uh maybe, but um what what's your kind of high level take on um incremental investment in early stage biotech?

1:34:36

Um you know, my take is that there is a lot of uh you know, there's a lot of great work to be done from a fundamental standpoint, but we need the incentives in place, right?

1:34:45

So, we've got to have a functioning market.

1:34:47

we've got to have uh you know um you know competition um in order to incentivize that.

1:34:53

So you know I think that's the best that's the best thing that the government can do um is ensure that there's uh you know strong market competition for pharmaceuticals and uh you know loved hearing this morning that there's a real appetite for trying to get other countries to incentivize that innovation as well. Yeah.

1:35:12

Do you think biotechnology process is overall accelerating or are we heading into a period of of kind of rebuilding and stagnation?

1:35:20

What's your overall optimism on the the industry broadly?

1:35:23

My view is accelerating uh because we have to, right?

1:35:28

We have to and we have better tools too.

1:35:30

The thing that causes biotech to take such an enormous amount of time is clinical trials and like the clinical trial system in the US is just like clogged, right?

1:35:40

everyone's trying to recruit the same patients at the same hospitals.

1:35:43

Um, so I think we need uh different ways of doing things, but I think that we have a lot of the tools to actually accelerate some of that innovation. That's exciting. Awesome.

1:35:56

Well, thank you so much for joining us. Yeah. Yeah. Leaving on a high note. Thank you so much.

1:36:00

Uh, this was really enjoyable. Thank you, Tess.

1:36:02

Well, the market's up, so we have to celebrate.

1:36:06

Yeah, it's a white suit day. Great to see you both. Yeah. Thanks for coming on. Cheers. Thanks so much. Uh that was great.

1:36:13

I I feel like I'm learning a ton from these interviews.

1:36:15

Yeah, we've been meaning to have a biotech day.

1:36:16

This is kind of the informal biotech day.

1:36:18

Uh yeah, kind of triggered it.

1:36:21

But I'd love to go deeper here because there's it's such a ri every answer is something where I'm like I've never heard this particular take before. I'm learning a lot.

1:36:29

So it a lot of uh it's interesting that cremude what didn't bring up the price controls in the European market, right?

1:36:36

Because that does feel like a factor.

1:36:38

He was saying that, you know, European countries or that the pharma companies are selling at the rate in which the profit maximizing rate and it sounds like there might be some other factors at play. Uh we have Jack.

1:36:47

Let's bring him in the waiting room. Let's bring him in.

1:36:52

Welcome to the stream, Jack. How you doing? There he is. There he is.

1:36:55

I changed my shirt when I saw that you guys white when you went light today. I had a dark shirt on.

1:37:00

I just Can we get some suit though? No suit though. But he's in the studio. Welcome to the stream.

1:37:08

Let me get the Ashton Hall. Yeah. One more. Let's go. We got Jack. He's got news today. Let's go. He's got news. He's got news.

1:37:15

What What news do you have? What's going on? What you got for us?

1:37:19

This is You guys are getting the first look at this.

1:37:21

It's a It's a pleasure to do it here.

1:37:22

Uh we are announcing Impatient Ventures Fun One. Let's go. Another air horn. Another air horn. How big is it?

1:37:30

horn. How big is it? Uh so we we had set out to do 20 million right we had set out to do 20 million we ended up overs subscribing and doing 23 and a half million so congratulations you know it's a it's it was a tough market to start in February

1:37:47

2023 was basically the rock stone cold bottom of venture stone cold time it out have you thought of concentrating the entire fund into a single foundation model company just putting all 23 million in one deal I basically was was hoping that that would be the case. I

1:38:02

I was just waiting to yolo in with Josh Kushner into something. There you go.

1:38:07

No, I uh I never found it. Next fun.

1:38:07

I mean, BR seriously, break down the Maybe talk about Why don't you give people a little background?

1:38:14

Talk about uh AUM, too, because I don't think the first fund tells the whole story. Yeah.

1:38:18

So, I was lucky enough to to start uh investing honestly during Zer when it was a little bit easier to raise capital and and so we did a series of SPBs while I was a founder.

1:38:31

uh in 2020 2122 um first deal we did ended up being a CPG company might be the first and last CPG company but it's my best investment which is a high protein oatmeal brand called Oats Overnight um I met the the founder he was a pro poker player I was a very serious poker player at once in my life um which I think is

1:38:51

an amazing skill set to have as a founder is that sort of decision tree between luck and what you actually did to impact an outcome but uh yeah we did about 30 million million bucks of SBPs before the first fund and then along the fund we've done probably another 50 or 60 million. So AUM is uh is north of

1:39:06

So AUM is uh is north of nine figures.

1:39:09

Um but uh uh we're we're definitely we're definitely as they like to say in the industry just getting started. Just getting started. Started. That's great.

1:39:21

Portfolio construction for the new fund.

1:39:24

What's the average check size?

1:39:24

How many deals are you trying to do?

1:39:25

Are you leaving some on the table for PRAA and followons?

1:39:28

Will there be a growth fund, an IPO, a special situations fund, debt fund?

1:39:34

Are you getting into uh structured structured credit, private credit at some point? What's going on?

1:39:39

I mean, I'm you know, import export.

1:39:41

You know, it's like, you know, when you have those friends where you ask them what their parents do and they don't know and they say import export, you're just left wondering.

1:39:48

But like everything's import export import the capital, export it to the founders. Yeah. Exactly.

1:39:54

So, we're we're a concentrated fund.

1:39:56

Um we're we're going to do probably about 20 to 22.

1:40:01

We're actually at 20 right now and so we're just deciding kind of the last few.

1:40:04

The the nice part about being a first fund is you can not only make a lot of mistakes, you don't have to be as kind of like letter to the law of how how it's done I think as you scale aum and you have institutional investors.

1:40:13

We were fortunate to have an institutional investor was a as a top endowment.

1:40:17

need permission to say publicly.

1:40:21

Unfortunately, I don't have that permission, but as I've been told, I can say it's a Bostonbased uh endowment.

1:40:24

Uh that's in the it's in the top quartortile of investing.

1:40:29

Um but uh so we um we we have a a generalist approach.

1:40:36

How I think about it is I was reading somewhere the other day that somebody talked about how specialist funds actually outperform generalist funds for only fund one, but then as soon as you escape fund one, you start just getting decimated.

1:40:48

And and basically the articulation was if you're focused, it's because you're investing in whatever is of the time, right?

1:40:55

Right now at the time, it's uh it's foundational models uh and and and deep tech.

1:41:00

So everything from AI to to robots.

1:41:02

But, you know, three years ago, I saw a lot of people saying, "We're web three focused."

1:41:06

And then they kind of like branded everything that way and then slowly walked off stage and pivoted as that industry changed from where it was three years ago.

1:41:12

So, I like to think of us as a generalist fund that dynamically invests in what the best categories, you know, of today is.

1:41:17

And so, right now, that is, you know, robotics, that is deep tech, that is advanced manufacturing and defense.

1:41:23

Um, but we're also doing consumer.

1:41:26

Um, I think consumer is permanent.

1:41:28

It's a permanent category.

1:41:30

Um, you know, I think uh we have yet to do a web 3 deal.

1:41:35

I don't want to write it off.

1:41:35

We did some pre fund uh stable coins uh that that that we're excited about, but um you know, I think it's still a sort of to be determined um you know, what's going to work in web 3 because it's still just tokens with not a lot of value.

1:41:48

But how do you find um there's there's been a number uh full disclosure, I'm an LP and impatient.

1:41:54

Um but uh h how do you how do you think about investing in companies before there's any heat on the deal?

1:42:03

I can think of a few companies in the fund that were couldn't have been less hot at the time of investment and then a year later you've got you know tier ones uh you know leading and they become super competitive.

1:42:17

But um what what's your kind of what are you looking for in a founder uh to get a sense of their abilities oftentimes before there's any you know revenue or or sometimes not even an actual product yet. Yeah. Yeah.

1:42:34

I mean that's uh that basically is kind of where I think our edges is in what we invest in which is I think you always hear it it's about the people but my line is I can't underwrite a business if I can't underwrite the founder.

1:42:44

I can't underwrite the founder. And so it's those characteristics of that founder that I feel like are a winning you know sort of uh profile um because you know comically the word pivot is so often used in startups because the beginning life cycle of a company is one

1:42:59

continuous pivot and so I love the Mike Maples quote 80% of his best investments were pivots Mike Maples being the you know the floodgate founder and and and I think that that couldn't be truer about so many of our best deals were sort of

1:43:13

the business change later and so what I'm really looking for is that the founder has um there's a line that I like to use which is um never uncertain often wrong and so whatever they believe to be true at that point they believe it with 110% but as soon as new information

1:43:29

enters their their head that that might change the way they you know go to market that might require them to need to shift their team I'm looking for a founder's ability to be dynamic at as the sort of uh the information changes cigar right now the celebration cigar Break it out, John. Let's do it. Let's I Let's do it. Let's I don't mind.

1:43:49

I don't mind taking the suits to the dry cleaner after this.

1:43:53

I mean, the next studio, I think we will be able to smoke.

1:43:54

I wish I remember you guys remember there's like at least two or three COVID startups that were like I think uh there's still one that does it where you can get like 10-minute delivery or something like that. Cigars. I mean, maybe cigars.

1:44:04

That might be the next great consumer business. Maybe. Maybe. Yeah. Go puff for cigars.

1:44:10

What what is your take on these like on these new Zoomer companies, these these young entrepreneurs who seem to be really good at like going viral on day one vibe reels take over the internet and then they kind of got to build the plane after they're already flying versus you know the Dylan Field story of like Teal Fellow in kind of private beta for like three years raising money uh then launches Figma and goes on this like generational run.

1:44:39

uh the fear and like the vibe is like, "Hey guys, like you're taking the marketing a little bit too seriously.

1:44:46

Maybe you're too good at going viral before you you really have any product, but uh are we just being like boomers if we're like, "Hey, you know, get in the get in the garage and start coding." I I love that question.

1:44:59

One of the companies that uh you know, Jordy knows is in our portfolio um and uh we're we're all big fans of, in fact, I think you both have the fish is Shink. Oh, yeah. Yeah. Yeah. Yeah.

1:45:09

So, I think they're at they're they're they're at 40 Michelin stars of of sort of their fish being distributed to restaurants.

1:45:16

I thought it only went up to three Michelin stars, but they got 40 40.

1:45:22

They're hogging all the stars. That's incredible.

1:45:24

incredible. really blew it off the but one of the things I really appreciate about the CEO is quite young and and you know we backed him uh you know when he had two roommates from college working on the idea with him and actually the original idea he wanted to make

1:45:38

autonomous fishing boats and he wanted to build the fish processing robots that kind of you know execute the fish when it's caught and then get it right the narrative the the the narrative violation there is that is a YC company that graduated YC and still had. And this is this just goes to show how

1:45:55

And this is this just goes to show how not hot robotics were and any type of sort of more antiquated industries that they could that a founder of SAFE's category could get out of YC and just be out in the free market building in relative obscurity for I don't know how long it was exactly, but if I remember correctly, it was it was a few years.

1:46:19

But but just to even finish John your question, one of the things I like about the CEO is there's a lot of pressure for him now that he is a you know tier one backed uh um startup and has you know some of the best from SpaceX and Android working there to really scale revenue.

1:46:34

The thing that he's focused on is quality revenue and I think in the age of AI being able to pump numbers up quickly.

1:46:40

I don't know what that company was.

1:46:41

I don't want to say the wrong one.

1:46:42

It was 11X or 11 Labs or something that had like 10 million wildly different companies but they're wildly different.

1:46:49

There was one that basically had like uh 10 million in revenue in like three weeks or something crazy and it was just turns out it was like all turned over like 90% churn and so I think demos. Yeah.

1:46:59

I think in this age of of uh of being able to scale as fast as we've ever been able to quality revenue is really the most important thing I look for and does that founder understand what that means. Yeah. Yeah.

1:47:09

So understanding econ economics are still in right now.

1:47:13

And I think the founders that don't understand hot take I mean hot take you know margin profile basic finance 101 stuff in conjunction with a market insight and the ability to scale and execute.

1:47:24

That's an important thing that we underwrite is I don't know what your ultimate business is going to be but will you know it when you see it. Uh last question I have.

1:47:33

Are you a long or short burning man?

1:47:36

You've been a a vocal uh proponent of Burning Man over the years.

1:47:42

Uh every year that I've known you, you've gone. Uh I I'm short. I got to say I'm short.

1:47:48

I think it peaked a couple years ago.

1:47:51

Uh but but what's your take?

1:47:54

I got bad news for Burning Man.

1:47:54

I This will be my first year in which I do my hot VC summer in Europe. And not a Burning Man. Okay.

1:48:02

And so this is my first year taking off. Could be a death. I think I will be back.

1:48:07

I will say I have gotten deals and LPs out of Burning Man every year I've been there.

1:48:11

So, you know, I I have a good batting average and the productivity.

1:48:15

Um, but it definitely feels actions. What's that?

1:48:23

The actions are speaking louder than words here. You're short.

1:48:26

Yeah, the revealed preference is the revealed preference. Mega short.

1:48:27

I'm currently I'd say I'm I'm currently uh I'm currently uh at I'm staying in cash. I'm not long cash. cash. Awesome.

1:48:40

Uh well, it's great to have you on.

1:48:42

Congrats on uh the milestone and uh yeah, good luck to you.

1:48:47

I'm looking forward to Fun Two announcement.

1:48:48

I'm sure it'll be not too long.

1:48:50

Around the corner, not too far away.

1:48:52

It'll be sometime after Burning Man, which is nice. Great.

1:48:56

Anyway, great seeing you. We'll talk to you soon. All right, fellas. Thank you. Thanks, Jack. See you.

1:49:02

Let's talk about Eight Sleep. Go to eight. com.

1:49:04

I'm going to keep the cheering going.

1:49:06

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1:49:17

I think I actually put up a 909 or 90 on the dot. What you got?

1:49:20

No, actually a 90 because we got Pippa from Sweet Capital coming in the studio in just a minute.

1:49:26

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1:49:30

Only Adqubines technology, out of home expertise, and data to enable efficient, seamless ad buying across the globe. Uh, Pippa, are you here? Welcome to the show. Hey, John. How's it going? It's good.

1:49:41

Uh, would you mind kicking us off a little bit of an introduction on yourself for those who don't know you? Absolutely.

1:49:48

Uh, it's great to be with you guys.

1:49:48

I know we've been wanting to do this a little for a little while, so it's great to be with you. Yeah.

1:49:52

Somehow we missed you at Hillen Valley.

1:49:53

It was a crazy day, but uh, it was good seeing you there nonetheless. You guys were overrun.

1:49:58

the hottest spot at the at the conference.

1:50:01

So, a tiny room in the corner.

1:50:03

Everyone was beating down the game, too. It was good.

1:50:05

It was It was a crazy day.

1:50:07

Those guys did a a great job. But fantastic. Yeah.

1:50:09

So, my name is Peppa Lam.

1:50:12

I am a partner at Sweet Capital.

1:50:13

Uh we are a private uh investment fund. Clue is in the name. Sweet Capital.

1:50:19

My colleague started gaming company uh Candy Crush uh most famously King.

1:50:24

com which they sold to Activision and then subsequently Microsoft. I run a uh huge game.

1:50:27

I run the uh private investment fund uh for those founders and we sit between the US and Europe and invest sort of broadly multi-stage.

1:50:39

Again, we're private capital so we can sort of uh invest across a whole wide range of sectors and I'd say we're about 70% uh US allocation at this point. Got it.

1:50:49

Um my background I actually started out my career working for the British government on uh trade relations between the west, UK, US and China which obviously quite topical today.

1:51:01

Uh and I then sort of moved into equity research covered large cap uh China tech US tech JP Morgan for five years.

1:51:09

So pretty much just doing publiclix uh covered a lot of macro um which obviously is now you know increasingly relevant to sort of the tech world and and private investing now but been in venture and and private investing for about five six years now.

1:51:22

So yeah great to be here with you guys. Yeah.

1:51:24

How are the founders thinking about investing in gaming technology?

1:51:26

I feel like every successful founder they sell their company and they're either like I'm never doing that industry again.

1:51:35

and I know too much about what can go wrong, so I want to stay away from it.

1:51:38

Or they're like, I'm an expert and I'm going to dominate the next generation of uh of generational companies that that that come up in the industry I know so much about.

1:51:47

Obviously, there's a lot of value ad there.

1:51:48

So, what's their what's their what's their feeling on gaming startups right now?

1:51:53

And are you doing any deals in that area broadly?

1:51:55

So, I'd say I'd say it goes both ways.

1:51:58

So, there are five founders of King.

1:52:00

So, I'd say a couple of the founders are like, "Get me back in.

1:52:05

I'm ready for more gaming."

1:52:05

In fact, one of our colleagues is actually started started a new company as soon as his non-compete pretty much ended with Activision and Microsoft last year.

1:52:13

So, he's straight straight back in it.

1:52:15

Um, he's uh he's operating sort of in stealth at the moment, but he's kind of straight back into operating.

1:52:22

So, very much uh bullish on gaming.

1:52:23

And I'd say on the other side, it's a little bit of a range between wanting to invest alongside more the gaming ecosystem, not so much p purely on publishers.

1:52:34

I think that um obviously King and Candy Crush were such an incredible Zeitgeist and and Breakout success.

1:52:42

I think Match 3 and sort of casual gaming really rode the the kind of mobile transition that we saw uh be so large for them and when they were coming up.

1:52:52

I think obviously the gaming industry has moved a lot and of course uh you know my colleagues are still you know very interested in what's happening.

1:53:00

I think a lot of what's happening obviously around AI uh and sort of the broader broader ecosystem um you know still extremely tapped in.

1:53:07

So we do look at gaming deals.

1:53:09

Um, but I'd say that, you know, it was partly the thing that you allude to about having, you know, knowing too much that has meant that we've, you know, with the private investing we do on the side, we've really moved out of purely doing gaming.

1:53:22

Um, we did also also have a non-compete for quite a long time with Activision.

1:53:26

So, we were sort of forced in my earlier years to do sort of the gamification of adjacent sectors versus, you know, competing immediately uh with with their former company. Yeah.

1:53:35

How did you guys react to the to the news last week around the app store and uh the changes to uh the app stores payment or the forced changes to the app store's payment policies.

1:53:48

Look, I think that uh you know, I don't want to speak for them, but they certainly had you an ongoing uh very interesting relationship with uh with Apple throughout the course of of I guess the as Candy Crush was coming up.

1:54:04

coming up. I think also you know they really began at a time of sort of the internet portal you know they really had to deal with how you know they were dealing with you know Facebook at the time matter um and also Apple so I think that you know broadly um you know we're we're hopeful around um changes coming

1:54:24

out but I think that certainly the the issues that we faced you know as operators certainly are um you know the world is drastically different now we're we're no longer really at the fight to try and win mobile um which was really you know how they were having to come up at the time. So so I think I think it's

1:54:39

So so I think I think it's too early to say um but it's certainly something that you know my colleagues are tracking very closely and certainly Sebastian Kitson who I mentioned is has started his own new company is is actually facing now directly as as they launch their first game. So so let's see.

1:54:56

Yeah, gaming is such an interesting venture category because I feel like over the last like five years there's been a ton of breakout games like but they none very few of them were like true venturebacked like seed series A from main funds like Fortnite came out of Epic Games.

1:55:10

It's like a 30-year-old company.

1:55:12

Roblox had this venture story but all the early backers they became rich off of Roblox and Roblox was kind of like their main win.

1:55:19

Then Among Us and Bellatro were these huge successes, but they were kind of just like random indie developers who just kind of got lucky and weren't really like financialized in like the oh we bu we're building a team and then a lot of the game companies like pivoted like Slack was originally a game company and so if you go into Silicon Valley they eventually push you into B2B SAS uh if you're a gaming company.

1:55:39

Uh but anyway, I mean we could talk about gaming all day but I I want to hear your take on the UK US trade deal that was the first one to fall last week.

1:55:46

you had a great breakdown on X about it.

1:55:48

I'd love you to take me through kind of like what was your expectation?

1:55:52

How do you process the news and and what do you see going forward with that particular trade deal?

1:55:58

And maybe before you dive into that, even kind of the on on the ground opinion in the UK, how how UK citizens have viewed this whole trade debacle given that they they have a we have a the US has a trade surplus with the UK, right? Yeah. Yeah. It's it's funny.

1:56:14

I know I know our friend Ryan from Flag Sport tweeted you know um the UK is the only country to have a trade surplus or the US to have a trade surplus with the UK.

1:56:25

So it doesn't bode well for other countries right if we manage to like you know that is that is the beginning point but I think yeah of the top 10 uh countries that the US has a trading partner with the UK is is the only one that um they don't have a trade deficit with. So, so let's see.

1:56:40

Yeah, look, I think it's a I sort of find myself putting back my macro hat on again these days so much because we had uh finally this trade first trade agreement between the US and the UK announced last week and of course this morning with the news coming out of Geneva of how the US and China are hopefully going to move towards closer bilateral trade dialogue.

1:57:04

So I think first on the UK piece, I know that sort of from behind the scenes that this has really been something that has been in the minds of the UK government ever since sort of midFebruary when we had or end of February when we had that very sort of um you know very productive and and positive meeting between Prime Minister Karma and President Trump at the White House.

1:57:25

I think that there has been on both sides a real determination to work towards a some sort of uh bilateral trade agreement that you know went beyond the liberation day board where I think we were you know at 10% with with some of the lowest countries.

1:57:40

So this has been in the works for for weeks um certainly I guess yeah a few months since then and I think the the reception has been broadly positive.

1:57:49

You know I think that of course there are still talks to be had.

1:57:53

I know Ambassador Peter Mandlesson has said that this is this is a not a still picture.

1:57:58

I think he said it's a movie that the trade will continue.

1:58:02

The trade talks will continue.

1:58:04

Um but if you look at the headlines it brings down to the the average I think tariff to somewhere between 1 and 2% that is the aim which of course is is hugely beneficial um for both when we were really sort of stuck at the the 10%.

1:58:18

So, I'd say it's been broadly very positive um obviously markets reacted well to it.

1:58:23

Um and it really hits some of the key points um around uh sort of steel and autos which I think are in both sides views potentially a blueprint for how the US is going to engage with other trade partners.

1:58:37

Um, I think that, uh, where I would like to see things move next is really expanding this into a broader dialogue around UK and US tech partnerships.

1:58:49

I think that that is certainly something that we should keep our eyes peeled on over the coming weeks and something that, you know, I think there's a lot of interest on the UK, UK side about really firming up um, our relationship with, you know, US big tech.

1:59:03

We already have a fantastic working relationship um with many you know large tech companies in the US but I think we could really push the needle on some of the sectors that have become issues of national security be it you know AI uh defense uh robotics and and and stuff like that.

1:59:19

So yeah, broadly broadly positive and I think it's been interesting to watch how we've seen uh you know the UK public and and also UK big industry react to you know the new administration and what the White House is doing.

1:59:33

Do you think um the UK will be kind of a net importer or exporter of venture capital uh over the next few years?

1:59:42

Um obviously there's a lot of LPs there that would love to invest in American companies.

1:59:46

There's also new projects to invest in uh UK- based entrepreneurs and new startups.

1:59:51

So where what is the trade balance look like from a venture capitalist perspective?

1:59:55

I think it depends who you ask.

1:59:57

I think that traditionally we have struggled in the UK and I say we obviously I'm British.

2:00:03

I do I have I have personally as a microcosmic spent about 70% of my AUM on the US.

2:00:08

So I think it's clear sort of how I voted with with our our wallets.

2:00:13

But I think certainly if you if you look at Europe, there has traditionally been a issue with getting scaled capital to the preipo stage.

2:00:20

So you know you had a lot of this homegrown seed capital and sort of you know of course US counterparts setting up their UK offices be it Axel who's done very well there in index who are you know still big firms in the US but they really found their footing in Europe.

2:00:35

Um and then in recent years you had you know SEOA come in, you had uh you know Andrea Horowitz do a big crypto play um NEA and many others.

2:00:45

So I think that there is certainly continue to be sort of a w you know the UK has really wanted to welcome US venture capital but of course it has also raised the question as to why isn't there more homegrown you know European and and and US uh funding at that later stage.

2:01:02

So I think you know in some ways the industry is just more nent there.

2:01:07

So the law has taken time to scale up these these funds.

2:01:10

Um but yeah I mean I personally think that we should continue to try and push for for greater um collaboration on the capital side um at those later stages as well.

2:01:21

Do you think that the UK is a a good kind of launch pad for investing in the Nordics broadly?

2:01:29

because the Nordics seem to be a little bit of violation of the narrative that Europe isn't producing generational companies.

2:01:36

You have Spotify, Skype, there's tons of stuff out of Sweden and Estonia and there seem to be pockets of like really entrepreneurial cultures there even if it doesn't fit like the traditional Euro narrative.

2:01:48

So, is that an interesting angle to like go set up in the UK and then deploy into the Nordics broadly?

2:01:56

Okay, first of all, I want to know if my colleagues have been texting you because four of my four of my founders are Swedish, the other is Italian.

2:02:01

So, this is definitely like a setup.

2:02:03

Um, but but yeah, look, I'm I'm a we're a big fan of obviously investing in the Nordics.

2:02:08

Um, I think that my general view and you know, John, I saw a lot of you last at the end of last year when around the US election.

2:02:16

I was I was on the ground in the US for for a couple of months during that ramp up.

2:02:21

And I think I remember on election night um being at a sort of election watch party and a lot of people were saying to me, okay, well this is great, you know, in many ways for the US tech uh US tech scene, but how will this impact the UK and Europe?

2:02:33

And I was the one going around saying, look, this is a fantastic uh chance for you know the UK and you know the US's closest allies to also benefit from some of these um hopefully blockages that are moving especially within the tax sector.

2:02:48

So my view is that you know the UK is still a fantastic place from which to welcome you know tech companies as a gateway to broadly Europe.

2:02:59

Um I do think the Nordics are definitely a sweet spot.

2:03:01

So King obviously basically also being a part of that.

2:03:06

The the Nordic gaming community is huge.

2:03:08

Um well they didn't even make this list.

2:03:10

even make this list. I'm looking at this list cursor client on my SQL my Spotify or Skype or yeah King I mean King invest listed on the on the New York Stock Exchange but you know its headquarters were in London but it's co-ounders were a lot of them are Swedish but certainly

2:03:26

we we um you know our second office really is is is Stockholm so yeah big fan of that and I think that it's it's proof that both in the Nordics and also in Eastern Europe you've had some really breakout sectors including gaming So yeah, I what about what about foundation models? Is there is has anybody kind of

2:03:45

Is there is has anybody kind of raised around like we're the UK open AI, let's raise this is got to be worth a billion, right?

2:03:54

Got to be worth at least a billion. Yeah.

2:03:56

So we haven't So yeah, we haven't had our own sort of foundation model in that sense.

2:03:59

foundation model in that sense. I think that's that's something that the UK is is seriously considering and and as we think about the theme of sovereign capital and secure capital and how the UK is actually going to be able to compete at that level of the sort of AI

2:04:15

ecosystem of course across the channel in France we have Mistral um and you know famously we you know we've had incredible generational AI talents on the engineering side in the UK for a long time but you know deep mind deep mind was t- mine was started in the UK and and obviously moved over to to Google. So I think that certainly as the

2:04:34

So I think that certainly as the UK government thinks about this next generation of AI companies um and sort of technology companies in general it's certainly something that is very top of mind for how both you know DIT the department of science and technology um the foreign office so um and also number 10 think about these things.

2:04:56

So, have you thought specifically about like expatriating entrepreneurs?

2:04:59

I mean, just go find the best entrepreneurs.

2:05:01

Uh, set them up with the first round, take a huge chunk of the company and then say, "Hey, go to San Francisco.

2:05:07

That's where you need to be. Go build the company."

2:05:10

Because there is like the the aperture widens when all of a sudden you're talking about yes, American companies, but founded by European entrepreneurs, then you're in the trillions of dollars of market cap, right? Yeah.

2:05:21

I sure I mean if you we already look at companies that get that then we get we sort of we can draw a line nowhere.

2:05:29

I mean stripe in theory has British like you know founders or you know oh Irish Irish let's not I know I know I don't get I am a separatist personally I am againstation I I think what's important though is is you know is keeping I think for the UK government would be also keeping its homegrown talent in the UK.

2:05:51

I think that's obviously um you know a very uh sore spot as to why deep mind you know did leave and I think that the UK in my view needs to look at itself and consider what are the requirements that you really need to build uh you know multi- trillion dollar market cap companies in the UK and Europe more broadly.

2:06:09

But you know I I think that there is if you look at this current administration there has been a lot of you really encouraging signs.

2:06:16

Um early at the beginning beginning of this year, we had the AI um an AI act that um PM signed off on where you know 20 new ideas around how to enable um AI progress in the UK specifically um were were announced and and adopted and that really came from a lot of great work from you know collaborators in the venture capital industry in the UK.

2:06:42

um friend of mine Matt Clifford who has been advising number 10 on you know really the opportunity around AI and AI security.

2:06:51

Um so yeah let's let's see um but I think that my hope is is stepping out more broadly that the conversation between the UK and the US can also start a bit of a blueprint for how the US starts to work with some of the other other allies on on tariffs and also on tech partnerships. That's great.

2:07:11

Well, thank you so much for joining us. Fantastic.

2:07:12

Our UK official UK correspondent. Yes.

2:07:15

Let's get a sound effect.

2:07:17

Let's get an air horn for you. We need the music.

2:07:19

Honored to do that, guys. Yeah.

2:07:23

Uh yeah, we'd love to have you back soon. We'll talk to you soon. Good to see you. Awesome. Thanks, guys. Good to see you.

2:07:28

Really quickly, let me tell you about Bezel.

2:07:31

You can shop over 25,500 luxury watches, fully authenticated in-house by Bezel's team of experts. Go to getbbezzle. com. Tell them TVPN sent you.

2:07:41

And we have our next guest ready for us to join the show. The founder of Intercom. Welcome to the stream. Oh yo, gentlemen. How are you? Look at that microphone. Look at the lag time.

2:07:49

You were just You were ready for this. Terrible. No, it's good. It's fantastic. It's fantastic.

2:07:57

I I don't want to mispronounce your name.

2:07:58

Can you pronounce it for me?

2:07:58

Well, before I tell you, there are two types of people in this world I found out.

2:08:03

There are those who guess, and then there are the rare few gentlemen.

2:08:10

But you because you'll never guess.

2:08:13

Um, it's pronounced so kind of like O H.

2:08:17

Wait, you you right as you said it. What is it?

2:08:24

It's pronounced own basically. O.

2:08:26

So as if you as if you spelled it O H N. Own. Ow. Awesome.

2:08:29

A lot of people say Owen and I will accept that. Okay. Owen.

2:08:33

Well, thank you for joining us. Um, great to have you.

2:08:35

would you mind uh just giving us a brief interview of kind of brief intro to your kind of entrepreneurial journey and the company that you built and kind of then we can dive into a bunch of hot topics.

2:08:46

I'm sure we'll be talking about AI venture all the top all the typical topics but I'd love to know kind of like your story. Yeah.

2:08:51

Um in a nutshell um I moved from Dublin Ireland in 2011 a long long time ago uh to the Bay Area in San Francisco.

2:09:02

Uh and we started intercom around then.

2:09:03

Intercom at that time was a generalpurpose customer communication platform.

2:09:08

We had a cute little messenger, the first of its type.

2:09:12

You put on your website in your app and it was great for sales support marketing use cases and it blew up.

2:09:17

Um, two or three years into intercom, we were the fastest growing software company since Salesforce.

2:09:25

Slack subsequently beat us, but that was our that was our hot start.

2:09:31

And um yeah, it's been a an incredible part of the whole like snippet trend, right?

2:09:37

Like you were able to boil down installation of your product to just like a few lines of HTML or JavaScript.

2:09:43

And so the integration all of a sudden went from get a deployed engineer build on top of our API to drop this snippet into your website and you're good to go with some basic functionality. Is that correct? Yeah. Yeah.

2:09:54

There was there was other people doing it.

2:09:56

There was a company called Olark years ago that had like a kind of a live chat thing.

2:09:58

We were a little different.

2:10:00

We were a messenger, so it was a mix between live chat and and kind of uh you know asynchronous.

2:10:05

Um but what was different about our approach was that you'd install the JavaScript and it would start to learn about your customers and so you had a really datari customer experience.

2:10:14

So in many ways it was almost like a CRM for digital businesses, but at core to it was all the communication stuff.

2:10:19

How did the business model evolve?

2:10:21

Were you on kind of just like a monthly plan for a little bit?

2:10:23

Did you go based at some point?

2:10:23

We we tried approximately 14 trillion price plans.

2:10:30

Um most of them were unsuccessful.

2:10:32

Yeah, but we we you know we charged per se and per message.

2:10:34

Um the problem with a really horizontal product like ours was was that you're trying to capture value in a dozen directions.

2:10:42

So you have a super complex pricing model if you're really trying to do all the things.

2:10:46

So we we did that and then eventually we picked a lane.

2:10:48

So these days we're in customer service. Okay.

2:10:51

So So I'm you've tried all these business models.

2:10:53

I have to ask you about Salesforce.

2:10:55

Uh they're moving to this like uh ticket completion pricing, getting away from seat pricing.

2:11:00

Uh is that a reasonable strategy? Is that the future?

2:11:04

Like Mark Beni off kind of said, uh are you testing that?

2:11:06

Do you have any information on what we should expect from future pricing of these types of services in an AIdriven world?

2:11:13

Yeah, I think it'll stick.

2:11:17

We were the first to charge per resolution. Salesforce came to me. Oh, there we go. We're going to source.

2:11:24

What do you guys think about this? Does it work?

2:11:25

Um, and you know, we like it.

2:11:28

We like it because it's aligned with our customers. Um, we don't charge you.

2:11:32

If we don't do work for you and every time we do work, we charge you.

2:11:36

And when we make our technology better at doing work, we earn more money.

2:11:40

And right now, uh, forgive the plug, Finn, our AI agent, is the highest performing, uh, agent in service.

2:11:49

So we more we earn more more per customer at least when you charge for resolutions than the other guys because we just do more work. Oh, interesting.

2:11:56

Wait, so it's highest performing not on a particular benchmark but on just how much money it makes. No.

2:12:02

Well, yes, we because that I've been saying like that's actually the real measure of AI is how much how much economic value can it create.

2:12:09

And it's weird to say because we want to be like, oh, it's really good at math or whatever, but I'd much prefer like no, it actually does a job.

2:12:15

It solves a real problem.

2:12:18

And there's no better measure than that than economics. Yeah, absolutely.

2:12:21

Uh, you know, work in some senses is a bit of a commodity to a degree, right?

2:12:24

And so, you know, if you can charge more for your work than others or if you earn more from doing work, it means that you're providing more value to the world. Yeah, totally.

2:12:32

So, yeah, we we have more customers than anyone else in the AI service agent space, we have more revenue than anyone else.

2:12:37

That's very high average resolution rate, etc.

2:12:40

Have you been in general applying uh applying AI to customer service makes a lot of sense?

2:12:48

there's a lot of spend there.

2:12:48

It's just a generally good application of LLMs.

2:12:54

Um, were you surprised at how many companies came in to try to compete uh in the category given that the intercom of AI imagine is intercom, right?

2:13:06

Because I feel like a lot of companies came out and just said like, oh, we're making AI agents for CX or we're making, you know, more more native experiences.

2:13:14

But in this case, it feels like, you know, there's always been this debate, right?

2:13:19

Is AI a disruptive in innovation or is it an extending innovation?

2:13:24

And um I'm sure as the models have gotten better and better, you've just gotten more excited about their potential at Intercom.

2:13:29

So maybe talk about the kind of market dynamic.

2:13:33

Yeah, it's been interesting.

2:13:33

So in hindsight, I'm not at all surprised because it's a giant category.

2:13:38

I mean, the space we're eventually going for is all customer experience, sales, marketing, success, service.

2:13:43

There's certainly trillions of dollars spent on salaries globally doing all of that work.

2:13:49

So, of course, many other people are going to chase it.

2:13:51

I I I do think that categories are going to be more, you know, they're going to be shared in a way that they weren't in the past.

2:14:00

There's no way one company gets half of that trillions. It's just not the case.

2:14:04

There's going to be many different players in the space. Yeah.

2:14:05

Um, at the time I was a little surprised.

2:14:08

we were first out of the gate and we had so many different advantages.

2:14:14

Um, but I was only surprised because I had yet to realize that that times are changing.

2:14:19

The the technology world is just so much more competitive now.

2:14:22

Like when we started in 2011, you pick your lane, you you probably would have a direct competitor if you were doing something interesting, but you wouldn't have 16.

2:14:32

Like that just was not the case.

2:14:35

And I don't have a hypothesis for why that is.

2:14:37

I mean, if I had to guess, I guess I would say that AI is most likely the biggest innovation the world has seen since, you know, the internet, maybe way bigger than the internet.

2:14:48

When there are new technology changes, opportunities open left and right.

2:14:53

And um, uh, opportunists come out of the woodwork.

2:14:57

I mean, opportunist in the best way, wonderful entrepreneurs. Yeah.

2:15:01

Come out of the woodwork to go and and and and pounce on those on that moment. So, I don't know. It's fascinating.

2:15:07

It's incredibly competitive and not just our space.

2:15:09

Every single category in AI.

2:15:11

I mean, think of like note takingaking.

2:15:13

Think of, you know, just make anything up. AI Gary Tan's fault. Let's just say it.

2:15:17

I mean, I love the guy, but, you know, we got to we got to hold him accountable for all the competition. Wait, who is that?

2:15:24

I was saying I was saying I love Gary Tan, but it's clearly his fault that there's so many startups now.

2:15:30

I mean, half half the intercom um competitors are YC companies. Yeah.

2:15:33

I mean, you you know that like si something like three or four of the top payroll companies all went through YC and for a while there was this there was this narrative of like oh YC doesn't fund competitive companies.

2:15:45

It's like no they fund a ton of competitive companies. Uh but it's great. Yeah.

2:15:48

I mean competition breeds innovation and breeds you know these huge power law outcomes.

2:15:53

Like it's all it's all good stuff.

2:15:55

Um but it is very it is very very competitive right now.

2:15:58

Um I want to hear about your evolution with artificial intelligence. take me through.

2:16:02

Were you tinkering with the GPT3 Da Vinci API playground?

2:16:07

Were you trying to implement that stuff?

2:16:11

Was were there times when it was unsuccessful and then it became successful?

2:16:15

Is reinforcement learning and reasoning the critical turning point for you guys?

2:16:21

Like how have the different eras of AI over the past few years played out into your product strategy?

2:16:27

I will answer that question.

2:16:29

I first do have to mention that I think you just heard a burp live on air. Did you hear that?

2:16:32

No, you didn't hear that. Okay, good. I just a lot of Laqua.

2:16:36

It was just like a burpy moment. I heard it in my ear.

2:16:38

I'm like, "Oh my god, we're all getting carbonated." Yeah.

2:16:40

Good thing we're going to cook this out, right? So, yeah.

2:16:45

Good thing it's not live.

2:16:47

Yeah, good thing it's not live.

2:16:47

Thank goodness we didn't randomly choose to live stream the show.

2:16:53

Um so to your question I you know so there hasn't been for people in our space uh major innovation at the model layer or uh within the model providers that has uh dramatically changed how it is that that we function.

2:17:09

So much of the innovation is in the orchestration around the models and a lot of the ways in which we've got these massive performance gains over all of our competitors is that we've built a lot of our own AI to allow us to do more sophisticated rag and use multiple models in different types of ways.

2:17:24

We've needed to be very experimental.

2:17:27

We've run something like 200 different AB tests to ek out different improvements along the way. Interesting.

2:17:33

Going forward, the next innovations will likely come by way of these application layer companies starting to work on their own models.

2:17:44

I I you know, at least right now, and this space is so dynamic, so I may have a different opinion in just weeks.

2:17:49

At least right now, it looks like the biggest leaps forward for the verticalized AI application companies will come by way of building verticalized offerings where they have applications and models kind of working together and somehow leveraging um that interconnection.

2:18:05

Yeah, we need an application layer sound effect on the soundboard.

2:18:09

Um, I yeah, I I I wonder I imagine that there was an era where you were effectively building AI agents or AI chat bots back during the chatbot boom that were defined much more like linear business logic if then statements and you layer those up and uh that that might be derided today but it was value creative back then.

2:18:33

Uh I'm wondering if there is a world where um having done that work results in a better product today because you can slot LLMs in to the business logic or train a model to interact with some of the business logic because I imagine co customers and companies do want to enforce some rules and restrictions around the interactions.

2:18:59

And so if you already have those those those bumper lanes on the on the metaphorical uh bowling alley, you're you're going to be able to deliver a better product.

2:19:08

But can you talk to me about the evolution of that that rules-based chatbot development to modern oh I just have an LLM that oneshots it? Yeah.

2:19:18

Well, you basically said all the smart things I could say, but I'll just repeat it.

2:19:22

There was kind of three generations.

2:19:24

We're on the third generation now.

2:19:26

The first generation was all the conditional stuff and we had pretty sophisticated conditional stuff where you could build big beautiful graphical diagrams that showed exactly how the customer would flow through your machine. Yeah, that was great.

2:19:40

Generation two uh used machine learning and it used various heruristics uh that learned from all of the human data points we have about conversations that uh happen to try and uh route people to the right answers in your knowledge base and it would pull out little snippets.

2:20:00

So, we had a thing we ended up calling a resolution bot um because I can share um exclusively here that Zenesk threatened to sue us because we had a um an offering called Answerbot.

2:20:10

And little did we know apparently they also had an answer. Oh no. Um yikes.

2:20:13

Generation 3 now is LLM Power.

2:20:17

And so that uh is one that uh uses you know AI as we know it today and it does away with everything in generation one and two except as you say there are some companies like us that can leverage those innovations.

2:20:31

So we sell to banks we sell to businesses with highly restricted uh operations in regulatory environments that don't allow them to make mistakes. You know you get it.

2:20:46

Our customers very much want um confidence that the LLM is not going to just hiccup and bump its way in the wrong direction.

2:20:55

You know, hallucinate even though, you know, we've managed to squash out pretty much all the classic example would be, you know, somebody gets the LLM to refund them a huge amount for some purchase that they don't prompt injection.

2:21:10

We heard about that at an airline.

2:21:12

Yeah, I think I think a big I think a big question I have is at what point is your AI actually better than an agent that would use the platform, right?

2:21:23

Because right now over the last few years as AI got kind of good but maybe not great.

2:21:30

I would still find myself in that sort of cycle of being like, you know, kind of getting frustrated and just saying, "Talk to a human. Talk to a human."

2:21:37

But you could eventually get to the point where somebody would actually just prefer to talk to an AI because it's instantaneous and you can really potentially move a lot faster than an agent who's working across you know multiple uh open tickets.

2:21:53

So I'm curious like what what is the point where it kind of flips where the average user is um you know is preferring to talk to artificial intelligence?

2:22:03

Yeah, the world is coming uh to exactly that point for the average user, but it's there for a lot of people already.

2:22:09

You know, we have multiple funny instances where we see people asking for the bot.

2:22:12

We see um requests increase when people realize that they can ask quick questions and get quick answers.

2:22:20

Um we see um resolution rates and kind of response times uh improve dramatically for certain categories of questions.

2:22:29

The dirty little truth in the era of AI is that wellapplied AI is far better than humans.

2:22:36

It is always available, you know, always stays on script, is never rude, you know, often gets the answer far more right than the humans.

2:22:46

We've run a couple of different studies where we've classified the answers that human agents provided using internal, you know, LLM um um products that we've built.

2:22:58

We found that only 65% of the tickets that humans marked as resolved are actually resolved.

2:23:03

So the humans are way worse than they think, way worse than they report.

2:23:08

And just anecdotally, uh you will have far kind of messier experiences that humans than you will with a very good AI agent.

2:23:16

The problem is that still most AI agents are not very good.

2:23:20

Most of them are in fact cheap G cheap GPT rappers and so there is a lot of kind of crappiness.

2:23:24

the very big consumer products that already provide support don't really mind but in the future won't be acceptable but we are nearing that point. Yeah.

2:23:32

How how has it been a challenge figuring out the right way to message interpro intercom's products given that many of your actual core DAUs on the customer side that the actual reps are people that over time like they have to be using the software and realizing somewhat slowly or maybe quickly that they aren't as good as the underlying system.

2:23:58

And that's kind of a difficult very human uh question crisis. Yeah.

2:24:06

Look, the reality is there's a couple realities.

2:24:08

One reality is that those people on the ground and even the support leaders are often not those buying these technologies.

2:24:14

You know, there's a vested interest in those two groups of people not adopting them.

2:24:18

And so a lot of people adopting these technologies or CTOs even CEOs that realize their opport their their their operations and customer experiences could be dramatically improved by bringing these agents to uh to the four.

2:24:28

I will say that often these agents are almost sugar on top.

2:24:33

They resolve at least right now some of the easier issues and the humans are still needed for the harder ones.

2:24:40

They're serving onmet demand.

2:24:40

So sometimes people will deploy Finn our agent to their free customers that they never gave support to before.

2:24:45

But often when they deploy it, like I mentioned earlier, people will ask more questions and so it increases demand too.

2:24:51

So you're not really seeing, we haven't seen big mass layoffs where the humans are just obsolete. Yep.

2:24:57

That said, all of that said, it will compete with human work.

2:25:02

And AI and robotics is simply going to compete with the most repetitive, most demeaning, least enjoyable, uh, least purposeful work out there.

2:25:14

And if you talk to customer support reps, very few of them want to be customer support reps long term.

2:25:17

It's a great way to get into the tech world, earn a tech salary, learn what you want to do, but pretty much all tech people have their mind and eye on something else. Yeah.

2:25:27

What uh what are your highle thoughts on the AI sales agent market?

2:25:33

You know, we've seen hundreds of companies at this point and the face says it all.

2:25:37

The face the face says it all.

2:25:39

But but yeah, I mean I imag you you said earlier in the call that you guys will eventually get into sales and marketing and so I'm sure you have a ton of opinions on it and great customer service is often a sales role.

2:25:49

You're closing the customer as they ask questions and the best sales the best customer service reps I've ever worked with have always been able to turn a customer interaction into a sales interaction. Yeah.

2:26:00

And it's just a much different dynamic sort of taking inbound concerns or feedback with a product, trying to solve it with AI and then passing it to a human quickly versus as opposed to spamming spamming somebody with just nonsense.

2:26:11

Uh my my favorite one was a sales agent that was like reaching out to somebody in New York and it's like, "Hey, have you like you should try to go to the opera in Central Park." Yeah.

2:26:22

The Big Apple that never sleeps.

2:26:24

I'm I'm ready to close anyway. Yeah.

2:26:26

What's your take on the AI BDR race? I don't know.

2:26:28

It's it's you know you know the way they say marketers ruin all channels you know all all channels get you know exploited and trashed and spammed and completely destroyed by marketers because the job of marketing is to find you know the frontier like whites space where it's not flooded by other marketers.

2:26:48

So all sales and marketing is really exploiting to death all opportunities until people are thoroughly sick and sick to the teeth of them.

2:26:56

So so that That's going to happen with AI, you know.

2:27:01

Um, and it's already happening.

2:27:02

We, you know, I've gotten tricked a couple times with some emails. I open them.

2:27:06

Some of them are on point and you're like, "Fuck you. This is God.

2:27:09

I don't even know if I'm allowed to say this f word.

2:27:12

I've said it three times.

2:27:13

We're working on getting a bleeper, but you're we are a family friendly show.

2:27:15

We don't swear, but we we won't hold it against you." Okay.

2:27:19

Thank you for not holding against me.

2:27:20

I will try my very best to not use it one more time.

2:27:24

Um, but I I I I don't I don't know if it's going to work, but like you said, there's a full spectrum there.

2:27:28

There there's a massive spectrum and Yeah.

2:27:29

No, it's the challenge is the the any tool that's decent will get such rapid adoption because of the internet being the best distribution channel ever and X even faster than Yeah.

2:27:43

So, I think the issue is is any tool that's worth anything will just be used so much that it'll quickly lose any type of of real edge.

2:27:56

I have a followup on the cost side of things.

2:27:58

Um, obviously some of these API calls are quite expensive especially if you're doing 03 level reasoning test time inference like everyone knows that it'll get cheaper.

2:28:08

It'll get baked down into A6 or there'll be specific chips that run these things really cheaply in even six months even a few years.

2:28:14

the cost per token's dropping, but at the same time, we've heard about startups that are like, "Yeah, I burned through 500k of OpenAI credits in a couple months testing this thing out."

2:28:22

So, uh, is there a world where you've actually seen an impact on your COGS or your margins in the short term?

2:28:31

And have you had to work with the board or investors to kind of think through that costbenefit analysis or have you always been able to kind of dance around it so that the business always feels like a software business and and feels like it has very high gross margins like any other tech company or is the fundamental gravity and the laws of physics around building uh a software company changed or at least temporarily changed?

2:28:55

I think it's too early to say and I think it's a really pertinent question obviously.

2:28:59

Um when we started and we launched Finn like four months after chat GPT came out each resolution cost us $120 something cent and we we charged 99 cent so we decided to take a loss on that.

2:29:12

Yeah we don't share our margin at the moment but it's very very healthy now. Yeah, of course.

2:29:18

Um I think businesses that like ours build very deep um applications on top of these base level models uh will be able to extract plenty of value because of what makes them unique.

2:29:29

Those that are simply GPT rappers will need to charge something closer to GPT prices, but model prices are just going to continue to come down. Yeah.

2:29:38

So in the same way that SAS companies were able to make 80% margins on AWS in the future, pretty much everyone will be able to make 80% margins on OpenAI or AWS when they run their own model.

2:29:53

So I I I actually we'll see, but I don't think it's going to net out where the margin structure is completely different. Yeah.

2:30:01

Uh how much of you followed uh the the Clara CEO?

2:30:04

Every every one one day he says, "Oh, we fired everyone.

2:30:07

Now he says, "Oh, we rehired everyone.

2:30:09

Next week, I think he just found the the ultimate attention hack is we got to have him on the show.

2:30:16

Got have him on the show, but it's, you know, basically just just flip-flop. Risk on. Risk off. Risk off." Yeah. Risk on. Risk off. Nice. Um I don't know.

2:30:26

Yeah, he's really good at marketing. Yeah, he is. Yeah.

2:30:28

Uh what has your kind of founder journey been and where do you see the company going over the long term?

2:30:35

like uh from the outside I I think it's you know there's a lot of people that would see intercom and just think like oh like venture back they're going to sell and get rolled into something else.

2:30:44

It seems like you've been in founder mode for a long time and it doesn't seem like the writing's on the wall for you to stop.

2:30:50

You're enjoying what you're doing.

2:30:50

Uh what do you see your the rest of Yeah.

2:30:54

Anyways, the company the the biggest opportunity is still ahead in terms of being perfectly this is one of those things where we talk to a founder and we're like wait like if he's really going to work on this for like 20 years like it's going to be insane.

2:31:04

So yeah I'm interested to hear like what do you do you see all talk about your ambitions. Yeah. Yeah.

2:31:10

I mean I'm 14 years in now which is long you know most people like success.

2:31:15

Overnight success overnight success.

2:31:20

Well, you know, we were an overnight success two years in and then we just did it for another 12 years. That's great.

2:31:25

Maybe we maybe we messed that up.

2:31:27

You know, there have definitely been periods um certainly near the tail end of our first chapter where, you know, we were all tired.

2:31:34

I actually was off for two years.

2:31:35

I was sick and tried to run away and ended up coming back.

2:31:39

That's a whole other show perhaps.

2:31:39

But um the AI thing definitely reinvigorated us. Totally.

2:31:44

And you know, it's a you know, I won't deny that I'm 41 now.

2:31:47

I was 26 when I started Intercom.

2:31:50

It's a different thing when you're a little older and AI give or take is a young man's game.

2:31:56

Certainly now that the world is so competitive, people are working their damn asses off and a lot of our competitors, they're in their 20s.

2:32:04

They're working literally seven days a week, 12 hours a day. We don't do that.

2:32:09

So, we have to take advantage of the things that make us unique.

2:32:10

But the thing that keeps us going and that keeps me going is just the scale of potential.

2:32:17

You know, our business is accelerating dramatically now.

2:32:19

I think next year our growth rate, our annual growth rate will have doubled three years in a row.

2:32:24

And these are very significant growth rates. So for Yes. Thank you.

2:32:28

That was that was all I was looking for. There we go. I mean I guys chill. He's still talking. He's still talking. Come on. Thank you. Thank you. Thank you.

2:32:39

But yeah, for for for a company at scale, you know, in the hundreds of millions to accelerate at that pace is just insane.

2:32:45

then it's because of this AI stuff and yet very literally we've just scratched the surface.

2:32:51

I mean if we're going to do the future of work then we're only getting started.

2:32:55

What do you think about the early stage AI market the the rapper market?

2:32:59

Uh people were very bearish on it.

2:33:01

it. Um then we saw OpenAI acquire Windsurf for $3 billion and it feel it felt like you know it's very special company very incredible team but it felt like it could be game on for every big tech company needs a rapper or a or a startup in every single category and so

2:33:21

all of a sudden you could see sure maybe some of these companies don't become massive public companies but if if a founder out there is building a narrow AI solution for something that can slot very neat neatly into AWS or Azure or or Microsoft Office. You could see kind of

2:33:34

You could see kind of game on in the M&A markets and some good outcomes for the founders and maybe even the VCs. What do you think?

2:33:41

Yeah, I mean from what I hear their M&A activity is is picking up.

2:33:46

Certainly from our perspective, all sorts of bigger companies have started to ping us.

2:33:49

Um it's it's kind of a thing.

2:33:51

You know the what I respond to this general question is is is is I just ask how how big is this market really?

2:34:03

I mean if we are doing the future of work if you oh we lost there you go sorry if cursor wind surf are doing a big majority of future development work these things are insanely valuable.

2:34:17

So all of this is just way bigger than software like AI, AI applications, rappers, etc.

2:34:22

Maybe they're 100x the total software market.

2:34:28

Maybe they're a thousandx.

2:34:28

Maybe that's way too much, but think about it.

2:34:31

They're doing all of work. That's great.

2:34:34

I really uh VCs get, you know, so much but I would love for all the VCs Oh, swear jar, buddy. Yeah. Yeah. Yeah.

2:34:41

I got to put one in the swear jar.

2:34:41

Uh but but I would love for all the VCs to just be right this time.

2:34:44

like all the rounds, you know, the perplexity of 14 billion, like if you know, if they're just what if it all works out, right? Be amazing.

2:34:53

Um, what did you do before founding Intercom?

2:34:55

And would you do anything different or would you recommend that path to the next generation of entrepreneurs?

2:35:00

I was starting companies.

2:35:02

I was doing consulting, software development, design. I don't know.

2:35:05

There's a dozen paths, maybe 100 paths into this.

2:35:07

At this point, I wouldn't do anything differently.

2:35:11

You get to a certain age in life where you love all your mistakes.

2:35:14

Yeah, maybe you like look at your younger self and you're like, "Wow, look at you. Look what you did."

2:35:17

But it made you made you who you are. So, no, no regrets.

2:35:21

And people should just follow their own pots. Follow their hearts. I love that. Follow your heart.

2:35:25

Well, I am fantastic conversation.

2:35:28

So excited for you and the whole team. I'm so bullish.

2:35:31

I'm actually extremely we have these conversations.

2:35:33

We're just like, "Oh my god, what a beast." Yeah.

2:35:34

No, I mean you guys are you guys basically, you know, 14-year overnight success in the exact purpit.

2:35:44

Definitely in the conversation, but no, just in the perfect position to take advantage of a massive trend, but then also deliver that value back to all of your existing customers and all your new customers. Great time.

2:35:55

Let's hit the Ashton Hall effect and thank him for joining the show.

2:36:00

Thank you for joining the show. Thanks for coming. Great. It's great chatting. Come back on again soon. Yeah.

2:36:04

Yeah, we'll have to have you back on soon.

2:36:05

There's so much more to talk about. We'll talk to you soon. Bye.

2:36:06

And I think we have David from Box Group in the waiting room.

2:36:10

We'll bring him in uh chat with him.

2:36:12

We love when a venture capitalist yaps about venture capital.

2:36:17

It's one of our favorite activities. Uh we got a plan.

2:36:19

I would love to get his take on what are we going to do in August because I think August might be an existential crisis for the show.

2:36:26

As all of you know, every venture capitalist takes all of August off and so we won't have nearly as many guests.

2:36:36

I think we go to the south of France and just do man on the street interviews. Yeah.

2:36:39

What do you do for like, hey, what do you do for a living?

2:36:40

Multi-stage venture capitalist.

2:36:44

I think we have to have any getting in a scuba diving suit and swimming up to boats and say, "Hey, what what do you do for a living?"

2:36:50

Let's bring him in and and we'll get his take.

2:36:51

David, welcome to the show. How you doing?

2:36:54

Why limit it to the south of France?

2:36:57

There are a lot of destinations.

2:36:59

You guys are being quite isolated in Okay, so give us the full tour.

2:37:03

How do we make sure that the show doesn't implode in August when all the venture capitalists go on vacation and we have no one to yap with?

2:37:09

I think you need a yacht. A yacht. Okay. Yeah.

2:37:15

Like you guys need a yacht and then you travel from port to port the VCs. Yes. Okay.

2:37:19

And what ports are we bring the show on the road?

2:37:22

We're going uh There's a I mean there's like level VC and then as they get more advanced I feel like you can find new destinations.

2:37:31

Antarctica for the really successful adventurous. Yeah.

2:37:34

If your yacht doesn't have an icebreaker, I'm sorry.

2:37:38

You're not ready to read.

2:37:38

You're not ready to lead the series B's of I agree.

2:37:42

I think we should get into Halo jumping.

2:37:44

So when we when we get intel, hey, there's a big VC in Antarctica.

2:37:48

We're just pulling the parachute minutes before hitting the ground.

2:37:52

Seconds before hitting the ground. show up with the mic.

2:37:55

What do you do for a living?

2:37:56

So, and and if this period, as you alluded to, works, I mean, the destinations we're gonna expand to. Tremendous. I think I think so. There's something here. There's something here.

2:38:07

We'll keep we'll keep noodling on it.

2:38:09

Anyway, uh how they have a wander location in all the places you need to go.

2:38:13

I mean, let's get the plugs going.

2:38:14

We do need we do need a wander uh we do need to wander in Antarctica.

2:38:17

Yeah, they should definitely get some of those locations on on board the Greenland location.

2:38:23

the ones that just pop up purely for marketing mostly.

2:38:25

But yeah, you know, I would take them up on that for sure. Yeah.

2:38:28

Um but yeah, how was your weekend?

2:38:31

How are you processing all the the flurry of uh of news and business and trade deals and biotech?

2:38:35

Do you have any exposure in your portfolio?

2:38:40

What are you excited about right now?

2:38:40

I think we I I my wife makes clothes in China. Oh, okay.

2:38:44

So that that's my main exposure. So I live with exposure. Sure. If you will.

2:38:49

And so and making clothes is not a good business for anybody.

2:38:52

And and then when you get tariffed uh aggressively, you start doing math and your math already doesn't work. Yeah.

2:39:00

So then you're like, "Oh, what if we make it worse?"

2:39:04

And so I think I live with her emotions.

2:39:07

Um which which impacted me.

2:39:07

I think as a a venture firm, we're generalists.

2:39:13

We have exposure in all different categories.

2:39:15

I think um you know the TJ who's joining you after I think we'll talk about the the pharmaceutical side of this.

2:39:24

I think there's you're in a world where reading headlines reacting to them and then waiting until the news comes out, right?

2:39:31

You read about the China deal.

2:39:32

It's like we made a deal, we'll let you know the details. Oh, okay. No rush.

2:39:35

Market market immediately starts pricing it in. Zero rush.

2:39:38

Just let us know whenever you get a chance and then we'll understand things better.

2:39:44

Um, and I feel like all of the news is getting rolled out like that where you're like, "Here's the headline, more to come."

2:39:50

Um, and I think reacting, again, reacting to that as an early stage VC is is important for Twitter, uh, or what we call X, it's important for podcasts and really unimportant for the actual job.

2:40:05

So you have to balance these two stressors out which is like how do I get engaged and sound like this is really impactful to me and it matters and I have to overreact and then on the same time just doesn't matter.

2:40:17

Well, I think for you, if you're a true contrarian, which every VC should be, everybody's bearish biotech, you know, they've had a bunch of, you know, issues over the years.

2:40:29

You should just invest in like 30 new biotech companies today, even without any sort of real insider edge. Just we probably did.

2:40:37

I was on an airplane today and there's a chance that we did that today.

2:40:41

Like 30 new 30 new deals.

2:40:44

Yeah, we're investors in Zach Weinberg's Cury, which in fact does 30 new biotech deals regularly.

2:40:49

So, we have achieved your goal.

2:40:52

Yeah, I think he's hopping on the show next week to give us his his take of all the biotech.

2:40:55

Yeah, there's going to be three more news and chill. Yeah, I'm sure.

2:40:59

Uh yeah, I mean, wait, talk more about that idea of like patience and venture.

2:41:04

There was this uh headline recently that uh Tiger Global, they got really stung during the ZERP era, but they're looking a lot better because they put a bunch of money in OpenAI and that eventually seasoned.

2:41:14

Uh we saw the same thing with the FTX fund buying a big stake in Anthropic and uh and and the the deal winding up looking great over time.

2:41:25

Um what uh what and they they invested in Cursor too.

2:41:29

Oh yeah, Curser Open AI invested in Cursor, right? Yeah. Yeah. Uh, didn't FTX as well? Yeah, they might have. Yeah, I think so. But they sold that.

2:41:37

That got sold by the Yeah. Yeah. Yeah.

2:41:38

It got sold in like the bankruptcy.

2:41:40

No one knows who bought it. Yeah.

2:41:43

That I mean that that that FTX's investment was not one of the best investments ever.

2:41:48

It was the person who bought it out of the cursor mouth on Twitter that was shared made no sense. Yeah.

2:41:54

The 200 to 500 million that that was that's not how math works. Yeah.

2:41:58

Like there's no equation that equals that.

2:42:00

Like you can't get there.

2:42:00

I was confused by that, but I didn't want to keep my mouth shut.

2:42:04

Maybe they invested like a $50,000 post money.

2:42:05

O3 is not very good at numbers yet.

2:42:09

We invested in the seed preede of cursor and I that math wasn't correct. Yeah. Okay. I I can tell you that.

2:42:17

Otherwise, you wouldn't you wouldn't be doing podcasts anymore from a hotel room. Yeah.

2:42:20

I would be on I would be on my yacht. Yeah. Yeah.

2:42:22

I mean speaking of uh like cursor and just like the the the AI application market broadly uh how are you thinking about demand from the hyperscalers for uh finding a dance partner in the application layer companies.

2:42:39

There was a big meme for a while that all these companies are just going to get steamrolled by the foundation model companies.

2:42:47

Now we're seeing deals get done and uh I've been you know arguing with Jordy about you know what if there is a world where every hyperscaler needs a dance partner in AI in the AI application layer and there's just a flurry of M&A deals.

2:43:02

Um that seems plausible but Jord's a little bit more hesitant about that.

2:43:07

hesitant about that. what what's your take on uh how the how the M&A markets look for application layer AI companies in big tech now in the new era I think I think you know application layer companies is a catchall of so many

2:43:24

different behaviors and and paths in does every application layer company look the same no I think what you're looking at is in many ways a brand and there is like a speed moment momentum and scale advantage to not being first mover but to being fastest mover. Is there a

2:43:42

Is there a barrier to switching like there has been historically in software? Probably not.

2:43:51

But in many spaces, barriers haven't been the the thing that defends winners.

2:43:57

It has been brand and it has been sort of recognition.

2:44:00

And I think that that piece has been under sort of underappreciated and open AI is the perfect example of that, right? Chat GPT.

2:44:09

The idea that that like name Yeah.

2:44:13

created it became a household. It's like hard to say. It's weird.

2:44:15

I don't think technical people understand like why is that the name? But yet here it is. Yep. Household name. Yep.

2:44:21

It's it's very hard to disrupt that on a better model. Yeah.

2:44:27

a better piece of technology isn't gonna suddenly like the same way Google won search by Google becoming the verb not because Google's search engine necessarily was always the single best product the single best tech even though

2:44:41

it was for the most part I think there's a brand value and so at the app layer I think brand is equally going to be important here if you can and and more users more usage on your product it ideally improves because of as as you know AI. Um, and that's going to matter.

2:44:57

Um, and that's going to matter.

2:45:00

There's a compounding value of scale that's different than just the initial momentum.

2:45:06

And I think that that's underappreciated.

2:45:07

In terms of M&A, um, I'm more interested to see if the big companies need to buy app layer companies, right?

2:45:14

The the fangs of the world or the big seven.

2:45:16

um if the government allows actual M&A to happen uh anymore, I think that's the more intriguing unlock versus all the sort of foundation models buying a handful of app layer companies.

2:45:30

I think there is a value of sort of buy users and buy scale uh that you're probably looking at at the at the beginning stages.

2:45:39

Yeah, it's almost more like product.

2:45:41

Like I I feel like Google has their destination website. They can point Google.

2:45:46

com to anything and they can funnel a billion.

2:45:51

I mean, Sundar recently said that uh Google has over a billion users of generative AI.

2:45:56

And this is the same story with Llama getting stuffed into WhatsApp and Instagram.

2:46:00

They have a billion users, but the product isn't thought of in the same conversation as chat GBT, which is a destination, a front end, the front door to artificial intelligence.

2:46:12

Um, and so yeah, there's something that there's some still secret sauce to building really great products that happens kind of only in the startup ecosystem.

2:46:21

And if you look at Facebook now Meta on the way up, right, they were buying things every step of the way that felt either threatening or felt interesting.

2:46:30

So if you go back to friend feed, a they bought a CTO there, right?

2:46:34

And so Brett stayed on and built a big chunk of the technology inside of Facebook.

2:46:38

But friend feed was was an interesting early momentum uh company and then they bought you know obviously Instagram and WhatsApp totally sort of separate channels within this bigger ecosystem.

2:46:50

It ties into the business model.

2:46:52

I look at those acquisitions is how you historically built companies in tech.

2:46:57

If you go to this like previous 10-year period when the government sort of stopped allowing it and valuations and founder expectations just became misaligned with acquirers, you saw so little M&A in terms of companies growing and getting bigger.

2:47:17

And I think you're coming back into an era where the valuations of the foundation model companies, the valuations of the the big tech public companies are so large that you can actually hit a founder expectation in terms of acquisition and not make as big of a dent.

2:47:31

You're not paying, you know, Twitter paid 10% of their equity for Smise back in the day, which is which is crazy.

2:47:40

crazy. What can can venture as we know it today survive even in a low M&A environment just because all that matters is the power laws or does it make things a lot you know the power law it has survived for 10 years because you

2:47:55

got it you you had a period of zer and then you had I think for me a 10 years is like one fund cycle if if you're lucky but but I think it created momentum of liquidity for a moment and I this der of M& liquidity after 8 years of very minimal M&A. Um, do I think VC needs M&A

2:48:19

Um, do I think VC needs M&A as a like secondary channel for exits? Yes.

2:48:26

I I think 15 years into my career that was like a bet I've been mostly wrong on um is that there would be a lot of old companies buying new companies.

2:48:35

I think AI might be a catalyst for that forcing function, right?

2:48:40

If if you are not able to buy software, you might have to buy companies to modernize.

2:48:45

Yeah, it's it's super interesting like playing back some of the other Facebook acquisitions like they bought control labs. Do you remember this?

2:48:52

It's a wristband that could uh basically read your mind.

2:48:57

And so uh if you if you pinched your fingers, it would pick up on the electrical signals and be able to put that into the computer and the VR face.

2:49:05

face. uh they acquired control labs uh between 500 500 million and a billion and this was when was this 2019 I guess so it's been six years they still haven't commercialized that technology but they're going to in the new Orion uh smart glasses and so just so much they have John it's it's it's in the iPhone when you squeeze it they it's like give

2:49:28

John more of this dopamine he likes it the iPhone is made by Apple I just don't know that just want to clarify But but but but then uh Facebook was trying to buy a VR fitness app and they got blocked and everyone was like it's so dumb because like uh the FTC said that that that they were creating a monopoly in the VR fitness industry and everyone's like what are you talking about? There is no VR fitness industry.

2:49:51

There is no VR fitness industry.

2:49:53

But at the same time when you think about Facebook's really or Meta's really long-term horizon if they can sit on labs for six years before seeing any sort of economic they're still not even close.

2:50:03

Um what what could that have te what could that team gone on to do?

2:50:07

Maybe they could have done something cool. I don't know.

2:50:08

Facebook from 2005 to 2015 50 acquisition. 50. Wow. 50. Right. These are real.

2:50:16

And some of them were aqua hires or some of them were were the version of Aqua Hire that was aligned to like future you know value at Facebook.

2:50:25

Um I think same lesson came in throughire too. Right.

2:50:27

There was um hot potato Justin Schaefer's early company.

2:50:33

There was a bunch of early acquisitions that were team acquisitions when it made sense and those people became important at Facebook.

2:50:38

And I think when you look at today's modern companies, they were not built off of that same talent acquisition, the same same way to build a company.

2:50:49

I think you might get back to that because not every one of these companies is going to succeed.

2:50:52

But if the value of the ones that are succeeding skyrockets quick enough, your equity becomes attractive to a company that is looking for a home.

2:51:01

And I think that's a real alignment.

2:51:02

You talked earlier about companies potentially buying brand uh from all the companies that you've invested in.

2:51:10

Brand in the early days doesn't matter.

2:51:12

You know, usually when you guys are writing a check, brand if somebody's trying to sell you on how great their brand is, it probably means there's other fundamental issues with the company like the team's not, you know.

2:51:25

Anyways, brands take a long time to build.

2:51:27

Uh I'm curious if you have any framework framework for evaluating whether or not a team has the capability of building a brand that is going to resonate over time just because brand can originate from so many different places right you can build a great brand because you ship quickly.

2:51:44

You can build a great brand because you have good taste you know and your marketing assets are I think brand is this this big amorphous word that when applied to specific spaces means something totally different.

2:51:54

something totally different. the brand that cursor has built their audience and how they've gone about building that is totally not related to a DTOC you know we're we're early investors in like Warby Parker Warby Parker is is a version of a consumer product brand um I

2:52:11

think in software capital helps I think there's this this two-sided thing one is users and a community however that fills in within your company a community can be like a B2B startup up building customer momentum where the customers are telling other people to to sign up. But I think it's users and and the

2:52:30

But I think it's users and and the community of users sort of spreading the word.

2:52:34

Um, and I think in this moment in time, capital helps.

2:52:37

If you're telling this like every six months fundraising story, you're creating momentum for your company that is different than your competitive set.

2:52:48

And so if you can go out into the market and say, "Our valuation doubles up every six months.

2:52:53

were able to raise from top tier investors.

2:52:55

You're able to hire differently, right?

2:52:57

You're you're when you're going to pitch in a competitive hiring process and you're able to show that this is the rocket ship, uh, that you're trying to tell that that potential hire that it is.

2:53:08

I think those things matter and I think a brand in all those components can compound to make you know some version of um I don't think too big to fail but uh sort of you're you're getting you know made the the winner.

2:53:23

You have a lot of people that care about your success. Yeah.

2:53:24

And and you're getting made the winner.

2:53:27

You're the default winner.

2:53:28

You're at some point you're not fired for picking that company if it gets to be that you know big of a name.

2:53:35

No one's fired today for picking Salesforce.

2:53:37

And I think when you're trying to challenge a company that no one's fired for picking, you have to really be a unique outlier to get somebody to risk their job in essence by picking your company.

2:53:48

We're an investor in the the 8-year overnight success of Clay.

2:53:53

Um, can you do your sound effect, please? Which one?

2:53:56

I mean, we got a lot of them. Just do them all. Thank you.

2:54:02

Congratulations on overnight. That one.

2:54:07

Uh but you know Clay today uh 8 years in is starting to to do a go to market motion that starts to compete with some of your entrenched software players and I think that it takes a lot of product build and that's been in the past 10 years something that's been hard to do as a startup because you're not funded

2:54:28

for these five sevenyear builds of software and I think uh you know as the intercom founder said if you can develop software where automatically or through uh you know a combination of your engineers and AI uh the the scale of product that you can build will happen a lot more rapidly. Tell us a story of uh meeting and

2:54:47

Tell us a story of uh meeting and investing in TJ back in the day since he's coming on next. Good one. TJ. Yeah. Um I met TJ.

2:54:55

Must have been a rascal back then I think.

2:54:58

I think Skype to be fair. It wasn't Zoom.

2:55:01

It had like it wasn't like Google Meets. It was pretty all that. So, it had to be Skype.

2:55:08

Um, and I was in the room with I believe TJ's like first employee, not TJ and not Elliot.

2:55:17

So, it's like the first employee was physically in the room and he Skyped in luckily TJ.

2:55:21

Um, and TJ and I really liked each other and but we didn't meet for like four or five months after um we Skyped and and I invested. So, it's been a journey.

2:55:34

Um, you know, we were we were the first investor in Pilpac in that original um he was in Tech Stars in Boston and that's how I met him. Um, thank you.

2:55:45

It really feels good when you get the sound of that emotion. You got to work for it.

2:55:50

Brings the energy level like way up as a VC.

2:55:53

It takes a long time to get um feedback and this is like reinformed.

2:56:00

All you had to do is do something 10 years ago. Exactly.

2:56:02

Uh so I appreciate that 12 years ago.

2:56:05

Yeah, it's a thankless job venture capital.

2:56:07

So yeah, and and then you know watching TJ's journey and then uh tricking TJ into becoming a VC, it's probably a point of you know pride in my career uh and watching him thrive being able to ski, golf, and invest all at the same time.

2:56:25

Uh which is comp to do it. Do it. No, it's funny with TJ.

2:56:29

We got to I got to ask him about this when he comes on, but it's like I don't know if I've met I've met uh anyone who's a VC who hates VC broadly as much as TJ.

2:56:40

Like he seems like he has like a disdain for pride in that.

2:56:44

Yeah, he has a pride in how how much disdain he has for the for the profession.

2:56:50

But I I think part of it he gets some ability to kind of laugh at the industry given that you know he got to a billion dollar outcome in lesser less billion dollar outcome less than five years.

2:57:01

He knows something about an industry that no one else knows about and his company got to a billion dollars of revenue in less than 10 years.

2:57:05

And so I think you get the ability to kind of just laugh at powering Amazon's pharmacy like it's still a it's still a product in the world.

2:57:13

And I I think his ability to have seen the inside of one of the biggest companies in the world and then operate there, which he also found funny.

2:57:23

Um I think gives him this unique insight as an investor to really have a top down at the healthare system and a bottoms up as you built a startup by competing against the world and then sitting inside Amazon, you got to see um sort of the the world operate at scale.

2:57:42

I think it's a unique perspective.

2:57:43

So, uh, did you see Business Insiders new list of the 100 best early stage venture capital?

2:57:48

Dream in 26 to be on that list.

2:57:51

Do you feel like you got snubbed? What? What happened?

2:57:54

They they went to him and they said, "David, we know you're really number one, but you got to pay us seven figures."

2:58:00

Well, it was ultra competitive this year as I don't know if you saw, but uh, Peter Teal just barely made the list. He's at 67.

2:58:05

Uh, Mark Andre didn't make it at all.

2:58:09

So, you're in reasonable company.

2:58:11

I I mean it's a data driven list and nothing is more truthful and venture than data.

2:58:17

So it's hard to argue that you know random pitch book and crunchbased data isn't the correct outcome for rankings. Yes. Yes. Exactly. Yeah. Yeah. Yeah.

2:58:27

A lot of snubs on here but a lot but a lot of great people.

2:58:31

It's it's sad because I got this inbound I got this inbound spam email saying that I could buy a plaque for being on the list and then I I didn't make the list.

2:58:40

Oh, you didn't make the list, but I bought the plaque already. Oh, damn. Yeah.

2:58:44

I mean, I'll I'll I'll share this with you.

2:58:46

Uh, this year we're thinking about doing our own version of the Midas list of the top 100 venture capitalists, not just seed, across everything. On what?

2:58:53

Uh, ju just the top venture capitalist, TBPN's version of the Midas list, but what's the criteria? Vibe.

2:58:58

Uh, well, I mean, it we're putting out a simple call if you want to be included in the list.

2:59:04

Packages start at 100K and go up from there.

2:59:06

So you can reach out to salestbn.

2:59:07

com if you're interested in being included.

2:59:09

If you're a venture capitalist and you're listening, we'd love to include you in the list of the best venture capitalists.

2:59:13

Uh we we we accept we accept credit card and wire transfer.

2:59:18

So and everybody was worried about how you guys are going to monetize it. Yeah. Yeah. Yeah. Exactly. Exactly.

2:59:22

We figured it out really quick.

2:59:22

I mean year year one you cracked the code. Yeah.

2:59:27

I mean this is like the old like million-dollar web page.

2:59:29

Do you remember that where you pay $1 per pixel? What was that? You accept equity.

2:59:33

We'll take a stake in your management company. Yeah.

2:59:37

We'll take a stake in your life's work to to be on the list for this year. Secondary market, too.

2:59:42

There's a lot of opportunities here potentially. Potentially.

2:59:47

Anything else top of mind, Jord?

2:59:49

Oh, I was going to go through the the timeline.

2:59:51

Uh and uh so I have a post here.

2:59:54

I want you to react to it, David.

2:59:56

I thought we were going to go through the top hundred one. No. Yeah, the top. We'll go Yeah.

2:59:59

And you can go long short every you can go on the record and go long short every single the top 100.

3:00:05

That'd be great for your brand.

3:00:05

It's a list of the best venture capitalists and Mark Andre didn't make the list but Mark Beni off did and I don't think anyone from Sequoia did either. Oh no.

3:00:16

Not that I read Andrew for anything and thought about it.

3:00:19

Sean and Andrew, you got Albert has never funded any good seed companies to be fair.

3:00:24

Yeah, notoriously bad at seed.

3:00:25

Those guys just can't make a buck, you know.

3:00:28

Those guys just just uh scraping pennies through the couch cushions to to pay.

3:00:33

I don't think anyone at first round made it. It was a great list. So, it's great. It's great. It's great. Yeah.

3:00:39

I mean, he's not bitter or anything. Okay.

3:00:44

I have I have a post from M. Stanfield.

3:00:47

I'm just going to read it out loud to you. Uh, David. Me.

3:00:48

I'd like to invest in this brewery. SEC. No, dummy.

3:00:54

You're not an accredited investor. Me. Cool.

3:00:56

I guess I'll just teach myself some double broken wing butterfly trades by watching Tik Tok. SEC. Yeah. I mean, for sure. It's your money. Do whatever.

3:01:05

What do you uh what do you think about that? Yeah. Yeah.

3:01:07

What do you think about accredited investor laws?

3:01:10

Oh, I didn't know where this is.

3:01:10

I thought we were gonna that I have to fund a brewery.

3:01:14

We funded a nicotine company.

3:01:16

So felt like in the same same vibe.

3:01:19

Um accredited investor look like I I you know I I think the challenge of having of having credited investor rules is that you have it in one area of like the country and not in everything.

3:01:33

And that's the challenge to me right you you have like scams left and right throughout the economy and yet in this one area it's like no there are a lot of rules here.

3:01:45

And so I think that feels unfair.

3:01:48

So to me, you're either going to sort of clean up the ability to invest in things across the board or you should have sort of everybody operate at your own risk.

3:01:59

And just like a level playing field generally, right? Yeah. Yeah.

3:02:03

And so I feel like that's the issue.

3:02:05

Um and then there's all these like gray areas of like getting around it which feel like you're not holding uh the bar properly.

3:02:15

So I I don't know just what's your reaction to the new news that Elizabeth Holmes is advising her husband's AI medical testing startup which can conduct diagnostic tests using a small sample of blood from prison.

3:02:27

I mean we were saying this when we when we I think she's so when she was in the news we were saying like the real way to be vindic vindicated is not just get out of prison is to come back run back the same product but actually win. It's real. Yeah.

3:02:41

I my first question is what are we going to do with the blood right? Like what? Like where does it go? What happened?

3:02:48

Like the collecting is step one, but then what?

3:02:50

So yeah, I think send it to prison.

3:02:52

She should be doing the titration in her prison cell, right?

3:02:56

Is this about like the young boy plasma thing in that direction? Yeah.

3:03:02

Um anyway, uh what do you think?

3:03:05

Clara's CEO says his pursuit of cost cutting fueled by advancements in AI has gone too far.

3:03:10

When you have a port po port code that's later stage that says they're, you know, cutting everyone due to AI, do you get do you get worried?

3:03:19

Are they No, I think there's there's like a timing and sequencing here, right?

3:03:24

When you overstate the present, uh, you may be also underestimating how soon the future will be here.

3:03:32

And so, uh, it feels like a a nice midcycle story for the eventual outcome.

3:03:39

uh as you guys alluded to before, but it like does 90 plus percent of customer service get solved by AI for sure.

3:03:47

When you look at like ecom customer service generally, like 65% of the questions are when when am I getting my item that feels like you can automate that, right?

3:03:58

And then you start going to the next chunk of things.

3:04:00

And there's like 3 to 10% that feels like you actually need to to think about how you respond here.

3:04:04

And even in those situations, it's typically some version of a save.

3:04:09

And so I think as you get to customer service across most companies, that becomes relatively uh automatable sooner versus later.

3:04:17

I just the idea that we need to announce that we're going to let go of a lot of people because AI is magical today uh might be a stretch.

3:04:27

Uh you thoughtfully uh informed us that the iPhone is made by Apple.

3:04:32

Uh do you have any uh do you have any reaction to the news of the new Apple products that are launching?

3:04:39

They're potentially a curved iPhone without any cutouts in the display.

3:04:41

Uh new Meta Raybands competitors, uh new Apple glasses and then Apple intelligence developments.

3:04:51

Are you uh are you the type of person that lines up to buy the latest Apple product?

3:04:55

Do you drive for a couple weeks?

3:04:58

Big line big line guy over here.

3:05:02

I want to stay I want to stay focused on being a VC smart home right you you didn't mention the screen that goes in your house which I think for every VC is just like a pipe dream to have screens everywhere and so that is another one of

3:05:17

the products that is rumored to be coming out uh a new Apple TV we're at like six years later uh new Apple TV so there's a lot of a lot of opportunity here to spend a lot of money uh the foldable phone confuses me yeah I don't know. I I don't need to fold it. Well, I

3:05:31

I I don't need to fold it.

3:05:31

Well, I I feel like there's a iPhone.

3:05:35

There's like a baby iPhone for little hands.

3:05:39

Then there's the big iPhone for bigger hands.

3:05:41

Then there's a little iPad. Yeah. And a big iPad. Yeah.

3:05:45

So, the foldable phone is like you Well, have you seen the demos in China where it's three phones stacked together to the size of one phone and you unfold and you get a tablet?

3:05:56

That's pretty cool, right? So then I have a a iPad. Yeah.

3:05:58

But in your pocket I just want to be able to, you know, you can put a newspaper in your back pocket and you pull out the newspaper and you un you pull it out.

3:06:08

That could be just kind of a cool bit.

3:06:10

This is This is interesting.

3:06:10

They said Apple's pushing into robotics which will include a tabletop machine with a robotic arm that would feature. What does the arm do? I don't know.

3:06:17

Assume it can like juggle for you or something. Yeah.

3:06:22

Or it gets you or it gets you beverages.

3:06:24

I feel like that's the other, you know, VC pipe dream, the robot that just brings you stuff. Yeah, beer me, Siri. I like it.

3:06:30

Anyway, this was a fantastic conversation. Thanks so much.

3:06:34

He's going to hang out for a minute to say hi to TJ.

3:06:35

I just want to see what TJ's facial hair looks like today.

3:06:36

I have one more I have one more post from a former uh employee and and a friend of mine, uh Josh Harris.

3:06:44

He says, "American oligarchs be like, this has over 100,000 likes, by the way.

3:06:50

American oligarchs be like, "Oh, I founded Blubber."

3:06:52

European oligarchs be like, "Yeah, my family owns the trees."

3:06:57

Have you have you found much success uh on the LP side in Europe?

3:07:00

Do you do you go Josh Harris from Apollo? What's that?

3:07:07

Is this Josh Harris from Apollo or No, Josh Harris.

3:07:09

Uh he was an ER at um Paradigm and his I was afraid of I was afraid of Apollo, so I don't want to say anything. Just clarifying.

3:07:20

You don't mess with private equity people ever.

3:07:21

A real real cardinal role.

3:07:25

Um, we uh we have a great mostly uh domestic LP base. Okay. Damn. I punch it. No tree. Big tree. The tree. TJ at Matrix. Yeah. Never know.

3:07:36

Big big big tree LP base. Yeah. Big trees.

3:07:40

I talked to a lot of DCs that are raising new money from LPs in Pyongyang. Getting North Korea. The final frontier. frontier and Antarctica.

3:07:49

That's why they're there in the summer. Yeah, exactly. Exactly.

3:07:53

Anyway, let's bring in TJ and uh and we can all chat.

3:07:56

Uh hopefully the the layout works here. TJ, how you doing? Here we go. Good. He made it. He finally made it.

3:08:05

Let's hear it from the crowd. Yay.

3:08:07

Welcome to the stream, TJ. How you doing?

3:08:14

Oh, it's great to have you. It's great to be here.

3:08:16

Uh and uh David just had to join too.

3:08:21

He's just so proud of you.

3:08:21

Uh not only the company that you built, but your transition to venture capital, which is the highest and best use of anybody, any genius's time.

3:08:29

We were trying to assign credit for your success.

3:08:33

And we kind of broke it down like 80% David, 20% you. Does that sound fair? Yeah. I mean 7030 maybe. 7030. Okay. Yeah.

3:08:41

Got to give yourself a little credit. A little more credit.

3:08:42

Uh, how's your uh, what was your first impression of David back in the day? I got to ask.

3:08:49

You know, it was pretty good.

3:08:51

I talked first time I met Dave was a phone call where I'd already told like five investors the round was closed and he somehow weasled his way into the round anyway.

3:09:00

So, he must have been made a pretty good first impression. I think it was Skype. Was it phone?

3:09:03

Uh, well, I was like at some conference and we kind of met at Skype on a on a Skype, but then we actually talked like the next day on the phone and that's when that happened. Mhm. You remember that? I do.

3:09:15

I feel like your memor is more shot than that. Yeah, I know. I know.

3:09:16

It's a rare It's a rare memory for me.

3:09:18

Thanks for Thanks for letting that stick.

3:09:21

Is that important for you? Yeah.

3:09:22

Jump in here on drug prices, get this conversation started. Be very exciting.

3:09:27

Were you um my last question for David, were you worried that that TJ would, you know, sell secondary at the B and get too caught up in Porsches and um and that's in that whole world or did you know at the B and I bought an E63 wagon so it didn't There we go. There we go. There we go.

3:09:47

I was worried about TJ still my daily driver.

3:09:50

Actually, I still drive that car.

3:09:51

So I was worried about TJ selling drugs at the bee.

3:09:53

Honestly, that was that was amazing. Yeah. That's great.

3:09:59

Thanks for having me on, guys. Congratulations for you. Cool.

3:10:01

Uh yeah, TJ, take us through it.

3:10:05

What was your reaction to the news?

3:10:07

Uh how would you actually summarize what the proposal is because a lot of these press releases get written kind of aggressively and then the actual implementation is very different.

3:10:19

How are you processing the news and and and what's your early take on are you getting some of that context directly on true social or do you wait till it hits uh other parts of the internet?

3:10:30

Wait for the delay for sure.

3:10:30

I mean I think maybe helpful to like level set like lay of the land for folks that are kind of less please familiar with the category.

3:10:39

Um, so, you know, I think probably the problem I've been most focused on and I've beat a, you know, beat a dead horse on on Twitter is this rebate issue. Mhm.

3:10:49

Um, and I think in many ways that's the most interesting part of the executive order.

3:10:53

It's the thing I'm most excited about.

3:10:55

Um, so today, if you're a normal consumer, you go to the pharmacy, you need to fill a branded prescription, like a higher cost prescription.

3:11:03

Maybe you need an EpiPen and it's January and your deductible will just reset.

3:11:07

or you want to fill a GLP1 um at the counter and it's not covered by your insurance, uh you end up paying something like three to four times order of magnitude what that drug actually costs in the US.

3:11:20

No, so not even talking about like what it costs in other countries, but what it costs net in the US.

3:11:24

So for like an Ozepic as an example, you're paying $1,000 or so, which is the list price, the gross price in the US.

3:11:30

Um but the net price is actually $250.

3:11:33

the net price is actually $250. just the price the PBM the pharmacy benefit managers negotiated and you've effectively paid $750 more than that drug costs and that money is getting captured by either the PBM the insurance company or your employer usually some combination of all of those things and

3:11:51

everyone's always bemoaned pharmacy benefit managers obviously they're kind of everyone's favorite punching bag the middleman in healthcare and they're capturing all this margin and to some degree that's that's true um but no one has come up with a solution that could be an alternative alternative path that could work better, right? That's the

3:12:05

That's the sort of fundamental issue is like you can hate how the mechanics work today, but without an alter like without some alternative, it doesn't matter.

3:12:12

Um, and so I think what's most interesting about the EO is that it there's a specific call out around requiring that pharma companies have comparable direct to consumer prices to list prices in other countries. Right? Right.

3:12:28

So, you take that as a Zepic example. Mhm.

3:12:30

In the UK, that's a $150 to $250 drug.

3:12:32

Actually, not that different from our net price, right? It's sort of similar.

3:12:38

It's a little bit less, but it's like not that different.

3:12:41

Um, they're basically requiring pharma to have that sort of pricing available if the consumer is just paying cash, kind of paying out of pocket.

3:12:49

And why I think this is so interesting is if you start having these things get priced in somewhat of a rational way for consumers, all of a sudden the need to negotiate these rebates and have all these kind of backdoor negotiations and these fees and all this stuff that creates the complexity effectively goes away because you have some version of rational pricing for consumers.

3:13:06

Um, so there's a bunch of other stuff in EO and I'm happy to get into some of the more nuanced complexities, but to me that's pretty exciting if you actually had like normal reasonable cash prices for the end customer.

3:13:18

So just staying on prices, um is is this conf is this confounded by the fact that in other countries they have uh larger government sponsored health care plans or so when we talk about Americans paying higher drug prices, are we saying American consumers versus European consumers or are we saying that the same pharmaceutical company actually makes more money from a single dose in America versus uh Europe? Yeah.

3:13:47

So both is the short answer.

3:13:47

Um but I think what's happened in the press that has really been challenging is that everyone always talks about the list price as the price in the US, right?

3:13:56

And so the narrative if you listen to like the rhetoric over the last handful of years is like we're paying 10 times as much for a Zmpic or we're paying 10 times as much for insulin. We're not.

3:14:08

The list price is 10 times as much as it as a list price in the UK.

3:14:11

We're paying and it says this in the EO.

3:14:13

This is definitely the truth.

3:14:15

We're paying two to three times the net price. Yeah.

3:14:17

The Wall Street Journal here said that uh the list price for diabetes medication uh Jardians was $611 for a 30-day supply in the US versus $70 in Switzerland and $35 in in Japan.

3:14:31

That's what you're talking about being not entirely accurate.

3:14:35

That drug is probably actually like 100 bucks net in the US. 150 bucks. Okay, got it. Yes. More expensive. Y but not 20x. That's interesting.

3:14:43

And so I think you're hearing and like you know I think you're hearing a lot of the dialogue be about like all the downstream implications of R&D and not going to be any investment if these prices come down in the US because they're the only ones will wanting to pay.

3:14:58

That's an interesting conversation people should have that conversation.

3:15:01

It's it's pretty complicated and nuanced.

3:15:02

But I think everyone can agree consumers shouldn't be paying 10 times as much when they get stuck with the full bill. Yeah.

3:15:08

And certainly shouldn't be paying three times as much as the PBM is paying or their employer is paying.

3:15:15

Um, that to me is what's most interesting is you could come up with a there's a there's a real credible solve here potentially for that problem which I think is much more uh yes compelling and and interesting. Cool.

3:15:24

How how have you uh what what are your thoughts on the market's reaction?

3:15:30

I think everybody expected this massive selloff in pharma and biotech and maybe it's because there were there was other news announced this morning.

3:15:39

We haven't seen that but but biotech markets went up by like 3%. Yeah.

3:15:43

Do you think people are processing this?

3:15:46

We had what we heard earlier was that it was kind of like like the like a really really bad scenario was priced in and this was less bad so it popped.

3:15:52

Do you buy that narrative or what what are you taking away from the kind of the market reaction? Yeah.

3:15:57

So the PBMs and pairs have gotten whacked which makes sense if you think about the the dynamic here.

3:16:04

Um I think there's a lot of skepticism about how how much this can actually be implemented and the success that they'll have.

3:16:10

Um if you jump back to The last administration, they tried to repeal rebates, which is solving the problem I just described.

3:16:16

It's it's sort of getting rid of this excess margin that's invisible to the consumer and they failed.

3:16:22

They got it pretty far along.

3:16:23

It was like an admirable effort, but ultimately CBO shut it down because rebates do contribute to lowering premiums and there's things that made it difficult to get rid of rebates.

3:16:31

They also had an MFN approach on Medicare Part B drugs, so like drugs that are dispensed if you're in office.

3:16:37

um uh things like that and that failed in the last administration.

3:16:42

last administration. So I think my sense is it's some combination of if the real punchline here is that effective this is a back door way to get rid of rebates it doesn't it's actually not that big of a deal for pharma like they're still getting their net economics it's just that for the middleman right so that's

3:16:58

like oneation from the market and then there's probably also just some skepticism about whether this will actually get implemented and I think that's fair skepticism given the the historical track record here what does this mean for pharmaceutical R&D the way it's done we talked Zack Weinberg a little bit about NIH funding getting cut. There's debates about how research

3:17:16

There's debates about how research gets done in, you know, the Ivy League universities that spin out a lot of drugs.

3:17:23

Um, there's so many moving parts to actually get us what we want, which is probably just like a cure for cancer or just great new drugs, right?

3:17:32

Um, h how is the actual pipeline evolving through all these different changes when you stack them all up? Yeah.

3:17:39

So if you jump to the other other components of this beyond the consumer implications, yeah, that's where I think these questions become more relevant, right?

3:17:48

So if there's really, you know, an an MFN for the net price that we pay compared to other similar situated companies or countries that that would have potentially some of the impacts folks are concerned about on R&D.

3:17:58

I think we're so far away from that and that's so difficult to imagine truly getting implemented on face value that I'm skeptical that that's really the the thrust of this EO.

3:18:09

Um I really think it's a potentially a better way to to eliminate rebates than historically.

3:18:16

I do think if you kind of play out let's let's assume that all of a sudden OMIC does cost 200 bucks at the pharmacy counter which I do think is a credible path here and it would be reflective of what the true net cost.

3:18:27

Uh and all of a sudden consumers are sort of just paying for most of these products out of pocket versus like bothering to use their insurance and then you have pharma companies competing on price to win the to win the transaction.

3:18:39

That's actually I think how net prices come down ultimately not because there is going to end up being some true um kind of deadnet MFN that that they're able to execute against.

3:18:50

So, I think the the debate about R&D is sort of, you know, to me just from a practicality standpoint, um, kind of two clicks away from where we are today.

3:19:00

And I'm pretty focused on can we just get to a a place where consumers are choosing these products based on price instead of PBMs and other middlemen trying to determine price.

3:19:08

Why why is the market for OEMIC so competitive on day one?

3:19:12

so competitive on day one? you hear this whole narrative around patents and um you know the whole idea is like yeah you you should be able to incentivize this like this heroic uh herculan research effort because you'll generate all this value over the long term and that

3:19:30

certainly happened with Novo and their share price but at the same time it feels like the GLP ones came out there were like every major pharma company had one around the same time then there was compounding going on there was so it felt like they were already generic almost, but I know that they're not. But, uh, why why did the market play out

3:19:45

But, uh, why why did the market play out in this way?

3:19:48

Is it just because it's such a dominant technology, everyone was thinking the same idea or something? What happened there?

3:19:53

Because it was originally approved for diabetes, not weight loss, and that weight loss was a byproduct that they figured out was a was a not a side effect, but like also an effect of the of the products.

3:20:02

And so, when it caught, you know, the public's eye, it was already much farther along in its life cycle than a traditional kind of new indication, new drug. Got it.

3:20:11

That being said, like the the price dynamics with GOP ones are not that anomalous.

3:20:17

Like if there's a successful product and there's a known pathway, there's going to be other similar products that get developed. Mh.

3:20:25

And the current ecosystem supply chain, current structure that does drive down net price.

3:20:30

That's why these things don't cost $1,000 anymore.

3:20:31

That's why their net price is 200, 3000, $500 depending on the how new the GLP1 is.

3:20:36

So like the the system actually kind of works. Okay.

3:20:42

right now like the price does come down based on competition relatively quickly.

3:20:46

It just doesn't work particularly well for consumers in these instances where they're paying out of pocket.

3:20:50

So everyone else is wearing a hat.

3:20:52

So I wanted to put on uh how how uh can you comment at all on Europe's existing solution?

3:20:59

They have some complex system of price controls where they tell US drug makers what they can charge is what we heard from an earlier guest.

3:21:08

But yeah, somebody else was saying that this EO is like Bernie Sanders dream. Is that true at all?

3:21:14

Are these like are we in like leftwing or right-wing territory?

3:21:17

I can't even tell anymore.

3:21:18

Yeah, I mean that's going to depend a lot on exactly what's being contemplated here, right?

3:21:22

I think if the extreme interpretation is these are literally price controls that the government setting like yes, I think you're kind of in the Bernie Sanders extreme version of uh managing these prices.

3:21:36

I think if you take the other extreme and it's really focused on consumers and they say well look either you can set reasonable prices for consumers that are somewhat comparable to list prices in other countries or consumers can just buy these drugs from other countries and import them here.

3:21:50

Yeah, that's not particularly that's not a price control.

3:21:52

That's just actually opening up the market to more competition.

3:21:54

So really I think it depends on the exact uh the exact implementation and what's being contemplated. Yeah.

3:22:00

uh where are you seeing opportunity in startups in healthcare to kind of carve out value or deliver value in healthcare broadly right now?

3:22:13

I mean I'm as you can probably tell from my my uh tweeting I'm I'm quite interested in how you pull forward shopping and pricing into healthcare.

3:22:24

Like to me that is the lynch pin to make the category work better.

3:22:25

That's a lot of the work we did at Amazon, as far as I know, was the first time you could actually see insurance price for something before you bought it.

3:22:34

Healthcare, which is um pretty insane.

3:22:36

Um and so, you know, I think being able as a consumer to understand what your options are, how much they cost, what's available, and ultimately like transact in a very seamless way, I think is the most interesting thing.

3:22:49

Now, that could be like literally what feels like a marketplace, right?

3:22:52

I think that's a very interesting opportunity in different categories.

3:22:55

It could be utilities that make that possible.

3:22:57

So like super clear like APIs for pricing.

3:23:01

There's a bunch of permutations of things that enable that, but that's what I'm still How are we talking about APIs in 2025?

3:23:07

Like it's the age of AGI, ASI, like h how do the insurance companies not have APIs? This is insane. Yeah.

3:23:13

I mean, what's going to end up happening because you know, similar to faxes, we still send faxes, but really it's just two digital interfaces on both ends.

3:23:23

you're with all these like phone agents that are talking to each other, but it's basically I swear to God, I don't this isn't hyperbole. Like this is crazy.

3:23:29

Think like the insurance companies be like, "Okay, cool.

3:23:31

Like you want clear pricing and you're bombarding us with phone calls with your AI bots.

3:23:34

We'll just give you like a dedicated AI bot and you guys can prosecute this and figure it out."

3:23:40

Like bullish for 11 labs.

3:23:44

Yeah, this is going to be like voice agents win everything instead of just building an API.

3:23:48

Are there any places where AI in healthcare makes sense or is exciting for you?

3:23:53

Uh there's like the super frontier research going on at Deep Mind.

3:23:57

Uh there's protein folding is solved now. There's stuff like that.

3:24:00

But then at the same time, I can imagine like the the use cases you described being very real business cases.

3:24:05

Yeah, the voice agent specifically feels like an area that's experiencing somewhat rapid growth, but the nature of that also means that it's probably, you know, it is hyper competitive.

3:24:17

So, I'm curious if you think categories like that are are even investable. It's tricky, right?

3:24:25

I think I so I buy that there's going to be a bunch of administrative efficiency in healthcare, right?

3:24:31

things like phone agents and prior authorizations and other kind of very laborious work stream like workflows.

3:24:38

It's much less clear to me where that value occurs.

3:24:40

I think that's the the tricky bit.

3:24:42

Like there's an argument that it actually occurs to the service businesses.

3:24:46

Like that's historically where the value occurs in healthcare.

3:24:49

And so maybe the most um effective service companies can acrew that value, which is being good at implementing AI.

3:24:55

The place where I'm pretty convicted it will be valuable and will drive real venture returns is companies that are are good at compounding those as differentiation for consumers.

3:25:05

So as an example of before it would have taken a human $40 to book you an appointment to see a specialist if you can use an AI bot to do that for two bucks that unlocks a new consumer experience too right it's not just like an administrative efficiency and there's lots of these examples that's probably what I'm the the most excited You mentioned compounding.

3:25:26

What's your take on drug compounding? Oh god.

3:25:31

Uh I'm I'm quite vocally anti-drug compounding.

3:25:34

Uh why is it a quality issue or is it just a market dynamic issue?

3:25:39

It feels like he's an IP respector.

3:25:42

I'm an respctor above the law and below whatever the right nomenclature is. Uh it's twofold.

3:25:46

I mean I do think there are there are real safety concerns. Mhm.

3:25:51

Last time there was a prolific compounder compounding a commercially available product at scale was doing a compounding center and they killed 100 people with menitis like happened. Yeah.

3:26:02

Real like not not claiming that's going to happen here but that is like the overhang from compounding.

3:26:08

It also just it it sort of outside of these temporary shortages very much violates IP law.

3:26:14

And to the conversations before about whether there's any incentive to do R&D.

3:26:19

Well, if someone can immediately just copy product, there's certainly no incentive to do R&D.

3:26:25

It's much worse than some kind of price.

3:26:26

Is it kind of is it kind of a beneficiary like is is there a boom in compounding because of the internet or like is there a is there a market force that's driving the increase in compounding or is it just like no one ever thought to do the loophole before?

3:26:44

Well, the funny the funny dynamic. What was that, Jordy?

3:26:46

I was just going to say it's not like people are compounding and then you know, hey, we didn't have to do R&D.

3:26:51

We're just sort of like going to compound in this and then we're going to pass the savings on to you.

3:26:55

That's been like a big part of like the messaging online and it's like no, like you're going to pay the same and like you're going to like it and just like be happy that you're getting the drug has been seemingly I think the market dynamic is rebates, right?

3:27:10

If WGOI or Empic was the net price for consumers because these are now out of pocket drugs and they're 200 bucks, 300 bucks.

3:27:17

Is there like much of a market for compounding which are also 200 bucks and 300 bucks?

3:27:21

Like the reason that there was so much demand for it is because of this disconnect between list prices and and net price, right?

3:27:28

And so if that dynamic goes away, all of a sudden the opportunity for compounders to really gain share is is is minimized, right?

3:27:38

Because like I can understand why someone would really not be willing to or could afford paying $1,000 a month and they can get the compounded product for 200, but if we're talking 200 versus 100 or 150 for a compounded product versus the real product is a very different calculus for the consumer. Yeah.

3:27:54

What what percentage of doctors do you think are using chat GPT on a weekly basis?

3:27:59

And should there is there a big rapper to be built there just giving them a more HIPPA compliant version of of chat GPT?

3:28:06

I can't imagine shouldn't be I mean I bet it's like on a like using it at all on a weekly basis like most doctors I would imagine at this point uh using it like as part of their workflow all day.

3:28:17

Probably still a smaller subset but definitely in the double digits. Is that good?

3:28:21

Is is chat GBT HIPPA compliant?

3:28:28

He's just asking the most obvious.

3:28:28

Well, you don't want to be dropping like specific patient information into chat GPT, but like you can certainly do generalized. You can do generalized.

3:28:38

There's other ways to do that, but certainly generalized like workups and notes and like we're using it a bunch and one of the companies I'm involved with to help, you know, automate the questionnaires or the the notes or things that happen downstream for efficiency.

3:28:50

Like makes tons of sense should it absolutely happens and will continue to happen. Yeah.

3:28:54

some of the biggest, you know, I think everybody has this idea in their head that you're going to be able to go to like AI doctor.

3:29:04

I don't know what that looks like, right?

3:29:06

I don't know if it's embodied.

3:29:07

I don't know if it's a screen.

3:29:09

I don't know if it's a doctor is chat GPT roughly. Yeah. Yeah. But I don't know.

3:29:14

I don't necessarily know what the form factor is.

3:29:16

But as an investor, are you is that a category?

3:29:19

How do you think about that opportunity, right?

3:29:21

you know, at a high level, is that one company that's just gonna Yeah, we've seen for lawyers.

3:29:31

Is there going to be Yeah.

3:29:31

Or is it more of like a co-pilot approach and it's just less exciting than it sounds?

3:29:37

It's just more doctors can see more patients and deliver better service.

3:29:41

But how how do you see that category?

3:29:44

Because I I it's just one of those areas that people always bring it up in the context of, oh yeah, everybody's going to have like an AI doctor. Yeah.

3:29:51

And it's like, okay, well, what does that actually look like? Yeah.

3:29:55

I mean, I, you know, I think for sure the first step when you're trying to deal with symptoms and figure out what's going on is going to be going to chat GBT or another similar CX, like pretty confident that's going to be the first step.

3:30:09

It's not that dissimilar from the first step today, which is people were googling symptoms and trying to figure out like what's going on, and it was just much less efficient, but ultimately like a very similar kind of flow.

3:30:19

So I think that's for sure going to happen.

3:30:21

I think the interesting question is are the vertical players actually going to have a better differentiated product than the foundation models?

3:30:31

That's a lot less clear to me.

3:30:33

Like I still think the found like the core foundation models in my personal experience are better at diagnosis and better at figuring these things out still even though there are dedicated other models.

3:30:44

Well, and that's the that's a big issue, right?

3:30:46

You could have a rapper that's specific for diagnostics, right?

3:30:51

That you can message and say, "Hey, I have this like, you know, skin thing. Like, what's going on?"

3:30:59

But that's like so infrequent.

3:31:01

You're not paying $20 a month for something like that.

3:31:03

If Chat GBT can do it 80% as well and, you know, it can kind of get you on the right path.

3:31:08

And so I don't think CHBT eats WebMD. Yeah, for sure.

3:31:13

I think the the the more interesting problem to solve, right?

3:31:15

is like at some point you get through most of that conversation, you're pretty sure you figured out what's going on, you still need an intervention of some sort if there's anything moderately serious going on.

3:31:29

Like you either need a prescription, you need labs, you might need some physical intervention, like you need something.

3:31:35

And that's where nothing in healthcare has actually been digitized, right? Mhm.

3:31:39

digitized, right? Mhm. Like if you think about this compared to other retail categories which I do think is the right mental model like chat GBT is now implementing you know Shopify checkout right in chat GPT right so you can go from that what should I buy straight through to a checkout flow no one's built that checkout flow in healthcare

3:31:58

like you don't have a product catalog you don't know how much stuff costs you don't know like what's available to you based on your insurance like I think that's actually a more interesting problem for startups to go wrestle through because chat TV is going to be pretty damn good at the things you used Google for before and it's not going to deal with any of this stuff. And so the

3:32:14

And so the stuff I'm working on and spending a lot of time on is much more in like how do you build the equivalent of product catalog and healthcare?

3:32:21

How do you ultimately make it easy to transact?

3:32:23

How do you make it easy to shop because that infrastructure still has to get built regardless of where the kind of front door is into that experience.

3:32:29

Shopify for health something like that.

3:32:32

Uh can we do overrated underrated uh tellaalth broadly?

3:32:37

How are you feeling about tellahalth?

3:32:41