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TBPN is a live tech talk show hosted by John Coogan and Jordi Hays, streaming weekdays from 11–2 PT on X and YouTube, with full episodes posted to Spotify immediately after airing.
Described by The New York Times as “Silicon Valley’s newest obsession,” TBPN has interviewed Mark Zuckerberg, Sam Altman, Mark Cuban, and Satya Nadella. Diet TBPN delivers the best moments from each episode in under 30 minutes.
You're watching TBPN. Today is Monday, September 14. We are live from the TBPN UltraDome, the temple of technology, the fortress of finance, the capital of capital. Let me tell you about ramp.com. Time is money.
Speaker 1:Save both. Easy to use corporate cards, bill pay, accounting, and a whole lot more all in one place.
Speaker 2:That's right. We're back. Did anything happen over the weekend in tech or was it kind of mellow?
Speaker 1:It was a crazy weekend. There was a lot of news, lot of back and forth about pacing the AI debate. I was in the hospital because I got rhabdo. It's brutal. But I am recovering, fortunately.
Speaker 2:Explain rhabdo. It sounds It's bad. Really scary. And it is bad.
Speaker 1:It can be very bad. Fortunately, I I I did okay. I got an IV. I got some medicine, broke a fever, got through it, and I'm I'm healing up. But it it happens, and it's the dumbest dumbest illness you can possibly get.
Speaker 1:It comes from working out too much and not being hydrated. Very avoidable. Hopefully, AI can find a cure. If there's even a one percent chance that AI can find a prevention for rhabdo, it's worth any amount of risk.
Speaker 2:Pushing forward.
Speaker 1:Yeah. We we must push forward.
Speaker 2:No. Lots of debate It
Speaker 1:is about funny. We should push forward.
Speaker 2:We have never missed an episode for being sick.
Speaker 1:Yeah.
Speaker 2:And I realize that because someone's asking me the other day, what do you guys do when you're sick? We We keep going.
Speaker 3:I mean, I did talk
Speaker 1:to the doctor. They said, do you want a doctor's note for work? No. I kind of laughed. But I do think that like this job can be done while sick.
Speaker 1:Because you're just sitting in a chair having a conversation.
Speaker 4:Yeah.
Speaker 1:But I might be a little bit slow today. So bear with me. If I if I'm not the sharpest on any of the questions. I will be sharp on the ad reads though. I'll tell you about Shopify.
Speaker 1:Shopify is a commerce platform that goes to your business. It lets you sell in seconds online, in store, on mobile, on social and on marketplaces and now with AI agents.
Speaker 2:We got a great show today. Yeah. Take us through. We have Nico Wittenborn from Adjacent. Legend.
Speaker 2:Really incredible episode of Invest Like the Best. Believe it was last year or the year before. Right. One of the first investors in Aura Yeah. And a bunch of other great companies.
Speaker 2:We got Scott from the CEO of Scout Motors, which we're very excited to talk to. Yep. Mitchell Green, our dear friend from Lead Edge coming in for some hot takes.
Speaker 1:We got we got it.
Speaker 2:Then we have our friends David and Ben from Acquired rounding it out with Faraj from Cognichip.
Speaker 1:Yeah. We're excited for this. So Oh.
Speaker 2:Great show.
Speaker 1:Before we get into the Pacing AI debate, what happened with the US Open? Give me a little tennis update. What happened? It's on the cover of the Wall Street Journal, you know it's important news. Tennis' US Open climaxes in back and forth duel, but there was something interesting.
Speaker 2:So Ben Shelton, the American
Speaker 1:Okay.
Speaker 2:Lost.
Speaker 1:Okay.
Speaker 2:And what was notable is Hopefully, I'm pronouncing his name right.
Speaker 1:Alexander? Alexander, I think.
Speaker 2:Zevrev. Zevrev. Yes. But anyways, the the the most notable thing was that when he actually hit the winning shot Mhmm. And and won Yeah.
Speaker 2:He went back and was getting ready for the next for the next point. Yeah. And he starts looking around and everyone is stand you can see people in the crowd are standing up and and cheering and he slowly realizes that he won. Checking the And yeah, it just became very obvious a that he was so focused on the next point. He was not actually not looking at the scoreboard at all.
Speaker 2:Yeah. Was just like flow state, just just playing.
Speaker 1:That's awesome.
Speaker 2:And I'm sure a lot of venture capitalists out there were seeing that and they're like, yeah, all that matters is your next investment. If you're if you you shouldn't even know when one of your companies, your seed companies
Speaker 1:Yeah.
Speaker 2:Are gonna IPO. You should be so focused
Speaker 1:on I think a lot of people that don't like VC Victory Labs would appreciate that too. It's like, we get it. There was an acquisition. Let's focus on what you're doing right now. I also like the cameraman work.
Speaker 1:I saw a clip of the scoreboard was counting down. There was zero zero seven seconds left. What who did they cut to? Pierce Brosnan, double o seven himself. I thought it was nice camera work.
Speaker 1:Shows you that there's levels to the game of live production. Yeah. You know, you gotta those little touches, clearly that was just spur of the moment. That's not that's not something that's scripted. That's just someone being creative in the moment with the tools that they have.
Speaker 1:The switcher, basically. Anyway, the the pacing AI debate. I wanted to start with some history here, and then we can go through the timeline of what actually happened since we got off stream Friday. Then all the news breaks, of course. But the Pacing the Frontier goes back to July twenty eighth of this year.
Speaker 1:So there was a there was a Pacing the Frontier statement, an open letter. It was signed by employees and leaders from OpenAI, Anthropic, DeepMind, Meta, and a bunch of other places talking about this idea of pacing the frontier. Then the same day, Sam Altman publicly said, we may have to pace the rate of AI development. Two days later, OpenAI tells Axios that OpenAI helped shape shaped the position the petition's language. And Altman had discussions had discussed pacing with White House officials.
Speaker 1:So stuff was happening in DC. This was back in basically the very beginning of August, very end of July. Then August 18, OpenAI publishes something called pacing model development in an era of cyber critical capabilities. OpenAI said it actually slowed scaling and paused a major RL run. There was that two week training pause that happened on August 31.
Speaker 1:Anthropic official Anthropic Post explicitly discusses pacing the frontier, so the idea is spreading and calls for coordinating pacing mechanisms. And then on September 12, which was a set it was actually Saturday morning that Dario dropped the essay, We Must Pace the Frontier, turned the concept into a much bigger public anthropic campaign that everyone's talking about today. So the the the the rollout of this was pretty, pretty quick. And there's a there's a few key things from Dario's essay. It hit the timeline at 7AM Pacific.
Speaker 1:He was up early post in. Perfect time to get a lot of likes on a banger. You gotta feel something. No. Everyone else, there's no fundraising news happening.
Speaker 1:Drop your essay early Saturday morning. Let people digest it with their morning coffee. Elon was clearly engaging by 8AM. Elon endorses it 09:30AM. Sam endorses it Saturday, 4PM, Dennis generally agrees with Dario's point and argues that it needs some work.
Speaker 1:Remember, Dario put out something pretty similar talking about pacing and AI development and the need for oversight generally months ago before transitioning out of his role as CEO of DeepMind and stepping up to, I think, chairman. Then later, David Sachs on Saturday, but at 08:15, just had time to process everything. He asks some questions about Dario's post, goes back and forth. Sunday morning, the Financial Times reports that Donald Trump has rejected calls from tech bosses for an AI slowdown. Later that day, Sunday morning, Gavin Baker rang rounds up the weekend.
Speaker 1:So we can kinda go through some of this and go through those posts. But what actually happened in Dario's essay, we must pace the frontier. He has the three step plan on how to how he proposes to this Number three
Speaker 2:will shock you.
Speaker 1:Basically. Number one, give independent third party evaluators access to AI companies so they can verify safety practices. He calls out meter, which drew a lot of attention because people were debating how independent METER is. There's some METER employees who have worked at OpenAI, have worked at Anthropic. There's people that work at Anthropic who worked at METER.
Speaker 1:Like, it's it's all very much a a a revolving door with these AI safety groups and then the AI labs. You go back and forth depending on what you're interested in. So not as independent as like, oh, yeah. We're we're we're going with an an accounting firm who, you know, doesn't really have an opinion about the, like, the AI future. These are all people who are deeply embedded in the discourse, which could be a huge benefit because they take the stuff really seriously.
Speaker 1:It could also lead to some what people flag as, like, conflicts potentially. But still some some optimism from the community around what that would look like. Two is Frontier Labs in democratic companies should work together with the with the government's help to establish AI safety standards. And this was the one that people were going back and forth on. Do do the labs actually need government approval from from this?
Speaker 1:Dean Ball was talking a little bit about the Sherman Antitrust Act. There are very clear rules about companies agreeing to do really anything in concert with each other. This is the number one reason that you don't want monopolies and cartels forming is that if all of a sudden, you know, oh, you know, American Airlines and Delta and United all say, yeah. We you know, for safety reasons, we should have fewer flights. It's like, okay.
Speaker 1:Well, what would that do to the market? Probably drive up their margins because there's less flights, charge more for them, they have fixed costs. So you could very clearly see that collusion in that market would lead to more profits for them and more harm for the consumer. That's where the Sherman Antitrust Act came from. We flagged this a week or two ago that this might, like, even even though it seems like, oh, well, if Demis and Dario and Sam and Elon all agree, like, this should just happen.
Speaker 1:That's not a problem. There are actual legal and federal regulatory rules that might need to be adjusted or waived for something like this to happen. So that's I think that's why he's he's calling for that specifically. He's saying we need an exception to the rules so that we can actually do this because it's great to all write blog posts that we loosely agree on. But to have anything formal, we need government approval.
Speaker 1:And then third, this is the one that will shock you apparently, The US and other democratic countries should try and coordinate with authoritarian governments. So he wants The US and China to coordinate on AI pacing. Of course, China still wants to catch up, and there's some tricks there is, like, what is the what what will happen in equilibrium if both countries have the exact same capabilities? Is that the best outcome? Or do you always wanna be in the lead?
Speaker 1:If you always wanna be in the lead, it's very hard to negotiate with someone and say, oh, well, you know, we'll why don't you just have half as many nuclear weapons as we have? And, like, that'll be great. Like, we'll pace you. And so you you go back to nuclear nonproliferation and all the difficult debates there. We obviously wound up with a a multipolar world with everyone wanting at least some capabilities there.
Speaker 1:So Elon chimed in agreeing with Dario, then Sam and Dennis also agreed. The timeline, on the other hand, had some questions and concerns about Dario's post. Who will who will these third party evaluators be? Why wait for Washington to regulate the frontier? If Anthropic believes AI is advancing too quickly, why not simply slow down on its own?
Speaker 1:David Sachs raised some questions on x. And we can go to David Sachs' post, which I believe here is in the timeline. He said, Dario has written that we need to quote, pace the frontier, and Sam has agreed. People may be surprised by my response. Go ahead.
Speaker 1:You guys are the frontier by any reasonable metric, market share, revenue growth, model capability. The two of you have a duopoly on frontier intelligence. You've also claimed the lead is widening because of recursive self improvement. I don't think what you see I don't see what you see in the lab if the unreleased models are scary enough that you think you should slow down. I support your decision to be responsible.
Speaker 1:But stop pretending you need anyone else's permission. Stop pretending antitrust law has to be suspended so you can form a cartel. Stop pretending you need a regulatory approval process that supersedes product liability. Stop pretending meter is independent when it is intertwined with Anthropics investors and staff. Stop pretending that you need those same evaluators to police competitors who aren't even at the frontier.
Speaker 1:And so, yeah, maybe that's a little bit of an an issue. Although yeah. I mean, the the the regulatory capture angle is is always like, if the safety rules become super cumbersome such that you can't start a instinct like product. Right? It's like instinct is a small team.
Speaker 1:They're not building a frontier model. They're not training their own models, at least not yet, but they're, like, doing stuff with AI if all of a sudden they have to spend a year negotiating with a bunch of third party evaluators, have a bunch of people embedded and then go through some sort of review process and the government's not getting back to them, like, you can't have a breakout consumer product. And that doesn't
Speaker 2:feel like there's been any type of effort from anywhere to try to control or regulate like application layer companies. And Yeah. And Greg was on Odd Lots. Yep. This episode came out this morning Yeah.
Speaker 2:Talking about not trying to doesn't doesn't believe there should be any sort of limits to
Speaker 1:Application layer stuff?
Speaker 2:Yeah. Basically, like, if you're if you just wanna train a model at home Yep. For your own use cases, you know, there there shouldn't be limits on Yeah. Trump Trump came out yesterday. He was pretty active over the weekend.
Speaker 2:He said the only controller guardrails that AI needs is a strong and smart high IQ president, and The USA has that in spades. The Trump That is wild post. The Trump administration has stopped AI people from doing bad or potentially bad things like Dario What are these dropping, who is now pretending to be a perfect little angel and we will continue to do so. We already have tremendous criminal and regulatory power over these companies. There is a sick conspiracy going on against AI and data centers and the only one that is happy about it is China.
Speaker 2:Whoever wins AI wins. We are leading China and all others and will continue to do so. Conspiracy theorists, treasonous traders and leakers beware. Thank you for your attention to this matter. It is funny to accuse to accuse like the labs of being in a conspiracy against AI.
Speaker 1:Yeah. That really really doesn't follow. I don't yeah.
Speaker 2:It does not make sense. But he also followed up Okay. Just forty minutes ago said, concerning AI, when in the history of business, capital h, capital b, history of business, did anyone see the leaders of an industry call for regulation that if strongly implemented would drive them into oblivion and bankruptcy? AI is taking over the world, destroying humanity, and all other things bad is a hoax no different from Russia, Russia, Russia, Ukraine, Ukraine, Ukraine, impeachment hoax one, impeachment hoax two, and all the other hoaxes and scams that America was forced to endure. President Xi of China just announced that China will be doing absolutely nothing to stand in the way of AI or its future.
Speaker 2:Google has recently stated that they want to build a massive plant in Finland all because they are finding permitting too difficult in The United States. I'm not happy about this and want them to change their thinking. AI and data centers will be the greatest economic development engine in history. Bigger than oil, gold, diamonds, or even the Internet. Bigger than diamonds.
Speaker 1:Bigger Bigger than than diamonds. Diamonds. Like, of all the technology. Internet. The Internet.
Speaker 1:The transistor.
Speaker 2:Oil. The Internet. The wheel.
Speaker 1:Diamond. These are equivalent things.
Speaker 2:It will not be stopped by brilliantly run destructive forces during the term of president, Donald Trump.
Speaker 1:Okay. Well
Speaker 2:Anyways, I I'm I'm wondering what the So a bunch of hedge funds are paying, you know, they pay to get access to this, let's assume like a minute early, something like that. How did they trade this? Because it's very long to beers. Yeah. They
Speaker 1:They're long long diamonds.
Speaker 2:Yeah. Maybe diamonds are are are underappreciated.
Speaker 1:I think diamonds are actually in a really rough spot. I think people are moving to lab grown stuff really aggressively. So it's a it's actually a tough tough period of time for the diamonds. And I'm sure the diamond industry is calling for regulation for sure for sure. Okay.
Speaker 1:Oh, where were we? Interesting. I don't know. We were we were talking about David Sachs. We were talking
Speaker 2:about No. We gotta we gotta keep we gotta keep going because the president was on a roll this weekend. Let's pull up this video.
Speaker 1:Okay. Oh, yeah. They asked him how he used AI. While we pull up the video, me tell you about the New York Stock Exchange. Wanna change the world, raise capital at the New York Stock Exchange.
Speaker 1:The IPO window is still wide open. AI market, a little bit down, but overall handling things pretty well. We take in a lot of their cars. Car tariffs are gone.
Speaker 4:This week, again, there's been so much concern about AI. Have you heard directly from any of these AI tech leaders? And you seem to downplay some of the concerns that
Speaker 5:we've heard.
Speaker 1:But it's, you know, it's gonna be more good than bad, but by a lot. But I've heard from
Speaker 6:any of them.
Speaker 1:Beginning. Whoever wins AI, and we're leading by a lot. Whoever Whoever wins AI wins.
Speaker 4:Have you ever used it yourself or have you been I use AI. I do. How do you use AI?
Speaker 2:I would
Speaker 1:say, you know, for
Speaker 7:the most part,
Speaker 1:you can use AI for a lot of things.
Speaker 4:Why don't use it for?
Speaker 1:Right away.
Speaker 6:Speaking of AI The
Speaker 1:funny thing is that is that, like, there's AI generated slop on his social his social account, like, constantly. Like, the slop videos are obviously AI. Like, both sides of that debate or that discussion should have known that, I guess. But I guess it's like people on his team are creating like the AI slop videos. Because like there will be like a new vibe coded, like like, you know, some sort of simulator that they put up on White House stuff all the time.
Speaker 1:So but I guess that's not him. It's probably people on his team that are like, I made this AI video. Yeah. But I don't know. Gavin Baker had a roundup of what happened.
Speaker 1:Let's go through what's going on. And lots of people are just sort of like processing this going back and forth. People were expecting Elon to be sort of against this, maybe anti Dario. He, of course, came out in favor and has been talking about how, like, he was working with Nick Bostrom in 2014 on AI safety, has been very concerned about this the whole time. Although at various points in time, Elon has been less of a doomer and more like, we gotta build, we gotta go, we gotta we we we we gotta, you know, actually compete here, working both alongside labs, co founding OpenAI, founding xAI, growing the the model capabilities there.
Speaker 1:But he's like firmly in favor of this. So let's see what Gavin Baker had to say. He said, wow, twenty four hours for AI and lots of different proposals have been made. TLDR, the only tangible new fact is that OpenAI and Anthropic are going to have embedded third party evaluators from unknown organizations with Daria floating meter as a possibility. Having third party evaluators is smart as there's no Section two thirty style liability shield for model outputs and showing a duty of care will be important in future litigation.
Speaker 1:Several Internet companies might have gone bankrupt without Section two thirty, so limiting liability really matters. I think there are minimal investment implications from this single new fact. But I do think that anyone who wants a, quote, a smoother for a longer cycle than most constraints are good, wafers, watts, real rates and spreads. I was thinking about how the a lot of the safety folks are worried about just the capability build out from the semiconductor supply chain. Like, they they would like to restrict the amount of chips that are created.
Speaker 1:And I'm wondering if should we not be pacing electricity generation? Does everyone agree that we should be building more solar, thermal, wind power right now? Is that uncontroversial? Is there anyone who says, like, no, we shouldn't be doing that? Because if we wind up in a world where you're pacing frontier AI development, current models are sort of diffusing and there's some economic impact there, but you're not, you know, blitzscaling the data centers and the frontier intelligence.
Speaker 1:Can you apply some of that capital, some of that human talent to just getting nuclear power online, getting solar power online, re industrializing the American energy supply chain, battery, relieving grid tension. Because everyone who complains about higher energy prices would be happy with that. I don't think the AI safety folks would be upset about that because you could use it for a lot of things. Worst case, it's like, okay. You wound up with, like, okay, we can never build, you know, AGI or ASI because it's too dangerous.
Speaker 1:At least we have a lot of cheap energy. Is there any reason why you wouldn't why you would want to pace the the build out of the American electrical grid? I can't see why. What do you think?
Speaker 2:I mean, at some level, like, yeah, it makes sense because it is like an input. But it's it's like seems like way too diffuse. Yeah. So because like yeah. It's like if you build a lot of chips, like sure you can like, you know, make more data centers that run YouTube or whatever.
Speaker 2:But like there's kind of a
Speaker 1:Yeah.
Speaker 2:A narrow use case for chips. Yeah. Where power, you can kinda do whatever.
Speaker 1:I wonder if you yeah. Yeah. At what point is there is there some sort of like AI safety valve that's like we need to regulate that company in South Korea that makes toilets that also makes films for semiconductor. If we can restrict them, then we can slow down the pace of AI progress. Going really, really deep in the supply chain for for safety reasons, potentially.
Speaker 1:To summarize the events, Gavin Baker says, Dario made the most maximalist proposal of the weekend, embedded third party evaluators, national regulatory regime for models beyond a certain capability ingredient threshold, a broad international regulatory pact between democracies, stricter limits on compute distillation for China, and then a different international regulatory regime that encompasses China. Before there's ever a national regulatory regime, he wants a Sherman Act waiver so that Anthropic can safely coordinate with OpenAI and other frontier labs without antitrust fears. To be frank, this latest proposal is much less maximalist than some of his prior proposals, like policy on the AI exponential, where he advocated for an FAA of for AI. Now people are talking about FINRA for AI, which is more nongovernmental regulation but industry focused. I believe he is sincere in his beliefs.
Speaker 1:And despite all the protestations, all of this would also probably be good for his business over the long term. Yeah. There's a there's a there's a lot of tricks here where people where something if there if if there are if there are multiple quadrants of, like, actions you can take and it's, like, it's either good or bad for your business or it's good or bad for safety, You can land in the good for your business and good for safety quadrant, and everyone will accuse you of being cynical and doing it only because it's good for your business. And so Yeah. It gets really difficult to to say, okay, yes, like the thing that I'm advocating for is good for my business.
Speaker 1:Now, Rune had another take, is like, no, if you're pacing the frontier, that's gonna compress margins because everyone else is just gonna catch up and it's gonna become more oligopolistic. So if you hold, you know, like, yeah, there's this duopoly right now for the true frontier among OpenAI and Anthropic. But if you hold that constant, like, watermelon from MSI MSL is gonna catch up, DeepMind's gonna catch up, like, you're gonna have three or four Grok is gonna train to that level. And so you're gonna have four, five, six, seven really capable competitors. What was interesting is like, our Karazian was saying that AI spend declined a little bit in August, and that was mostly because of price cutting.
Speaker 1:It wasn't actually people using less AI. So it's not like people are pulling back on their use of AI, but the there's more price competition. So OpenAI is discounting and people are being we saw like the Fable adoption was a little weak and a lot of it's like, hey, are we sure we wanna use the million dollar model for checking the weather? Like, let's be a little bit more judicious about this. And so if you wind up with a with a world where there's much more price competition, that could compress the frontier's margins, which is not good for business.
Speaker 1:So it doesn't really put you in that top quadrant that you have to be so cynical about. The interesting thing is that he said that he doesn't think that it's open source Chinese models that are actually putting pricing pressure on the frontier. It's more of the duopoly dynamic. And he and I think that's because, and I think he sort of alluded to this, that there's just a lot of companies that are like, I am comfortable doing business with an OpenAI, an Anthropic, a Google, of course, something that's on ABS, something that's on Azure. Yes.
Speaker 1:I could just download the weights for deep seek, but I'm not really comfortable with that. I don't really wanna deal with that. I don't wanna deal with the scaling and uptime of that. And so, yes, there are APIs out there that are reasonable, but none of them are as mature as the as the frontier labs, not in terms of the intelligence, but in terms of the actual if I implement this in my business, will it reliably give me the right results? Is there high quality SLA?
Speaker 1:Will the service stay up? Will uptime be good, etcetera? So there's there there is a world where you could get to a place where this is bad for the frontier companies business wise. And Sam has talked about that in an interview with Fortune saying like, if it's bad for our business, like, we've we have said to our investors at every step for like a decade that like, this is kind of a nonprofit. This is a this is a this is a, you know, a there there are a whole bunch of different ways in which this is not purely aligned to shareholder interests like other companies.
Speaker 1:I forget the actual term for the the structure that both Anthropic and Open Ag PBC. PBCs, yeah, public benefit corporations. So they so there so so so I think both Sam and Dario feel very confident about being able to go to their investors and say, hey, we're doing something that's gonna slow down revenue growth or tank margins or, you know, just reduce the market cap of the company, but we think it's the right thing to do. So deal with it. And you can't really sue us because you invested in the PBC.
Speaker 1:And but no one's really giving them credit for that. Everyone thinks like, no. This is cynically what gets them to 10,000,000,000,000. This is what gets them to 10,000,000,000,000. And I don't know.
Speaker 1:May maybe maybe it is. But but it definitely seems like like the the if we're if we're on the mid curve, you know, bell curve meme, like the dumb guy thing is like slowing down is bad for business. Right? Like like the mid curve is like slowing down is actually good for business in the four d chess and, like, do but you don't wanna be the best Yeah. And have a 100% market share.
Speaker 1:You want 20% market share because you let everyone catch up to you. Like, I I'm not I'm not super convinced of that, but, you know, there's plenty of people that are making that case online. Anyway, let me tell you about Cisco and then we'll bring in our next guest. Cisco, critical infrastructure for the AI era. Unlock seamless real time experiences and new value with Cisco.
Speaker 1:Nico, welcome to the show. Thank you so much for taking the time. What's happening? The TBPN UltraDome. Hello.
Speaker 2:What's happening? I thought it almost looked like some merch we would make.
Speaker 5:I know. Was trying to match the colors.
Speaker 1:You did it. Did Nailed it. The background. Yeah.
Speaker 5:Nailed it.
Speaker 1:Introduce yourself. Give us a let let's let's begin at the beginning. I want to hear the story of of how you wound up in your current role, your mission and then there's a million things we can talk about, the market and your strategy. But take us back to the beginning.
Speaker 5:Where'd grow up? The beginning? My beginning? Yeah. I grew up in Germany.
Speaker 1:Okay.
Speaker 5:Yeah. South Of Germany, small town Tubingen. Mhmm. Beautiful. It was not destroyed in the war.
Speaker 1:And Germany is in in Europe, right?
Speaker 5:It is. Yeah. Just the Mid East of The U. S.
Speaker 1:Yeah. Okay. Got it. My geography outside of The United States is rough.
Speaker 2:I can help you.
Speaker 1:Thank you. When did you come to The U. S?
Speaker 5:So I ended up doing an exchange here in Upstate New York. Oh. So on my junior year of high school, I ended up in a super small town
Speaker 1:Okay.
Speaker 5:Three and a half hours north of New York. Cool. And so that's when I first got to New York. Yeah. And I was like, I wanna live here.
Speaker 5:Yeah. Yeah. So I started looking for
Speaker 2:going going from small town in Germany, passing through New York City and going going three hours north Yeah. Has got to be like such a trip. It's true. Because they're obviously, you know, entirely you're like, I'm going to New York. And then you have this idea of New York in your
Speaker 5:mind Yeah. And then you
Speaker 2:end up again back in No. Tiny town.
Speaker 5:So I opened a letter from the organization that places you Yeah. And it's like, you're going to New York. Candor, New York. Like, where's Candor, New York? You look it up.
Speaker 2:Never heard of that
Speaker 5:It's for a small. But it was a great experience and and so the interesting part to that though is that, so I was in the middle of nowhere Mhmm. In The US and then I also got to go to the middle of everything Yeah. In The US. And so I had a really good exposure to both sides of The US, to the kind of elitist, coastal
Speaker 1:Yeah.
Speaker 5:Urban life and also the, you know, small town living. So that was the first first time I came here, then I went back. I did an internship here after school in New York, then studied in Germany, Singapore. And during my studies, I started selling refurbished iPhones. That's so the iPhones first came out
Speaker 1:Yeah.
Speaker 5:In like 2008, and they were locked into a into a contract in Germany. Was super expensive. So I Yeah. Bought a refurbished one and I started reselling them.
Speaker 1:Okay. And Was that like jailbreaking them or unlocking them?
Speaker 5:Yeah. There was a tool called Red Snow.
Speaker 1:Okay. Yeah. You would Yeah. And they could use on any carrier.
Speaker 5:Yes.
Speaker 1:Got
Speaker 5:it. Because it was locked in in the beginning. Yeah. Yeah. And it was locked into like a two year contract.
Speaker 5:Yeah. It's very expensive. So so that's what that's
Speaker 2:I my first remember all the names of like software like that like Red Snow. Sounds so sounds so sketchy. But it was like the names of all that kind of like unlocking, jailbreaking, all those names were Yeah.
Speaker 5:Was the Pineapple one. Yeah. Yeah. So that was my first like Business. Foray into, yeah, business.
Speaker 5:But like, you know, yeah, small entrepreneurship. And then I read about a group in Berlin that was really the pioneers of the German Internet scene at the time. Everything happened a bit later in Europe, right? And so in like 2010, came across this firm in in Berlin. I just reached out to them cold.
Speaker 5:It was an incubator, so back back in the day it was they were building companies then they had a small €6,000,000 fund on the side. Right. And so they were like, why don't you come during your studies and work with us on this like small investment fund?
Speaker 2:Must have been a good cold email.
Speaker 5:I mean, it was I I don't I'm not I don't even remember. It was actually I had so this it was important though because I had a offer from a consulting firm that would have paid twice as much. Mhmm. Yeah. But I opted for the, you know, opportunity to go into startups because that's where my interest was
Speaker 6:Mhmm.
Speaker 5:And that led to this. Yeah. So it was really an important decision back then. They gave me a shot, I learned about venture, I then finished my studies. When I came back from Singapore, which was also kind of an exchange, I ended up doing a again, sending an email to the same group, this guy Pavel, who was working there, and he offered me to come back because they decided to spin out the fund.
Speaker 5:Mhmm. And it became Point Line, which was the first institutional venture fund in Germany. Wow. Not in Germany, in Berlin. Yeah.
Speaker 5:There was another one in Munich. So I started working there straight out of school. So I just got lucky that like, at the time, venture was not what
Speaker 3:it was.
Speaker 5:It was just the start of the European venture ecosystem. Yeah. And so I kind of fell into that. And then it was a super small firm. It's also historically the best performing early stage firm in in in Europe, so they did super well Cool.
Speaker 5:Early on. And I got a lot of responsibility. I was there for five years and they were originally focused on enterprise software, so SaaS tools. Mhmm.
Speaker 2:They
Speaker 5:were early in Zendesk and Yeah. Loom later on here in The US.
Speaker 2:Really? So it wasn't just limited to Europe? You were investing all over.
Speaker 5:So we we called it remote VC. It's So kind of we were based there, but we were trying to look for the best things across the globe that had Yeah. You know, that were fitting our thesis. And then I was recruited by Insight Oh, yeah. As partners.
Speaker 5:Yeah. In 2016, I left to to join Insight and that that's when I moved to New York.
Speaker 1:That's a grind. Right?
Speaker 5:Ten years ago. It was very different than the small humble
Speaker 1:It's like a hard core culture, right, for for venture? It's like you've got to be
Speaker 5:it is it is it's just, you know, the way it works is that they built, they innovated this. So the the founder of Insight, Jeff Horing, started the firm when he was 26. Yeah. A $20,000,000 fund. It's now a $100,000,000,000 and he's still running it.
Speaker 5:Right? And so
Speaker 1:Founder. No.
Speaker 5:He's a he's a legend. Yeah. And he he ended up innovating on this outbound sourcing model. Yep. So they have analysts that are just cold calling.
Speaker 5:Yep. It was literally the phone Yeah. The beginning. Now it's emails and everything.
Speaker 1:Sort of a price for every company in mind.
Speaker 5:Yeah. I was supposed be like every company.
Speaker 1:Yeah. Yeah. They want to know everything.
Speaker 5:Exactly. Exactly. They discover every company.
Speaker 7:Very interesting model.
Speaker 5:Yeah. It it makes sense and it still works. Yeah. Really? So they scaled that and they're better on the same and on the right trend.
Speaker 5:I So was there, so I had learned that at Nine. I had done some SaaS and I did that too, but I was always, because of this iPhone story, interested in consumer software. Was there when the App Store launched, so some of my investments at both Point Nine and at Insight were consumer mobile investments.
Speaker 1:Yeah.
Speaker 5:And so I decided to leave Insight. I signed the separation. It was 2018 that we agreed on everything. Early twenty nineteen I left, and then I started working on Adjacent. And I guess what's somewhat unique at the time is that back then it was not normal to do it by yourself.
Speaker 5:Yeah. You know, like that Solar GP was not a thing. Yeah. And I didn't opt in to be
Speaker 2:Two years later, it was like the main, like it was the main thing that people were talking about.
Speaker 5:Yeah. And today, I think last year, the majority of new funds were Solar GP funds. Yeah. Right? So it became a real thing.
Speaker 5:And in fact, that's also one of the things that I try to support now by I have invested in a lot of those funds, like Yeah. 2,000 or so, and also anchored a first solo GP fund now with Adjacent. So I kind of like accidentally fell into this Yeah. Started Adjacent, but then also trying to build this kind of rebel What
Speaker 1:was the infrastructure like when you started as a solo GP in is 2018, 2019?
Speaker 5:'19.
Speaker 1:Because there were some people that were using AngelList for certain SPVs and and they were rolling funds. And there was like there were some tools that you could use, but did fractional back offices exist or did you sort of have to roll your own solutions to certain things? Like Yeah. What was actually required?
Speaker 5:So it just started that AngelList were offering services. Carta Yeah. Was starting as well. Yeah. The And big difference there was that I was actually, you know, looking at what makes sense for the structure.
Speaker 5:I knew I wanted to be in New York, I also was looking at European structures and the infrastructure in Europe was way behind
Speaker 2:Sure.
Speaker 5:The US. Sure. So I opted of doing it in The US and I didn't go for the services. Mhmm. And the reason for that was mostly that I didn't feel like they were institutional grade yet.
Speaker 5:Mhmm. Because I wanted to have institutional investors. Yep. There was like limited flexibility. I think that all changed now, which
Speaker 1:Mhmm.
Speaker 5:Makes it much easier to start. Yeah. But at the time, it just started. Mhmm.
Speaker 1:Yeah. So basically just like, yeah, just hiring law firms and accounting firms like your
Speaker 5:You a fund admin Yeah. Which is easy. You have you have audit Yeah. As a firm, separate And then you now, I mean, now, really what supercharges is AI now. Sure.
Speaker 5:Because you can do so much more. Yep. You can automate things, you have agents, but also research, like diligence Sure. Like sourcing
Speaker 2:Yeah. Was gonna ask how at what point does does like Insight's initial strategy just become fully democratized where you like there's out of the box Obviously, if you're doing this yourself, you're always gonna be able to find different edges and things like that. But Yeah. It feels like you might have access to like a comparable level of understanding of the market with like one person versus
Speaker 5:I I I'm not sure. I I think that certainly it gets easier, but what they're really good at is discovering things when it's still relatively unknown. Right? So, like, from the outside, you don't know what a stealth or a new company is doing. Once there's signal and press and more data, then the AI picks it up.
Speaker 5:Yeah. But I think this, like, this broad sourcing still makes sense. And then the other important aspect to it, which actually works for me too, but is that the analysts are not just sourcing, they're also relationship building. Yeah. Right?
Speaker 5:So Yeah. So they're reaching out to someone and you still want a human to human interaction with a founder because they don't want work with a computer, not yet, at least. And so you have this relationship and you stay in touch with them over two, three years and then you invest. And I think that will still work for them.
Speaker 1:Mhmm. What was the LP strategy for actually And initial fund?
Speaker 5:So, yeah. Straight shots Yeah.
Speaker 1:Endowments, funds, high net worth individuals. What were you thinking? What worked?
Speaker 5:So my the first close was hard. Mhmm. The whole fundraiser was hard. It was eighteen Yeah. Eighteen months to get the first fund off.
Speaker 5:Yeah. And what made it harder was COVID started at the same time. Yeah. And my now wife got pregnant with our first kid, so it was just like a it was it was an intense eighteen months. Yeah.
Speaker 5:But what I did is essentially I the first close, I started going back to the founders that I had invested in Mhmm. That had already proven and made money. So the the founder of Revolut, Nick was one of my first LPs. Yeah. Great.
Speaker 5:The founders of Calm, which we had invested in with with Insight, and and then a bunch of GPs that the founders of Point Nine where I started working, Jeff Horing related invested as well. And then I had friendly friendly funds like Thrive and Founders Fund that actually helped me with the first fund.
Speaker 1:That's great.
Speaker 5:And so that was the first close.
Speaker 8:Mhmm.
Speaker 5:And then the first family office came in. Yeah. Which was SES to give them credit. They were also very early in in both Thrive and Founders Fund, that's how the relationship started. Mhmm.
Speaker 5:And then based on the first $10,000,000 first close, I just started investing. Yeah. And the second investment I did was Speechify, which ended up doing very well.
Speaker 1:I love Speechify.
Speaker 5:Correct. This is a man. Character. He's amazing. Yeah.
Speaker 5:That's good. And so with some proof that
Speaker 1:Yeah.
Speaker 5:I could also function by myself Yeah. I then went to the institutions and then was able to get a $40,000,000 first fund together. Sure. And then since then, I've been pretty consistently increasing it. So I'm I just started investing out of fund four now
Speaker 7:Mhmm.
Speaker 5:With in this year. But I've been like kind of pacing it in some ways. Before it was cool, in the in the growth from like one, two, three, four, adding roughly one LP per fund.
Speaker 1:Sure.
Speaker 2:Nice.
Speaker 5:And that has, I mean, gotten somewhat easier because there's more proof. We just had Benning Spoons go public. Yeah. Yeah. It was the first.
Speaker 2:Talk about talk about that. How did that initial investment come together? And and was that all did that always feel like on you're more thesis driven
Speaker 3:Mhmm.
Speaker 2:Than than most theses, I would say
Speaker 5:Yes.
Speaker 2:In general, like a lot I tried to be. Like, VCs will say they're thesis driven, but they have like eight Yeah. Eight active, you know, theses
Speaker 1:The other thesis was buy low sell high.
Speaker 2:That's that one always works.
Speaker 1:That's a good
Speaker 2:Old reliable.
Speaker 5:Well, I don't know if you're in San Francisco today that's not buy
Speaker 1:high, sell
Speaker 5:Benning Spoon buys for 10% of the peak market cap, So who knows where we
Speaker 3:end Yeah. Up
Speaker 5:is true.
Speaker 2:But yeah, how how did that initially come together and like what what did you see?
Speaker 5:Yeah. So the so I when I started Adjacent and the the thesis has also evolved since then. Mhmm. We can talk about that more, what like led to other investments. But initially, I so in 2019, 2020, then the COVID time, if you remember, there was this crazy SaaS Yeah.
Speaker 5:Explosion. Right? Yeah. Multipers went up, everybody went crazy.
Speaker 1:Now we're going back to
Speaker 5:the office. No. It's all all all cloud. Yeah. All Right?
Speaker 5:Crypto, actually. So those were the two things. So all the new funds were doing the same. Yep. And because I had success in consumer Mhmm.
Speaker 5:I ended up deciding to to start a fund initially focused on consumer and especially consumer subscription companies.
Speaker 7:Mhmm.
Speaker 5:And that was just essentially a transfer from the SaaS and then seeing the App Store and subscription launch on the App Store and like being close to some of the first investments that did well there. Yeah. So I was quite differentiated in that. Yeah. So the first fund and the second fund to the most degree were very focused on consumer subscription.
Speaker 5:There's one problem though with these consumer subscription companies, I mean there's advantages, disadvantages, but one of the problems as opposed to SaaS is that they're much more churny, right? At one point depending on how deep the market is, you hit a ceiling. Yeah. Right? And this can be at millions, tens of millions, hundreds of millions.
Speaker 5:Yeah. But if you still want to if you want to go for big outcomes, still need to grow at a really high clip True. At hundreds or billions of revenue, right? And and ChatGPT to some extent has done that, right? In the beginning 75% of their revenue was prosumer, consumer.
Speaker 5:Yeah, yeah. So the thesis was good, but I'm not in OpenAI, which But it was just a different game and I I ended up picking the right trend, but also wanting to have a little bit of like a hedge against it in some ways because you could see that these companies kind of get to revenue relatively quickly, pretty cash efficient, they need much less people and opex and distribution costs than a SaaS company Yeah. In terms of headcount. And so they were like tens of millions or hundreds of millions, but very profitable. Mhmm.
Speaker 5:So we already had this thesis of like there's actually a really big play here to aggregate companies because if you can
Speaker 1:And spending.
Speaker 5:Synergies. Yeah. And then we I was actually I had an investment in a company called Blinkist, which back in the day, don't know if you Yeah. Short book Yes. Exactly.
Speaker 5:Innovative at the time.
Speaker 1:And subscription based, yeah.
Speaker 5:Subscription based. This was one of our inside investments and I knew these guys from Berlin since point nine times. Yeah. And so one of the founders, Nicolas, actually came as an entrepreneur in residence to Jason for a while. We were thinking about incubating a company that did this.
Speaker 5:And then I was on a webinar with Luca in 2020.
Speaker 1:Don't worry.
Speaker 5:And I was like, I think we should just do that. He's amazing and he was already like doing it. And this was pre JTPT, and then I think AI also helped them a lot Yeah. In actually building the synergies and the transformation engine that actually then
Speaker 2:makes Well, it also helps them by, you know, knocking 90% off of the the market
Speaker 5:Yes.
Speaker 2:Market caps of these other companies.
Speaker 5:Always some luck involved Yeah. In that. Yeah. So that led to Benning Spoons.
Speaker 2:And then when did you actually when did you do Aura? So
Speaker 5:I want to I heard you say this in the beginning, I just want to make sure that I I'm I I did invest in Aura, this was around the time of the first close. Yeah. So I couldn't I didn't have a fund yet. Mhmm. And it was around that was like, I don't know if I should even do that with the first $10,000,000 first close.
Speaker 5:And so I ended up investing personally
Speaker 1:Oh.
Speaker 5:With a group of friends in an SPV. Sure. It was actually the and the friends of mine that I did this with is was the team that I was leading at Insight Yeah. And they left, also started a fund called Left Lane. Oh, This guy, Harley Miller.
Speaker 5:Oh, we did it together. Cool. Nice. Back then. Yeah.
Speaker 1:Smart. What was the initial portfolio construction thesis for that 10,000,000 fund?
Speaker 5:Well, one last thing on Aura, it's just interesting I think also that the reason we understood Aura back then, even though it was a hardware device then with no subscription, was that we had done Calm and Calm had inflicted by launching Sleep Stories. Okay. So a lot of the growth actually came from people not wanting to meditate but needing to calm down before sleeping. Oh, yeah. Because sleeping was such a big problem.
Speaker 5:It still is to a large extent, right, in the Western world. It's like the foundation of your health and Yeah. Psyche and everything. And so we we did Aura and then we were pitching also the move to subscription. Mhmm.
Speaker 5:And hardware and subscription work led then also to this hardware subscription thesis which led to Board Yeah. Backbone I love Board. Tractive, a company we sold also this year. So how was that
Speaker 1:What is that company? That these Tractive?
Speaker 5:Yeah. Tractive was the it it was probably the biggest exit in Austria ever. Oh. So it's a small small town in Austria. And they built a tracking device for pets.
Speaker 1:Oh, okay.
Speaker 5:So you put it on the color. Yeah. So aura for pets in some
Speaker 2:ways. Yeah.
Speaker 5:But plus locations. So if you're in a remote area, you know where your dog is, you can like call them back and you see them on the map, you see how they move, how they sleep and things
Speaker 2:like that.
Speaker 5:Yeah. It's cool. And actually, who bought it? Bending spoons.
Speaker 1:No way. Yeah. Wow.
Speaker 5:It's like fun one fun one.
Speaker 2:Yeah. Nice. Yeah. And It's it's great you're monetizing both sides.
Speaker 1:Yeah. Because your pet doesn't come to you and say, hey, I want I want a churn from this dog food, you
Speaker 2:know. Exactly.
Speaker 1:But so No. This is but this is like Literally Blue Apron, you know, Blue Apron was like a subscription food company. Yeah. And eventually people would just be like, I wanna try something different. Like Yeah.
Speaker 1:I'm sick of this.
Speaker 5:That's why Farmers Dogs works.
Speaker 1:Yeah. Yeah. Exactly.
Speaker 5:Right? In fact, it's the same because actually the Yeah. Average subscription was years
Speaker 1:Yeah.
Speaker 5:Exactly. By purchasing it. Yeah.
Speaker 1:Whereas people might even take off a Fitbit or something and be like, oh, I'm out of this fad, I'm under the womb, I'm out of the and
Speaker 8:move around a little bit
Speaker 2:more. So
Speaker 1:It was hard to get sticky.
Speaker 2:The thesis has has expanded, but I wanna get your updated updated kind of point of view on consumer right now. I feel like a year ago, people were really pounding the table being like now is the time for consumer Yeah. Consumer AI. And yet if you look
Speaker 8:at the
Speaker 2:iPhone charts, it's been still like the time of of language models. Right? So like most of the new apps that maybe weren't in there five years ago are are various chat apps. And then the other sort of popular apps that you're seeing are like short AI drama slop stories Yeah. Which is It's consumer.
Speaker 2:Which is yeah. Which is consumer, but but maybe not the explosion of of different types of of applications that I think a lot of people expected. Yes.
Speaker 8:And I
Speaker 2:think part part of that, my my point of view is like the chat apps can just do so much. Like there's so much you can maybe maybe the example I use that that's not super relatable for most people is like checking the surf. Like if I wanna get an update on understanding of like S'well and Tide and all these things, I actually don't need a net new app for that. I don't need like the AI for checking the surf app. Just need ChatGPT or whatever.
Speaker 2:Someone's preferred LLM. So how are you thinking about the the overall landscape, especially right now because you have a new horse race with with Instinct and Exactly. Muse. And so it feels like the the the we didn't we didn't have the end of history with consumer Yeah. Yet.
Speaker 2:But
Speaker 5:Yeah. I mean, it's it's it is definitely true that the world changed after JGPT. Right? So like '21 launched and then the coding helped. It's actually so so one interesting trend is that the number of new apps one of the other, like, proxy investments that they would fund.
Speaker 5:One is a company called RevenueCat, which is powering 60% of the new launched apps with their subscriptions today. And through that we can see it's just like an immense increase in new apps that are being launched. So for Venture, for me, I actually had to move on somewhat from consumer at the time. Think I there will be new applications in consumer plus AI Yeah. And I'll talk to that.
Speaker 5:But it definitely it decreased the barrier for new things significantly, right? So the ceiling, if you think it just like theoretically, the competition increases significantly because so many more new apps. So getting to a venture scale outcome is even more even harder. Right? So even though we have more niches served
Speaker 2:Yeah.
Speaker 5:The venture outcomes are more difficult. Right? So I think that that like if it's very simple, doesn't make sense. There is consumer things like I invested in in Popcorn, which is which is a next gen telco. So they're building their own core infrastructure for telco.
Speaker 5:They have an eSIM, you download an app, you get the international number, but also they have AI features integrated, so you can use a call assistant and stuff like that. So I think if the technology goes deeper, more differentiated
Speaker 1:Never put a phone call through to me ever.
Speaker 5:No. It's what have I an assistant. Yeah. Jenny Screens everything. Call Yeah.
Speaker 5:Instead of voicemail, she picks up and says, what is this about?
Speaker 1:What is this about?
Speaker 5:Yeah. And then if it makes sense
Speaker 1:I have a good reason because I'm not putting you through. I get so many spam calls. My phone's always I been do not
Speaker 5:don't I have I don't No.
Speaker 2:And that's so so so the most annoying thing to me is someone calls you, but they don't leave a voicemail. Yeah. Like, I don't really want a voicemail, but if I get a call that I'm not expecting and then there's nothing, I'm just kind of wondering there. Yeah. But I but I I don't wanna pick up the phone.
Speaker 2:I don't wanna take a random call, but I
Speaker 1:also calls that you'd get where it would play the Chinese music in the background and then you'd hear Chinese like you have to pitch for something and it was like a scam call. But they specifically put like Chinese music in the background. You ever got this?
Speaker 5:No. No.
Speaker 6:Why did you sign up?
Speaker 1:My phone goes everywhere because I've like started businesses and my phone number's leaked all the time Yes. Through like customer service stuff. So I always have gotten like the weirdest spam calls ever. But it was a fun one.
Speaker 5:Yeah. So I have now one good number that's my spam number Yeah. That I use on the internet for two I need this. Notification and I have my popcorn number which nobody has except
Speaker 1:That's real good.
Speaker 5:You know? I need that for sure. Anyways, I do think there's a new era coming Yeah. Which instinct I mean, there's just like a lot of two instinctpals here, like there's companies that are now doing things that are prosumer, consumer, that are personal agents.
Speaker 2:Mhmm. Yeah.
Speaker 5:And I think I I do expect that there will be a lot of things that work there, but also it's very difficult today to to understand what of that will be eaten by the labs, right? So how vertical can it be? Yeah. And then also you have Meta playing for it, right? Like the problem so essentially it's just it's so crowded and so many big companies are playing for that, that for me that wants to go in early and not at 500,000,000 or a billion dollar valuation, it's very difficult for me to play there right
Speaker 1:now, And you there's also like plenty of scaled unicorn, decker corn companies with founders who are live players, maybe reengaged. And they are monitoring the model releases on a daily basis and saying, I'm gonna implement this on day one, have a team that's sprinting to implement this feature so that there's not an opportunity for my SaaS company plus AI getting funded
Speaker 5:Yes.
Speaker 1:Because I'm doing it
Speaker 8:Yeah.
Speaker 1:You know, on day one.
Speaker 5:Yeah. I think like Muse is a great example of that. Right? Like I think the speed at which Meta moved on Yeah. This personal agent trend Yeah.
Speaker 2:And launched Muse is still unclear to me what when they actually started working on Muse because it feels like I mean, I'm I'm sure they tried to buy Instinct, but that doesn't necessarily mean they weren't working on like,
Speaker 1:not even been there for almost a year, maybe more and But but the
Speaker 2:But the level to which Alex has just been like taking direct shots at instinct all the time nickname for it? What? Does he have yeah. Insect? Oh, He called
Speaker 5:it yeah.
Speaker 2:Yeah. I I wasn't sure if that was a typo or intentional. Yeah.
Speaker 1:He gets a
Speaker 2:But it but it rare to see a trillion dollar company like hackling Yeah. Yeah. And while cloning a like a startup that's eleven months old.
Speaker 1:Yeah. They didn't really do that with TikTok or Snapchat. Like they were pretty quiet. They were just like, we're excited to launch stories. We're not gonna say anything about
Speaker 2:Well, No. No. In that case, was like Evan would be kind of like Right? You're like the Totally. The takes shot.
Speaker 2:But this time, you're Yeah.
Speaker 1:Yeah. I know.
Speaker 5:Yeah. But that's the the reason why the the stock market has been driven by a lot of companies that are just still compounding. Yeah. Yeah. True.
Speaker 5:Right? It's like it's just it's been it's been hard for VC to actually like benchmark themselves because the market's done so great because companies How are just doing amazing
Speaker 2:how are you thinking of investing in in Europe considering that there was some some proposal I I just saw that was saying like Europe basically needs to spend hundreds of billions of euros to try to sort of quote unquote catch up in AI. Yeah. I have a buddy from Austria and and I was he's working for an American company right now, but I was like, what are you doing not just like starting like a neo cloud right now? Right. I was like, I know people in The US that are dumb as rocks and they're gonna be they're gonna be billionaires because like they just like picked a hard problem with an exceptional amount of demand and I've just been working on it for years and I feel like Europe's lagging a little bit.
Speaker 2:Yeah. You just roll up your sleeves You're dumb as rocks.
Speaker 1:You can do this. No.
Speaker 2:The point the point was like you're you seem like very very smart Yeah. Capable. And and like if you just focus on figuring out how to get you know, a powered shell Yeah. Some chips, you're probably going to be able to figure out some some demand. But Yeah.
Speaker 2:How are you how are you thinking about?
Speaker 5:Well, I I look, if in in my career Europe has been super important, Revolut, Bending Spoons, Aura, like those are companies that are really important, but also they oftentimes were in the category that was not yet very hot in The US.
Speaker 1:Yeah. Sure.
Speaker 5:And also if like, it's not easy, I mean, it is true that Europe, we have not done enough to support innovation and this is everything from regulation to to bureaucracy and like labor laws, like there's a lot of problems that like startups are tied into the same regimes as big established companies, so that doesn't allow us to move as fast, right? And that's a problem, and I hope that changes. But I do think Europe has amazing talent and Europe has also the ability to build new things. AI completely missed it probably as a consequence of having already not done as well in software and Yeah. The infrastructure build out that's required to actually do it as well.
Speaker 1:Mean, I just pattern matching on the last cycle, it's it seems important that Europe never got European Facebook, but Europe did get Spotify. Right. Which was Yes. Which was built on top of Facebook and benefited from the Facebook network and algorithm. But it wasn't a direct clone because Exactly.
Speaker 1:And and when I see these things where it's like Europe needs its own LLM, I'm not entirely sure about that. I'm not entirely sure. Like if you're going to do China and you're going do firewall, then you get the Chinese Google, the Chinese Facebook. Europe hasn't gone far enough to actually, you know, truly create a an area where you could have a European Google and make it so hard for Google that they get kicked out and then European Google wins. Yeah.
Speaker 1:But you can go and do a Spotify which is an actually new Yes. Idea wins and is not directly competitive. Yeah. Actually actually very compatible with Facebook. They were, you know, obviously a lot of investors in common and stuff.
Speaker 5:Yeah. I think it's very hard to catch up in in AI. Hopefully Yeah. We will to some extent. But there's also like energy and defense like Sure.
Speaker 5:We had dependencies for too long.
Speaker 1:Yeah. For some of those like Helsinki
Speaker 5:and stuff.
Speaker 1:Yeah. You can see that being
Speaker 5:Exactly.
Speaker 1:A clear line. Yes. But but when it comes to just like global innovation like running your own race seems to make a ton
Speaker 5:of sense. It should it should be differentiated into their own strengths.
Speaker 1:Yes. Exactly.
Speaker 5:And so And and think that will keep going and we we started later, right? Like there's still like we we have Spotify soon, have a Revolut. But like those companies, it it takes some time to trickle down. Yeah. And so it's important that like Benning Spoon says, we're an Italian company.
Speaker 5:Yeah. We're listed in The US because that's where the markets are, right? Yeah. But like and we acquire companies in The US. Yeah.
Speaker 5:But like we're an Italian company, right? Yeah. And like I think those like that that ecosystem, same Italian ACCI is doing a lot now with Yeah. Nourmateria to like support companies, Helsink and Nico and stuff in Europe. I think that it's just like hopefully with time that also
Speaker 1:Yeah.
Speaker 5:Works. I Do
Speaker 3:you spend time
Speaker 1:in Estonia? Birthplace of Skype?
Speaker 5:I well, he yeah. So I I don't. I have one company that is actually a Ukrainian defense company. Mhmm. They're based there.
Speaker 5:Yeah. So that's become a bit of a defense hub in Estonia But I think the the the original founder of Kazakh has built up. He he was one of the first investors in a topic
Speaker 1:Yeah.
Speaker 5:Back then and stuff. So there's like also there's a lot going on there. It's just like not one of my core geographies so far. Sure.
Speaker 2:What do you think about the the disconnect between what Bending Spoons will currently pay for a software business and what VCs will pay to invest in a potentially future Bending Spoons portfolio company?
Speaker 5:I mean, I I I would not be surprised if Bending Spoons buys a lot of the
Speaker 2:like companies. Yeah. Yeah. No. And I I've just been
Speaker 5:For the same price.
Speaker 2:I've been Yeah. Yeah. No. I I I feel very very strongly that that will happen. Even though the companies have great teams, they're growing revenue super quickly, but it's just extremely notable that when you look at some of these software businesses and you look at I see, you know, in some of these acquisitions, you can imagine that Bending Spoons was like the real only serious like bidder for some of these companies.
Speaker 2:And so they get to set their price. And so two things need to happen. One, Bending Spoons thesis plays out and and people sort of globally realize, hey, we should have been like more comfortable with the risk associated with this. Buying a software company at like three times revenue is like kind of could be stealing it. So if their thesis plays out, there becomes more buyers like Bending Spoons because there's plenty of capital.
Speaker 2:Yeah. So that could help prices come up. But the alternate, you know, the it feels like the most likely scenario is like we get these companies today where I look at them and you'll have a company, you know, $100,000,000 of revenue trading at at in the billions you just see like this company is, you know, how many more of these sort of like hype
Speaker 1:Yeah.
Speaker 5:I mean, like, since VC works in a way that it's very foremost driven, consensus driven, everybody thinks everything is going to be very big, then we have these hype cycles where I'm not saying AI is a hype, obviously, technology is super powerful and it will change the world is changing the world, and but with that always comes a lot of money chasing things that do not turn out. Right? Most of the venture bets do not turn out and they are orphaned at one point. Right? Yeah.
Speaker 5:The founders move on, the VC moves on, people just want to have some money back to invest into the next hot thing. Yeah. Right? And that's what the core insight is that's driving a success of a company like Bending Spoons.
Speaker 2:Yeah. It will be interesting.
Speaker 5:Yes.
Speaker 2:But it but it but it's notable that like it's not like there were the wave of bending spoons, big high profile acquisitions was like five years ago and now we're doing it again. Yeah. It's like all these things are getting priced now Yes. While we're doing it Yeah. All again in the same Yeah.
Speaker 2:Present moment and it's like
Speaker 5:It repeats. The cycles repeat.
Speaker 2:Yeah. It's repeating in real time. Yeah. What brought you to LA?
Speaker 5:Okay. Last Last question. Last question here. No, I'm happy to give up.
Speaker 2:No, wish we had more time.
Speaker 5:No, I know. Okay. I'm fine. I am here so one of the first like break breaking away from the thesis was a company called Inversion Space that is here Oh, in LA. Yeah.
Speaker 5:And they're doing a hypersonic delivery from space. So they partnered with Unreal on the Golden Dome, they just did a contract with NASA also, so I'm here to to see them.
Speaker 2:Amazing.
Speaker 5:And then one of the funds that I like a lot in in San Francisco, Kantos. Ian, you had Ian on? Yeah. Yeah. So I'm a small LP there and and he's hosting an event on Wednesday, so I'm there for that.
Speaker 1:Great. Great.
Speaker 3:Awesome. Well,
Speaker 2:thank you so
Speaker 5:much for
Speaker 1:coming by. Thanks so much for coming on. Alright. We'll talk to you soon. Thank you.
Speaker 1:Let me tell you about Railway. Railway is the all in one intelligent cloud provider. Use your favorite agents to deploy web app service databases more while Railway automatically takes care of scaling, monitoring and security. Scott, thank you so much John Howard. For taking the time to come on down to the TBPN UltraDome.
Speaker 1:I would love to start with an introduction on yourself, but also the just the story of Scout Motors. It's a fascinating company. It goes back decades, if I'm not misinformed. Sixties. Yeah.
Speaker 1:Tell me the story, yeah, of of of both the company and and how you got involved and where you're going next.
Speaker 7:Wonderful. I mean, I'll start with myself. Please. I think where it starts with me, of course, is New York, the automotive business. Obviously, it's my last name.
Speaker 7:Have an Irish background. My family is a classic American tale. Yeah. They came here with a suitcase. They came to Ellis Island.
Speaker 7:My dad was in Brooklyn. My mom was in Rockaway and they wanted to make their way in the world. That's amazing. And, of course, it brings me here to here to today. Yeah.
Speaker 7:I think if you look at Scout Motors, how it all came about, I think first and foremost, as you know, it's a iconic American brand. Basically invented the SUV segment, invented a lot of these things back in the nineteen sixties. Yeah. I think what happened to Scout is exactly what happened to America in the nineteen seventies. High inflation, stopped making things, outsourced a lot of things, troublesome labor relations, high inflation on that.
Speaker 7:And this American dream, this American icon went away. Mhmm. And how it came back to life, I think it's sort of three things came together.
Speaker 5:Mhmm.
Speaker 7:I think first and foremost was, let's say, the business necessity. Mhmm. The Volkswagen Group at the time said, how can we get more successful in America? Yeah. And the way to be successful in America is to go after these profit pools where the trucks and rugged SUVs are.
Speaker 7:Mhmm. And of course, they had purchased a company called Navistar. Yep. Navistar had the heavy truck business of international. Of course, they had the rights to scout.
Speaker 7:Yep. And there came the genesis of this idea. Yeah. Could we bring back this magical icon with the backing of a company that knows exactly how to make things and get good cost and bring it back to life with a clean sheet? And and that was the premise.
Speaker 7:Yeah. And that was four years ago. We had one employee and a couple of PowerPoint slides. Wow. And now fast forward, we have 1,600 employees.
Speaker 7:We're industrializing our factory in Blythewood, We're South going to show you a pretty cool prototype behind me in a little bit. And and here we are. I think the other thing that's important to look at is sort of the softer side of the thing. And and for me, personally, I think a lot of us during COVID, I drove across the country with my family. When you drive across the country, right, you go to Ohio, you go through Pennsylvania, you go through Indiana, you see some of these manufacturing towns, and you do have to ask yourself, what happened?
Speaker 7:Yeah. Why is this? Yeah. I think at the same time, we saw a lot of the geopolitical environment with TAVRs and the resurgence of saying, let's build things again, let's do things again. Yep.
Speaker 7:And then the other final sort of piece of the puzzle is Scout was a super cool, glorious icon. It's like, why do we let these things go out business? Why do we let these things fade away? Why don't we do it right? And you put it all together and we're here at this magical moment doing something difficult for sure, but doing something really So that that's the background in a nutshell.
Speaker 1:Yeah. Yeah. I mean, the idea of re industrialization, making cars in America. Today feels like there's a ton of tailwinds, but 2022 is a different era. Is that a lot of luck just being in the right place in the right because when when I think about all the tariffs and everything, I'm just like, oh, this is a win for Scout.
Speaker 1:This is another win for Scout. And then, I mean, we were we were watching the president talk about AI. The the the literally, the question right before was about making cars in America. Yeah. And so there's a lot of positive economic forces that are working.
Speaker 1:Was the plan that this was this was coming and that there would be more reindustrialization movement in the future regardless of who is in the Oval Office or was this just like a lucky break that happened down the road?
Speaker 7:Lars and luck. We're profound geniuses. Looked into the crystal ball
Speaker 1:and we knew everything was gonna happen.
Speaker 7:Yeah. No. I think there was a, let's say, movement sort of gentle drumbeat if you were listening. You saw the transition, let's say, from NAFTA to USMCA and Sure. Clearly, can see where that was heading.
Speaker 7:That was, of course, back in 2016.
Speaker 1:Sure. Sure.
Speaker 7:You also knew from COVID that supply chains were becoming, let's say, tenuous Yep. For lack of better term. Yep. It was difficult. And then you knew in this segment.
Speaker 7:Mhmm. If you look at this segment, majority of the segment says, I wanna buy things that are American. I want to buy things that are made in America. Mhmm. So Scout's whole premise was always going to be that.
Speaker 7:But based on that, of course, a lot of other things came their way, from terrorists to geopolitics, everything I know. So I think it was a good core idea. It's a phenomenal core idea that's gotten more Yeah. More tailwinds as it's it's come, which has been great.
Speaker 1:Yeah. I recently heard that the that the life of a new car has basically doubled since, I believe, the seventies. And new cars will often last until two hundred and fifty thousand miles, whereas it used to be a 100,000 miles. It's time to get a new car. Is that a secular pressure that you think will will be overcomerable with new technology?
Speaker 1:Or do you think that's something that we're gonna settle into? Or maybe there's a world where people wind up with more cars. Just I'm thinking of like what are the general pressures that you're worried about around new car purchasing?
Speaker 7:Yeah. Look, I I I think you raised a key point. I think a lot of what's driving that, of course, is a high cost environment where people want their cars to stay with them a long time. I think that's particularly true of this segment. This is a segment that's not what I'd call a flipping purchase for a vehicle that's just gonna get you down mainstream.
Speaker 7:Needs to do real work, real play, take you somewhere, do something. So we've fundamentally engineered the car to be super robust. Yeah. The second thing we've engineered the car for is to bring a lot of do it yourself type of business back into it. I think a lot of people where they've engineered these cars, they're complete spaceships.
Speaker 7:Just look at them. Don't touch them. Don't touch them. And I think we've intentionally brought a lot of mechanical, physical characteristics back, so you can do the actual work. I think the other thing that's breaking down, and I remember this back in my Mercedes Benz days, was, you know, electronics, can't update them.
Speaker 7:A 100,000 miles, it's gonna be gone. Sure. Or batteries. That was
Speaker 1:the one of the
Speaker 7:batteries that they're gonna last. And I think that myth is being broken all the time. But these batteries are holding their power. Yeah. They're holding their charge and they're holding their robustness.
Speaker 7:I think the right way to
Speaker 1:look at saw someone put like 300,000 miles on a Model S. They're used to Yeah. Exactly. People thought that was impossible. Like and and the depreciation curves are still really rough for electric vehicles.
Speaker 1:We can go into that. Yep. But I mean, it does feel like the fear of like this battery will be impossible to repair and the car will be totaled because of the battery. That has been pretty
Speaker 2:How much how much does your how much does your segment care about autonomous driving? And how much and do you think they'll care more about it in a couple years?
Speaker 7:I don't think it's core to the segment. I think we've engineered the vehicle where this is a vehicle that you wanna have control of the narrative and control of the vehicle. So we've intentionally made a vehicle where, yeah, I wanna put a real door handle on the thing. When I get into the vehicle, wanna use real switches and get that mechanical connectivity, if you will. And driving, I think it's the same exact thing.
Speaker 7:This vehicle has to work, wants to play, they want control of the vehicle. Now to that end, the scout will have level two plus because I think where you can offer that highway convenience, if you will, where driving is more tedious
Speaker 2:Yeah.
Speaker 7:100%. But I think this segment and what it stands for in terms of, let's say, freedom and control has much more to do. And honestly, if I look at autonomous, you wouldn't build this type of vehicle. You'd build a much more a to b type of vehicle. Take me for here, take for there.
Speaker 7:You wouldn't have solid body on frame. You wouldn't have solid rear axle. You wouldn't have a thousand pound feet of torque, 800 horsepower, all of these capabilities
Speaker 1:Mhmm.
Speaker 7:I think you'd build a much more, let's say, cyber cab, not to give
Speaker 1:sort of a Sure.
Speaker 7:Sort of simplistic vehicle. So I don't think it drives this segment. I think level two plus, for sure, is where we'll be and and what we see they want. But we wanna be a little bit more, let's say, old school where we can put the driver and the customer back in charge. That we see as a megatrend.
Speaker 7:Like, I wanna be in charge. Screens aren't taking over.
Speaker 1:Yeah. So you said was it 2021, 2022, there's one employee? Yep. There's hundreds now, thousands now? 1,000 scale
Speaker 7:of the operation? 600 employees.
Speaker 1:With first customer deliveries in 2028? In '28. Exactly. '28. So when do you actually start building out the plan to hire all those people?
Speaker 1:What will the company look like in 2028 when you're doing deliveries?
Speaker 7:Toof. So the plan is a ramp up. When we look at '28, at the factory itself will be roughly 3,000 employees. If I look across the total workforce, we'll be roughly in the zone of 3,800 to 4,000, somewhere The in preponderance of the workforce is going to be basically being doing two things. You're either making a car or you're selling a car.
Speaker 7:I think one of the things we've done very smart is get all of the overheads out.
Speaker 1:Mhmm.
Speaker 7:SG and A extremely tight, overhead's extremely tight because we want people doing active things, which is buying a car and and of course and of course manufacturing a car. At the plant itself, if I look at the 1,600, more than half of that are down in the factory right now as And we that's because we're building the very first early prototypes and I think this is a pretty cool thing that we're doing. What most companies would do would outsource that to a third party. Mhmm. They would then hand you the car, and you'd integrate into your plant.
Speaker 7:Okay. Since it's a new factory, we're training new workers, they've never made cars before, we want to get that muscle memory now. Yeah. So we're building these prototypes. We'll be it'll make us much more stable for ramp up Sure.
Speaker 7:Which, as you know, is critical.
Speaker 1:What is the state of dealerships in the automotive world? How is it changing? Tesla's taking a different approach, but there's still shops where you can go see a Tesla. What will your strategy be? How has it evolved over the last couple of years?
Speaker 7:Our approach is clear. We are gonna go direct to consumer. Okay. So we will be selling the vehicles directly to the consumer. Yeah.
Speaker 7:And in my mind, I look upon it as three fronts. Yeah. One, there's no debate that we can handle the transaction far smoother and far straight with a lot more transparency. Mhmm. We're gonna build the ecosystem to do that.
Speaker 7:Mhmm. I think if you look at a brand such as Carvana, they've without a doubt proven Yeah. There is a good digital path to sell a car and make it Yep. I think the second thing today, I think there's no world where if you don't control the relationship to the customer, have all the data that comes of that relationship, you can't be successive. And the third one, without a doubt, is we are gonna do a lot of work to build the infrastructure.
Speaker 1:Mhmm.
Speaker 7:I think where a lot of the brands you mentioned fell short a little bit, is you have to have the service infrastructure built ahead of the wave Yep. Not behind the wave. Yep. And those are big things we're focused on. We're executing that.
Speaker 7:And it's critical.
Speaker 1:So I think
Speaker 3:about What
Speaker 2:does that actually look like? I mean, seems it seems like one of the biggest challenges because you need to have service. Are you gonna have a central service hub or I imagine that that's tough if you're having to, you know, ship cars around all over The US? Is there specific key regions that you need to be set up in? Like, I'm just curious.
Speaker 7:You got exactly right. I mean, the good news is it all starts at the factory. Yeah. From the factory, we've laid out nine distribution networks that we will have. We can put these in very smart locations where you can have lots of space, relatively inexpensive, and let's say, line up the cars there.
Speaker 7:Yeah. Then from there, they'll move in to the retail stores. We will build a 100 stores over time. But what this allows us to do, we can be way smarter on inventory, way smarter on cost front. And then what you have now is a lot of these dealerships, you have extremely expensive inventory, extremely expensive parking, and we can put this in much less expensive real estate.
Speaker 7:I think the other thing, speaking of real estate, where we see the action being is we can build in sort of class a fronts where we can get off of main street, get off of the expensive stuff and build it in smart locations. 85% of the investment will go into service since that's where the most critical function is. Yep. And that's what we're building pretty much as we speak. But again, if we have the data from the customer, the data into our factory, and the data into our suppliers, we can sort of get out of this world of let's build a couple of thousand cars and send them across America and hope they sell.
Speaker 7:Then they sit in a parking lot, they sit there for a hundred and twenty days, you throw incentives on them, the RVs collapse.
Speaker 1:Mhmm.
Speaker 7:We can avoid that. We can be way smarter using data, using intelligence, using AI to get the right car into the place and basically hold hold pricing power.
Speaker 1:Yep. How important is the test drive to conversion in a direct to consumer relationship? Is it unnecessarily high? Like should more consumers be buying cars without ever test driving them? I feel
Speaker 2:like I'm I'm a psycho. I've bought like probably six cars without ever test driving That
Speaker 1:feels uncommon. But is that the future or is Geordie actually a psycho? Look, I think that
Speaker 2:But I but I but yeah. Part part of that is like I grew up buying things online. Yeah. Very comfortable looking at a picture and a video and maybe a review and saying cool. Looks good.
Speaker 1:And there's so many trusted car reviewers, Doug Dumero, Forest Auto Reviews that if there's a consensus across three or four people that I trust, I'm probably just gonna be happy buying the car. But but what what what does it look like now? What do you think the future looks like?
Speaker 7:Look, I think what we're planning for we're planning for we're a startup brand that people don't know that well. And Yeah. In order to get to know well, you're gonna have to establish trust. Yeah. Agree.
Speaker 7:It's number one word. I think we'll have phenomenal reviews. We'll have phenomenal reservations, which we have already. But when you come to these service centers, we wanna have an environment where you can take a test drive. Mhmm.
Speaker 7:Beyond that, we're gonna set up test drives, obviously, in the big markets and get this done. I think there will be a huge group that's gonna say, love this car. Send it to my driveway. Done. We'll take care of that.
Speaker 7:On the flip side, there will be a group that wants verification. Yeah. So I think at this early phase, I would say 85% is gonna wanna get in this vehicle, drive it, test it out. We have new technology with the e rev. We have a new vehicle.
Speaker 7:Mhmm. And I think the more we establish trust, the more units in operation, the more all of that happens,
Speaker 5:then that's
Speaker 3:It looks
Speaker 2:it just looks I can't wait to see it outside, but it just looks it looks incredible. It's almost like exactly was wondering what guys look at It's what what consumers want. I mean, you look at, you know, some of, you know, the new Toyota and Lexus models are are are solid and have been
Speaker 1:Yeah. A lot of these longer newer projects, by the time they make it to market, they look outdated because, oh, like, clearly, the designs were from five years ago. This feels perfectly where the consumer is.
Speaker 2:What happens with it feels like the the legacy manufacturers and brands, they get very stuck on certain like interior styles and materials and the and the updates go from, you know, everything I've seen from the interior with the Scout, it feels like you guys really consider considered materials and and patterns and the touch and feel and all and all these things. Yeah. And have thought about it from the ground up. You would think that other manufacturers would just say, hey, why don't we just redo why don't we when we refresh this car, why don't we fully redo the the interior? And what I typically see is he's more like, hey, it's like 5% different, but fundamentally, it still looks exactly the same.
Speaker 2:Why is it so hard to do a full, basically, cosmetic interior refresh Yeah. For these brands?
Speaker 7:Look, you nailed it. One of the things we loved is the power of a clean sheet is one you have to take maximum advantage on it. What Yeah. Unfortunately happens in giant OEMs and giant companies is to make any change as a big giant machine, There's an existing factory. You don't want to alter tooling.
Speaker 7:You don't want to have new supply bases, so every little thing gets so expensive and so challenging and so difficult, which is why you see a world of, yeah, these white tweets. And they say all new and all this, and basically it's a tweak fabric or whatever I it think what you see here and I'm I'm glad you appreciate it, this is a grueling labor of love love love. We have fought every last thread on Yeah. This vehicle. And I think, you know, it started with, boy, we're bringing back this icon.
Speaker 7:We do it wrong, we're gonna get mocked. And we couldn't just throw a scout label on a vehicle and say, hey, here's this.
Speaker 1:That's good motivation.
Speaker 7:Because the OGs will honestly reject you. Yeah. We knew if they rejected us, we're dead. It's over. Yeah.
Speaker 7:Once we got them on board, well, then away we go. That's why we're
Speaker 2:off
Speaker 7:to But the the reason it's so hard is you just get you get stuck in this big company world.
Speaker 2:Yeah. With the way that the the way that the car market were moves, it oftentimes feels like manufacturers don't listen to customers. But I have to imagine they do look at social media comments and they are they are well aware of the feedback. But is it because of the planning cycle? Right?
Speaker 2:So I'll I'll pick an example. Right? So like the the Ferrari there there's Ferrari community Ferrari community, I'll say.
Speaker 1:Nice example. I like
Speaker 8:it now. No.
Speaker 2:And when I say Ferrari community, mean the group of people that care about the brand and then the group of people that care about the brand and our actual buyers. Yeah. But both of the groups are are oftentimes like confused with a lot of the the the actions Yeah. Of the brand. And I just I just have to imagine it's like it's is it the kind of thing where like the actual response from the manufacturer is like somewhat delayed where it's more like a this sort of like, yeah, we we've been aware of this issue for five to six years and now these sort of newer iterations, they'll be responding to that?
Speaker 2:Is it is Oh, because of the supply chain or are they?
Speaker 7:It's it's look, the the simplest thing is, look, at the end of the day, let's say you wanna make a change. Yep. So the two big drivers of that change is, okay, what's gonna cost CapEx wise to make that change?
Speaker 2:Because you're
Speaker 7:gonna have to retool at the supplier depending on how big it is, and that's a few million dollars just for one slight little change. Yeah. Then you may have a material cost change on the bottom, another bill of the car, and then you multiply that by ten, twenty, 30, a 100 changes, and all of a sudden, you're talking a $100,000,000 of CapEx and, I don't know, couple $100 of material cost on the vehicle. So every change is just brutal. Yeah.
Speaker 7:I think the other thing is they work in big cycles. Right? Yeah. If your classic launch of the car, then your product improvement, three, four years later, and then the thing. I think the other holy grail for us, and certainly Tesla has done this quite well, is can you get changes that don't impact the physical hardware of the vehicle, which is all of the OTAs and all the thing that we'll have capable on this vehicle as well.
Speaker 7:But why you don't see that is cost and cycle tooling and and things. Yeah.
Speaker 1:It's not
Speaker 7:like these people are asleep at the switch and aren't aware of it. They're certainly aware of it, but it's the cost, the time to go get that done. Yeah. Yeah. Which is why you want
Speaker 2:know this a problem. This we know this is a problem, but fixing it now would cost a billion dollars. And if we just wait another cycle, we'll we'll be able to address it, but in a much more cost efficient way.
Speaker 7:Exactly. And then potentially, can find 50 of them or 40 of them or 20 and do it all at once, cycle it up and get it through the one change. Yeah. Because of course, depending on how extensive the change, retooling the factory on top of whatever the supplier did, potentially change training within the factory, the knock on effects Yep. Are massive.
Speaker 7:Retrain dealers to sell it depending on how big it is.
Speaker 2:Does Scout have any history in like off road racing that you're aware of?
Speaker 1:You you wanna do Scout challenge?
Speaker 2:I do. Version of these? No. No. I wanna do like a bot the Scout bot the Baja Scout the
Speaker 1:Paris another The another way to go.
Speaker 2:Yeah. No. What I'm saying
Speaker 7:it does, Scout raced back in the the big off road races back in the day. We've been doing something. There's a cool guy up in up in Venturi here named Sean Barb. I don't know
Speaker 5:if you
Speaker 7:know him. And we sponsor him and he's taken a couple of the vintage scouts and he's done some racing. And then we can't wait to get the real deal and go
Speaker 1:kick some serious
Speaker 2:No. It feels like you should try to put a 100 of them together and even get a pool of buyers that just is buying them even to for for just racing.
Speaker 1:Yeah. Mod. Yeah. Exactly.
Speaker 7:No. I have to show you some stuff. But Sean's done
Speaker 3:some cool things.
Speaker 2:Let's go check out
Speaker 1:the Our car's outside.
Speaker 2:Let's do it. I'll let
Speaker 1:Jordy throw on that lav and we'll That's cool. Thank you. I think we have our cameras ready to rock. Let's go take a look at this vehicle outside. Here.
Speaker 1:Come this way. Is this the Would it be outside of if you look in Ultradome? We are outside here. We have our new
Speaker 2:Here sign
Speaker 1:it is. The Scout. Oh, look at this. Looks so good.
Speaker 7:So this is it.
Speaker 5:I love it.
Speaker 7:One of the first things you'll notice, we made this one the more urban version if you will. Right? Yeah. So it doesn't have the, you know, the spare wire on the back. It doesn't have the off road packages.
Speaker 7:We made this one more urban cool style. I think you'll still notice, you know, 35 wheels.
Speaker 2:Is that like a cork? It's walnut, but it's Yeah.
Speaker 7:You know, just super recycled stuff. Amazing. And then Jordy, you can
Speaker 1:see kind of what I
Speaker 7:was talking about here, just like get some real switches back.
Speaker 5:There we go.
Speaker 3:These are all for
Speaker 7:the accessories. Nice. These are all for the lockers that you can
Speaker 3:control. This
Speaker 7:is a lot of hardware mechanical functionality that kind
Speaker 2:of, you know Yeah.
Speaker 7:People let go a little bit on this front. I think the other Both thing
Speaker 1:of us.
Speaker 2:There we go. I love I love the two tone. Yeah.
Speaker 7:Yeah. It's super super well well done.
Speaker 2:This is great.
Speaker 1:Yeah. And it'll hang on the thing.
Speaker 7:And then what we didn't talk about is, you know, the magic of this vehicle is what's underneath. So it's body on frame Yeah.
Speaker 1:Which means you have a frame,
Speaker 7:you put the hat on top of the vehicle. It's got a solid rear axle, which is super old school technology.
Speaker 8:Yeah.
Speaker 7:We integrated the e motor inside the axle. First time that's ever been done. Just to give you a sense of it, this is a thousand pound feet of torque Wow. 800 horsepower. This vehicle is zero to 60 in four seconds.
Speaker 7:It's
Speaker 2:gonna be
Speaker 7:like a serious serious machine.
Speaker 1:And will you make a like a non performance version as well? Less power and torque?
Speaker 7:No. What we All want to do is offer one platform, one foundation. We'll your right foot, your right foot can
Speaker 1:control the power.
Speaker 2:The pedals are amazing too. Go check
Speaker 7:see the one of the other cool things of course is super short front overhang. Very hard to do with this type of vehicle. So you get really crash, you go all the lap, but this gives you all of the approach angle on this, which is awesome. Another nice little touch the designers came up with, I think most brands as you know centers everything front and center. We want to make
Speaker 1:them much more like piece of art. Right there, you see scallops off
Speaker 7:on the right hand side like the signature side. And this is another nice design element. This is the range extender. So this is where the gas goes in. Obviously, on the other side is where the battery charge will go in.
Speaker 7:This is what we call Earth's Plaid, so it takes us back to, you know, the original international harvester, and super slick super slick. How does the texture on
Speaker 2:the the fabric on the inside here is just amazing. This sort of plaid. Is so great.
Speaker 7:So how the how the range extender works, which we think this is a piece of technology America is basically looking for Yep. Both of the axles are driven like a battery car. Yep. There's a e engine right here, e engine right there Yep. And then that is driving the car.
Speaker 7:It gives you the torque. Yep. Gives you the instant pop, instant response. And there's a generator in the back, which is basically a a gas engine. One cylinder.
Speaker 7:Oh, four cylinder. Yeah. Four cylinder engine. And that, of course, is what gives you upwards of 500 miles of total range.
Speaker 1:So generates electricity that charges the battery Precisely.
Speaker 7:Put them
Speaker 1:in generators powers the car the same way. Exactly. Yeah. So the reverse hybrid. You're flipping the hybrid system Exactly.
Speaker 1:Effectively which is amazing because there's no range anxiety. You can do the cross country trip, two minute stops for gas, and you'll be totally fine. Precisely. Yeah. I've seen I've seen this pitch as the future before.
Speaker 1:And when I saw it, I was like, America needs that immediately. This is so logical, and we'll satisfy the last remaining hurdle for so many EV buyers.
Speaker 2:The view the view from on the back here is is just incredible.
Speaker 1:Yeah. Really
Speaker 2:good. It's it it really makes you think like we we perfected the car in the, you know, sixties and seventies and then everything everything since then has just been like you know, we tried to do too much to change it and then and then we're just going back back to the future.
Speaker 7:Exactly. And what we wanted to do is you know, obviously this cool technology now but put it behind the curtain Yeah. As opposed to like a good one. Right? I just spent some time with door handles and things like that.
Speaker 7:It's like there's no need to make a flush electronic door handle. Right? Americans know how to make a mechanical thing away you And
Speaker 1:everyone claims that like how the range will double if you make them flush. And I'm like, I don't believe that. Maybe you're taking two miles off by giving me a normal door handle, but the security of actually being able to grab something and just open it like any other door is pretty hard to beat hard to beat.
Speaker 3:And for a
Speaker 7:work vehicle that's be out in bad weather, you're gonna have gloves on and everything else. You don't wanna be mucking out that
Speaker 1:type thing. Feel like the the suburban configuration, I mean, is I I can't exactly the images, but at the same time, this feels easy to park in in parallel park in a city. I don't know.
Speaker 7:Two vehicles that you mentioned. Right? You mentioned the the Defenders. You mentioned the Yeah. The, you know, the Toyota Land Cruiser and things like that.
Speaker 7:So lengthwise, it's in it's in that zone. It's a little bit wider than those vehicles. Yeah. One of the things you don't
Speaker 2:see body that that's so attractive. Yeah. The stance it's so the stance is incredible.
Speaker 7:Yeah. And that what you don't see here of course is we're making a pickup truck as well. Yeah. And I think the phenomenal thing about the pickup truck is basically the vehicle stays the same to here, so we can get almost 75% carryover speaking to your question of of scale and that. And then bed comes back, five and a half foot bed.
Speaker 7:Sure. Separate cab. And yeah. No. I think we've got the we've got exactly what the market's Yeah.
Speaker 7:Looking for. It's fun.
Speaker 1:I assume no plans for two door version. Not yet. I've heard that two door SUVs, none of them have ever been large like, widely successful for the long term. They've all faced hurdles among customer adoption. People say they want them.
Speaker 1:They get in there. They think about their family, and they want four doors. Exactly. Right.
Speaker 7:Yeah. Exactly. I mean, I I think what we can execute far easier
Speaker 1:It seems like the right decision.
Speaker 7:Would be a third row. Right? Yeah. Third row. You can easily extend the the frame and go out and put a third one there which is something
Speaker 1:heavier and you lose a little bit of electricity on the range, you can make up for with the range extender, like you're still in very functional territory which is great.
Speaker 7:Yeah. And and and you mentioned a smart thing. I mean, the ability to upgrade the range extender is super easy. Right? You can either add more power to the engine.
Speaker 7:Mhmm. You can tweak the chemistry. You can add a bigger gas tank if you really want to get Yeah. Super range on the thing. And so it's it's flexible.
Speaker 7:The other thing is in the factory. Right? You don't have to completely retool and change the factory. This can be fully electric.
Speaker 2:Come back.
Speaker 1:Come back here.
Speaker 7:Mix can hold.
Speaker 1:Very cool. Yeah. Congratulations. This is we're doing something cool. You guys have to
Speaker 7:You have to down if you get a chance.
Speaker 1:Yeah. We'd love to.
Speaker 7:I think everyone talks about industrializing America. This is
Speaker 1:This is happening in the real world. Yeah. Remarkable.
Speaker 2:Yeah. The presence is is insane for this this size vehicle. It feels like you have like the like the presence of like a Range Rover Defender, but in this in this form factor that's like just perfectly sized.
Speaker 7:Yeah. Yeah. Obviously, we didn't talk pricing, but the vehicle's gonna start the high fifties.
Speaker 2:And so a vehicle Yeah. That's like This
Speaker 7:capable is Yeah. Is a phenomenal price. And I think that was one of the things, you know, that makes this work is the struggle that startups has if the suppliers can never give them good cost. Right? And so they get murdered on bomb cost.
Speaker 7:I think we can count on the Volkswagen Group to get good parts pricing, get good material cost, make a good margin on the car right off the start, which is huge.
Speaker 2:Yeah. This this in the in the high fifties compared to when I feel like people go chasing this style and silhouette, it's almost always in the high seventies Yeah. That it starts. Transactions '88, '80 Yeah. Yeah.
Speaker 2:Exactly. And then and then you end up with a car that doesn't feel as special from a interior standpoint or or any of these things. Sounds great. I'm thinking of what's the what's the chem that chemical company that brought back the legacy Defender? Oh, INEOS Green.
Speaker 2:INEOS. Like the greener. Know I know a lot of people that are going that that'll buy I I think the project's incredible. The cars look great and everything. But people buying the Grenadier, they want it for that sort of silhouette and that sort of Yeah.
Speaker 2:Feeling Yeah. And that lifestyle. Yeah. But again, you're coming in much higher and it doesn't feel like it's necessarily as designed for everyday life Yeah. Which is why they're buying it as a daily driver.
Speaker 2:Right? Yep. So you want the silhouette but in a daily driver package Yep. And and at this price point there's gonna be competitive.
Speaker 7:No. You hit it exactly right because a lot of people jump into the segment
Speaker 5:but then it becomes
Speaker 7:a fourth car in the driver, it becomes a beach car. So I'm like, no no. We want this thing to be an everyday, you
Speaker 2:know Yeah.
Speaker 7:Everyday killer.
Speaker 1:That's great. Well, thank you so much for showing it to
Speaker 7:much guys all talk.
Speaker 3:Thank you.
Speaker 2:Appreciate it. Back come back on as you get closer
Speaker 7:to lunch.
Speaker 1:Thank you. Yeah.
Speaker 2:Cheers. Cheers. We're going
Speaker 1:back in the studio. And we will be joined by Mitchell from
Speaker 5:the lead
Speaker 1:guys' staff on the show. Talk to him about the latest with the Sasspocalypse. Short everything. Short everything. Who knows?
Speaker 1:Who knows? We'll get we'll get
Speaker 5:his take. We'll
Speaker 1:get his take on everything.
Speaker 2:First Get out.
Speaker 1:Let me tell At
Speaker 2:you price point. Yeah. Really Extremely competitive.
Speaker 1:Let me tell you about Figma. Agents meet the canvas. Your AI agents can now create and modify your Figma files with design system context. And while we're bringing in our next guest, I'll also tell you about CrowdStrike. Your business is AI, their business is securing it.
Speaker 1:CrowdStrike secures AI and stops breaches. And CrowdStrike founder and CEO George Kurtz had a very detailed thread on X today. I don't know if we have time to read through it all, but we should get to it. You should go read it because he talks a lot about what pacing the frontier means for cybersecurity. And all of the cybersecurity companies are up and to the right today in the stock market as people take the threat of botnets and AI malfeasance more seriously.
Speaker 1:People are more optimistic around around cybersecurity companies than ever.
Speaker 2:Yeah. And CrowdStrike was, you know, up around a 100% year to date. So nice to see them up another
Speaker 1:Another 13% or something.
Speaker 5:Yeah.
Speaker 1:Great stuff. Yeah. Scott Motors. Very, very fun. I'm really happy that Scott was able to come by and break that down for What what a fun vehicle.
Speaker 1:And I'm and I think the thing that sticks out to me the most is the the gas extender. I saw Forest Auto Reviews demo a Chinese SUV that had that technology and I was like, I can't I don't want them to be ahead of us. We need this technology in America.
Speaker 2:I don't I don't want them to be ahead of us in in anything to do with gasoline. Yeah. That would just be very unam yeah.
Speaker 1:Yeah. And and so you you you know, you fill it up and then you get extra range and so there's just no, oh, I can't drive to San Francisco in this EV. I'll have to stop for an hour and charge or whatever. That idea just melts away when you're just like, oh, yeah. I can just put some gas in it and I'm good to go.
Speaker 1:Anyway, I believe we have Mitchell Green in the waiting room. Let's bring in the founder and managing partner of Lead Edge Capital back on the show. Great to see him as always. Mitchell, woah. How you doing?
Speaker 1:Here he is.
Speaker 2:What's going on?
Speaker 6:Nada, how are you?
Speaker 2:I'm a little tired. John had a rough weekend. I had a too much time on my my new simulator. Oh, yeah. He's Late late late night.
Speaker 6:I mean, I'd like by the way, be careful going on it like an hour or two hours before you go to bed because you'll like when you you'll be like, oh, one more lap. One more lap.
Speaker 2:No. That that's it. That's it. I've seen Friday Friday yeah. Friday and Saturday, kids go to bed.
Speaker 2:I'm like, great. I'll get on the sim. I look at the eventually I'm I'm, you know, driving for a while, I look at the clock, it's like, you know, ten. I'm like, oh, great. I can I can do go another thirty minutes and go to sleep, get a good night's sleep?
Speaker 2:Next thing I know, it's past midnight, my wife's texting me being like, you're you're really like, waking up basically in the middle of a night sleep being like, are you seriously still in a simulator? But it's the most it's the most addictive.
Speaker 6:It's One more lap. No. It's One more lap. I can do that. I this.
Speaker 6:Got one more lap. Then you get like the second to last turn, you're like, oh, god darn Screw it up. You gotta do, like, another lap. Yeah. I'm I'm well and then, by the way, you're probably, like, pouring sweat.
Speaker 6:So you then get into bed Yeah. Take a shower and you're just, like, then your brain has been fried with light. So yeah. Yeah. Yeah.
Speaker 6:Yeah.
Speaker 1:It's really People say don't look at the small iPhone screen before bed. You're looking at a wraparound triple monitor setup.
Speaker 2:You're you're But John so John John John built a track that that we'll all be on.
Speaker 1:Yeah. So we have a true evaluation for these AI models. We've debated a lot how capable are they. Are they actually useful? I had GPT six Astra go and find satellite footage of thermal and try and create a track in Assetto Corsa.
Speaker 1:We should try drive
Speaker 6:it then.
Speaker 1:Yes. I I took it for a spin yesterday. I don't have a full simulator, so I was driving with the keyboard. Not the best experience, but I'm sending it to Jordy. He's gonna demo it tonight.
Speaker 1:2AM, he's gonna be putting up hot laps, and, we'll see how good it is.
Speaker 6:I'll send it to you too. Joke that there needs to be, like, an AI racing. There needs to be, like, an AI racing league. So I've debated, like, some of the best GT three drivers in the world, like, pro drivers. I'll be like, oh, you realize that like AI could build like a better car that could go around the racetrack.
Speaker 6:Did you guys know? No. No. Impossible. Like, you do realize Elon Musk can land like a can like take a a missile and like land a rocket on a, you know, the same thing the size of my book, my, like, desk.
Speaker 6:Trust me. We could build one. And then I'm like, you know what? When we do it, it's each of the model companies can then sponsor a team.
Speaker 1:Yeah. Yeah. Yeah. Yeah. I mean, I Gemini's a big f one sponsor.
Speaker 1:You got CrowdStrike sponsoring. I say get the big laps on there.
Speaker 6:You get, like, kit Kimmy. You can have, like, a global Mitchell could have one. You could have a global global AI racing league where all the all the companies have to like fund their own AI racing team. Think life racing.
Speaker 2:There might be some real test is can you can you put a humanoid in a simulator Yes. And actually get a a We're
Speaker 1:in a real car.
Speaker 2:Lap time. Yeah. Real car. Real car.
Speaker 6:Simulator first. A humanoid, that's pretty good.
Speaker 1:Yeah. I think
Speaker 6:AI, I've talked about it with a bunch of, like, guys that are principals of F1 teams.
Speaker 1:Yeah.
Speaker 6:You could get a it would be the it's theoretically possible to get a not a perfect lap. You yes. An AI an AI could drive a lap. But, like, I will tell you actually on the simulator, the AI, in iRacing, like, for practice is actually pretty darn good, like, the AI cars.
Speaker 2:Yeah.
Speaker 6:Like, I do believe in real life you could build an AI with enough money. Some billionaire or some company, if they wanted to build an AI, a car that would drive around the racetrack, I think it would be faster than any pro.
Speaker 1:Yeah. Yeah.
Speaker 6:In my in my guess.
Speaker 2:But it's like but it's gonna be like chess where like even once the AI is is like superhuman, you still wanna watch, you know, Mitchell tearing it up. Yeah.
Speaker 6:That's true. I know. Maybe not me, but
Speaker 2:Anthony Other people.
Speaker 1:Yeah. Yeah. Well, I mean, the AI story is growing a ton online. All the debates are pacing the frontier. But I feel like in every moment, you've been very solidly grounded on what's happening in the real business world, what's happening in these real companies.
Speaker 1:So what what have you seen since we last talked over the last couple of months on on the development of just software companies, the real economy, overall health of the investing philosophy that you've had since you started LeadEdge? Like what what has changed? What has stuck out to you as particularly notable in the last couple months?
Speaker 6:Yeah. It's a good question. I think software continues like the big enterprise like sticky software. I'll just I'll talk software and then I'll I'll talk everything and everything AI. And, Frank, I think there's people that you have that are would know a lot more about the AI stuff than
Speaker 1:I would.
Speaker 6:We have but the best way to understand what's happening in software companies globally is watch public company software earnings.
Speaker 1:Yeah.
Speaker 6:Public office company software earnings have been pretty strong.
Speaker 1:Yeah.
Speaker 6:You know, Workday, I think, had said yeah. Think they said, like, $406,100,000,000 or something of of revenue was coming from AI now. It was some number, and it was pretty large Yeah. Was coming from AI. I think big companies, you know, big enterprise companies want their vendors ideally to, like, create solutions for them and work with them versus trying to rip people out and use new vendors and things like that.
Speaker 6:I do think, though, that the pace of innovation, you know, because of of how of AI and agents and all this stuff is only gonna increase. And so, like, every company has a risk of being disrupted. I don't you know, if you're if you're Stellantis and you got a ton of debt and Ford has no debt, well, if you believe, like, robotics and humanoids and AI are gonna, like, dramatically change manufacturing, then Ford can invest in, like, Stellantis probably can't because they're paying their debt load down. Take I think you can take that to every sector of the economy, and so the people that are not innovating are gonna get left behind. And it's yes.
Speaker 6:It's it's easier to start companies now, but it's also easier for incumbents to be able to develop, you know, new products as well. And so, like
Speaker 1:Yeah. So when I look at, like, public company SaaS, I am typically keying in on something that's much more founder and or even just management team driven. Like if I see that there's a founder or a CEO who seems extremely locked in, aware of what's going on, they're early but they're not exactly aping talking points, they're thinking about the capabilities in a rational way, That makes me more optimistic. Is the actual capital structure and and debt load of these companies maybe under discussed as as a
Speaker 6:as a wage? I think I think it just depends on you know, I think I think private equity gets unfortunately, people bucket all private equity assets have to you know, people bucket them as, oh, they have tons of leverage. They're all in trouble.
Speaker 1:Yeah.
Speaker 6:I don't think that's I mean, it's like, private equity owned software assets have tons of leverage and are in trouble. But, if you're a private equity owned automotive company and you have lots of, debt, or if you are a non private equity owned asset and you have lots of debt, you can't innovate. Mhmm. I think the debate needs to be more on, like, companies that are very, very highly levered will find it harder to try to disrupt themselves and continue to innovate and just because you you're spending more and more money on on interest income. And by the way, I mean, rates are only going probably one way because it it be and I think I think one thing that's not appreciated I don't I don't think people are talking about it enough, and I'll actually talk about it from the car world.
Speaker 6:And, like, you could talk about it like the collector car collect collector cars, collector cards, like memorabilia is, like, you know, real estate in San Francisco, real estate in Aspen, real estate in Jacksonville, Santa Barbara, LA. Like, how strong parts of The US economy are right now compared to, like, a lot of parts of Europe. And you can just look at, like if you look at, like, the Ferrari world, the same car in Europe, like, an SP Yeah. It's like half the price. Famous Ferrari just, you know, sold in Pebble Beach for, like, 17,800,000.
Speaker 6:Right?
Speaker 7:Yeah.
Speaker 6:That car in Europe had never sold for more than, like, €8,000,000 or €7,500,000 Yeah. In an auction, like, a month before. And I think it just speak and by way, you can't bring for the audience either. It's why why don't you just bring the European car to The US? You can't for twenty five years.
Speaker 6:So I I think it just speaks to the strength of the economy or at least some segment of the economy in The US versus anywhere else globally. Like, the amount of wealth creation that's happening is just astonishing.
Speaker 1:Yeah. What what is actually driving the wealth creation and the effects in the car market? Because it it it feels like it's super easy to just be like, it's all tech and AI money, but I feel like there aren't that many tech and AI people that are actually into the particular cars that
Speaker 6:I see Yeah. Yeah. I know exactly. I mean, there's a guy there's a guy who sold a big Internet company. He's got a lot of Porsches.
Speaker 6:Yeah. But, like, he's got he's done a lot in every color and every shape. But, no. I think it's Americans wealthy American if you were wealthy three years ago and you were in America, you owned and this applies not only to collect cards. Applies probably to not art funny enough, because the art market actually hasn't gone crazy.
Speaker 3:Oh,
Speaker 6:interesting. But, like, the collector card market's gone crazy for sure, like Michael Jordan's and something like that. But I think it is a function of people were wealthy three years ago living in America, and a lot of those people owned equities.
Speaker 1:Yeah.
Speaker 6:And so today, look at the stock market.
Speaker 1:Yep.
Speaker 6:They're exponentially more wealthy. And they've since realized that they can't that they can't die and they're not getting younger. They're only getting older. Yeah. They can't take it with them.
Speaker 6:They're all like, you know what? My my son or my daughter is 28 or 32 or my grandson is 15 and is into cars or in the watches or into whatever, and I think it's the same reason. You know, and I think it's a combination of equity markets
Speaker 1:Yeah.
Speaker 6:AI, secondaries, and venture. I think it's like it's all it's all of it, conflated together, and people are now are just spending money.
Speaker 1:Yeah. I heard another interesting More
Speaker 6:concentrated here than anywhere else in the world,
Speaker 1:I think. Yeah. I heard another interesting random thing that some family offices are allowing a portion of a trust to be invested in cars. And so sometimes the second or third generation might say, okay. Great.
Speaker 1:We're gonna allocate 3% of this massive fortune to cars. I get to go to curated with a $50,000,000 shopping list and buy one of everything. And so there's there's there's more people sort of securitizing and seeing this as like
Speaker 6:I I it sound like I think it's like planes too. I'm somebody told me that you can't even get a NetJets or Flexjet plane right now. Like, you can't get one. Because if you're if you try to go become like a new NetJets customer, they'll be like, we're sold out.
Speaker 7:Woah.
Speaker 6:And I mean, it's only gonna get worse. Like, somebody gave me the stat. You guys probably know it better than me, but, like, the number of people if you believe that Anthropic is worth a trillion or a trillion and $0.5 and you believe OpenAI is worth that and where SpaceX trades, like, those three companies create more gains than the entire Internet bubble. Like, those people are gonna go spend money.
Speaker 1:Yep.
Speaker 6:And just like if you wanna know where to make money in collectibles or in cars or art or real estate, just figure out sit outside Anttopic headquarters and be like, hey. What do you plan to do after the IPO? What do you plan to spend money on? But I I just think the amount of money that is and by the way, if somebody's made a crazy amount of money very quickly and, you know, there's a and they wanna be at a house in Jackson Hole or
Speaker 1:at They want that no matter
Speaker 6:what. Or in Downtown San Francisco and it's six block radius and there's three homes for sale.
Speaker 1:Yeah.
Speaker 6:Well, you know, then the the buyer is this the buyer is kinda like price agnostic. Know, like, I don't know. Really just wanna live there. I just made a bunch of funny money. The seller knows there's no inventory.
Speaker 6:Yeah. And actually, I think it I think the big problem in real estate right now is people are locked in the low rate mortgages from 2020 and '21. There's, like, no incentive to sell.
Speaker 1:Yeah. Yeah. So Yeah. Hence a lot of the like the poster cars going up in value a ton. If somebody had it on their poster, a poster of the car on their wall when they were a teenager, they make money in their thirties or something, they got to go get that car because that's the car they looked at every
Speaker 7:day Yeah.
Speaker 1:When they were growing up.
Speaker 2:How many how many luxury car clubs do you think that Southern California can support? You have Thermal Thermal right now, you have Elsinore Ring, you have Will
Speaker 6:Is Is that Will Spring or is that
Speaker 2:No. These are two these are two new developments track focused driver communities, clubs, whatever you want to call them that are springing up that are bringing on 100 hundreds of new homes online.
Speaker 6:My guess is Tim look. I'm a member of Thermal. Tim Rogers, who runs it, is a great guy. He's been at it for fifteen years. My my guess is he's probably like, good luck.
Speaker 6:But and I think I think it's a lot harder than people think. You need to build build a track, you gotta get you gotta get enough members there so you can have, like, member race weekends. You know? Like, who wants to be the first five houses? I think it's think it's tough.
Speaker 1:Yeah. It's a tough cold start problem. I I like that the Elsnor Ring had a funny brand to it that, oh, yeah. I know the Nurburgring. I'm never gonna get to Germany.
Speaker 1:So if I can have that experience. But I looked at the length, it's, like, one fifth as long as the Nurburgring. So it's not bringing that experience necessarily. It's like roughly the same length as, you know, the GT
Speaker 6:also think people need to look. I I I truly believe that it is extremely dangerous to drive streetcars on a racetrack.
Speaker 1:Oh, okay.
Speaker 6:I I think I think the most dangerous is to drive streetcars on a race on a street crazy That's total insanity. Yeah. People do it. I mean, people also die, like, you know, Call of Duty, like, you know, the guy that died in LA. Yeah.
Speaker 6:It's crazy dangerous. The next thing is driving a street car on a racetrack. Yeah. And, you know, the thing that's crappy about America is, know, in Europe at least, when you buy a fancy car, like, they can put four point harness seat belts in them I know. Due to, like, you know, European car regulation.
Speaker 6:In America, you can't do it. Oh. They don't do it. Driving a car down a racetrack at a 170 miles an hour with a lap belt, I think it's totally insane.
Speaker 1:Yeah.
Speaker 6:Like, when when you can literally and and these are multimillion dollar cars. When you can literally go buy a 100 to $300,000 proper race car that is very safe. Like, look at race accidents on Instagram or YouTube and look how people walk away from these things Yeah. Versus you hit, you know, you hit the wall in a street car at a 100 miles an hour, you're dead. Yeah.
Speaker 6:So I think that's something that people don't, like, appreciate enough. Like, I I I think a lot of these crack these country club facts should actually not even really allow street cars in the track.
Speaker 1:Oh, interesting.
Speaker 6:Wanna be a member here, you need you need to get a race car.
Speaker 2:Yeah. It makes it also just makes way more sense to use track only cars on a track like economically, Yeah. You can get a way like Yeah. If you're looking for like a specific style of car, the track only version of the car will be half the price.
Speaker 6:Yes. Correct.
Speaker 2:Why would you not?
Speaker 6:So what are all your guests up what what are all your guests telling you guys about like AI? What's going on?
Speaker 2:Like I think the thing that was I'd be curious to get your opinion, but this weekend was like the most amount of infighting Yeah. That I've ever seen in tech. And and I I don't know throughout your career, have you ever has there ever been a moment where you felt like there was this much sort of like fighting and disagreement from within the same industry. Right?
Speaker 6:I couldn't believe the three guy the three guys that all run the companies actually all agreed, though.
Speaker 1:Yeah. Which is causing a lot of people to be like, oh, this is a conspiracy. They're colluding. They're trying to create a cartel or a monopoly. And so I think that's what people are debating.
Speaker 6:They're they're they're both debating, like, is the risk real? Don't know. Although, I don't know all three of them. Must say I've heard Sam, by the way, is in the cars. I don't I do not know Sam.
Speaker 6:I do not know Mario, and I don't know Elon Musk.
Speaker 1:Yeah.
Speaker 6:Never met him.
Speaker 2:Yeah.
Speaker 6:So, but I would bet I would bet that those guys are, like, genuinely concerned that if this stuff advances too fast, like, it's just the unknown. I don't think they say they would say like, we definitely know this is going to happen.
Speaker 1:Yeah.
Speaker 6:But this stuff needs to be regulated. And by the way, I also think it's valuable that we have open source models because I don't think all the power should sit in the world of three companies either.
Speaker 2:But let's let's bring it back to racing. I mean, pacing the frontier to me, you can you can there is a racing analogy which is, you know, you can be you can be going extremely quick without risking at all. Right? Correct. And I've been on the I've been on the track with you and and and you're driving at at what you feel like is a very, you know, comfortable pace.
Speaker 2:And I might feel like, you know, we're gonna go into the wall, but for you that's you're you're you're fully in control. You're still you're you're you're quick, but but you're not
Speaker 6:And by the way you're
Speaker 2:not gonna risk it every corner.
Speaker 6:Yeah. What I what I what I do find interesting though is when the quickest guys are then telling you the car is too fast
Speaker 1:Sure.
Speaker 6:We should slow it down a little bit. Yeah. You probably might want to I I think I think there's
Speaker 1:The halo in f one. The halo in f one does slow the car down. It is extra weight, and yet it saves so many lives. You could see the video of Lewis Hamilton almost taking a wheel, and it hits the halo, and he's fine. And, yeah, that's an example of, like, the trade
Speaker 6:off. I I look. I I think what this really means, and I I we we've said this for a while, this stuff is going to be regulated. Mhmm. It is not it it is I think if anything, the one fear is government overregulate things.
Speaker 1:Yeah.
Speaker 6:But, like, when you have the best equivalent you you have if you had if you had Lando Norris, Kimi Antonelli, and Max, you know, Max Verstappen, Lewis Hamilton and Charles Leclerc
Speaker 1:Yeah.
Speaker 6:And Fiastri all saying
Speaker 1:Yeah.
Speaker 6:Hey, guys. We need we need to do some of this stuff.
Speaker 1:Yep.
Speaker 6:It it may slow the race down a little bit, but we wanna, like we think it's important. You probably should listen to them
Speaker 1:Yep.
Speaker 6:Because we have you effectively have the same thing and now happening with these with these three with these three companies.
Speaker 1:Yeah.
Speaker 6:And, like, you probably should listen to them. Now, again, it probably just means it doesn't mean that AI is not gonna be important, that it's not gonna change the world and all this stuff. I think they're just saying like, hey. We probably need some regulatory frameworks. And by the way, think the Chinese I I credit these guys for saying this actually because I think China is already thinking about this stuff.
Speaker 6:And I think they've been thinking about this stuff for a while on how to put in place proper proper regulatory frameworks around AI.
Speaker 1:Yeah. So
Speaker 2:Deep DeepSeek Well, yeah. Even even the AI the the sell off today, didn't understand because, I mean, I actually understand why it's happening. But if you read into their messages, it's not saying it's not saying we don't wanna still go fast and still continue to innovate. It's just that, you know, we don't wanna hurdle off of a cliff.
Speaker 6:Correct. I I think that they're just like, we wanna work as an industry to well, we wanna work as an industry to make sure the proper frameworks are put in place. Like, I mean, it's it's kinda crazy. I mean, that we read that, like, you know, you read that oh, I it was funny. Like, a month or two ago, whenever the OpenAI hacked Mhmm.
Speaker 6:Whenever the OpenAI model hacked Hugging Face. Like, can you imagine if you read, like, oh, sorry. Like, JPMorgan accidentally hacked Goldman Sachs.
Speaker 1:Yeah. It's a crazy, crazy storyline.
Speaker 6:It's crazy.
Speaker 1:It's sci fi.
Speaker 2:And I
Speaker 6:yes. And so, like, I think that these guys, these guys, gals that run these companies are like, some some of them are probably, like, genuinely concerned. Like and they're listen. I'm not we're not saying we gotta stop. We're not saying we have to pause.
Speaker 6:Just, like, let's make sure we're all on the same page and, like, and where things are going. You know? And by the way, there will be people that use these nefariously for sure. It'll probably increase. But, like, look, I mean, I've talked about it for a long time.
Speaker 6:I I it's still shocking to me that nobody's built in, like, the security world. Like, I think voice fraud is going to explode. Yeah. Like, if you can recreate somebody's voice very easily, then think about what you can do by using somebody's voice to, you know, to commit all types of fraud. And I
Speaker 2:Apple still hasn't fixed the Ryan Peterson was talking about this this morning or yesterday. Apple hasn't fixed the phone call spoofing. So you'll get a call from Google.
Speaker 1:Oh,
Speaker 2:really? And it says on your iPhone, Google.
Speaker 1:No
Speaker 2:way. But it's it's a scammer that's trying to get you to reset. And if I wasn't if I wasn't aware that that was a thing Yeah. I would I would be much more likely to engage with somebody that's just calling from Google saying, hey, there's an issue with your account. We gotta we gotta reset the password.
Speaker 2:So there's there's somebody that's
Speaker 6:I'm I'm not a we've we've we've made a couple of very successful cybersecurity investments. You've backed Doug Song at Duo Security. He built a huge business. Andrew Peterson and tech tech, digital scientists. And literally, like, I think that, like, the biggest risk today might actually be a cybersecurity attack.
Speaker 6:Like, the biggest global risk. I mean, think about it. People get mad when for a day or for, like, three hours, they can't buy an airplane ticket on Delta Yeah. Because, you know, this the CrowdStrike Microsoft update. Now, imagine the Internet goes down for, like, three days.
Speaker 1:Yeah. It would be a big big
Speaker 6:It would be
Speaker 1:that was what that was actually Dario's biggest shift was, you know, in the past, he's he's talked about like existential risk and there's a lot of people in Interopac who have talked about like, you know, wiping out of all humanity which is such an extreme scenario. You wind up having to deal with like, well what about people that aren't on Earth because they're in space? Or what about people that are on remote islands and then the Amish? But but but he actually grounded it a lot more reasonably just saying like like, I think that there is a small possibility that in the next year, you could have a massive internet outage via a botnet that takes over the internet. Yeah.
Speaker 1:And that would be bad. And and and that's much more tract able to get through. It's like, oh, okay. Like, yeah, you just get something that's misaligned and it just gums up all the systems of everything and that's really annoying to everyone and you don't have to jump straight to like the most extreme sci fi doomsday scenario to be like, yeah, let's avoid that.
Speaker 2:Here's a question for When do you think American venture capitalists band together to create a an American bending spoons? Because you got to you got to imagine that there's some frustration of like, well, we invest, you know, hundreds to billions of dollars in these companies and then mister Ferrari comes in and buys them for pennies on the dollar. It'd be nice if we were also the buyer of our bets that don't actually achieve the, you know, tremendous
Speaker 6:By the way, you gotta get Joel Lamont? I I don't know him. I know of him. Yeah. Joel Lamont ran a business called Trilogy Software that did.
Speaker 6:Yeah. He Back in the nineties and two thousands. Like, in fact, he tried to start his Internet up on the failed and he's built a giant I don't know what's happening. I I know it's still a huge business, but,
Speaker 1:like Yeah.
Speaker 6:Somebody's gonna do it in The States. It's like, probably some of these are good businesses. They're just over capitalized. They were over
Speaker 2:Well, in part of in my view, part of the reason why, like, I think that Bending Spoons is gonna print on a lot of these deals is is that there aren't a lot of buyers. Like Mhmm. There aren't a lot of people that are willing to say, yeah, I'm gonna spend a billion dollars for this company that's not growing anymore. Yep. But when you're paying three times revenue and you and you and you can get a lot of efficiency When
Speaker 6:you're paying when you're paying okay. If if you if if when you're if you're basically a got a business where you pay three times revenues and you think you can run it for, you know, see, buy a $100,000,000 business for $300,000,000 business, and you think you can run it with, like, 70,000,000 of EBITDA or 60,000,000 of EBITDA, well, then you basically paid yourself back. I mean, that's an amazing free cash flow yield
Speaker 1:Yeah.
Speaker 6:On it. So, yeah, these people are gonna I know that they build, like, factories. Somebody else is if you're gonna I think you'll I'm actually surprised you haven't seen more of them. So, you know, private equity back when it's happened, but Yeah. Because there's a a lot of investors, private equity, venture capitalists, buyout, you know, everybody.
Speaker 6:Like, they just can't let go. Sure. And sometimes, it's just like, hey, guys. We've been in this thing for fifteen years.
Speaker 1:Yep.
Speaker 6:Just sell.
Speaker 7:Yep.
Speaker 6:Like, who cares? Just get out of this stupid thing. Yep. I think that I think
Speaker 1:something else.
Speaker 6:I think that I think people struggle with that.
Speaker 1:Yeah. I think people have been surprised by bending spoons because they're buying, like, not household names, but household names in tech as opposed to Trilogy bought a lot of companies, but a lot of smaller businesses that were not high flying, venture backed. The the founder's been on podcasts, now Bending Spoons is going and saying, let's get, you know, these companies that you know. And we're hot, and we're backed by tier one VCs. And so it's just a different sort of flavor and narrative to it, but I agree.
Speaker 1:Someone in the chat, John actually is calling out Octave Capital
Speaker 2:Eric Friend, Jeremy.
Speaker 1:Potentially working on that. I think there's other people too. Yeah. Interesting stuff.
Speaker 6:There's a lot of assets they get to pick. I can say that. There's gonna be a lot more too. There's gonna be a lot more, I think. Look, there's gonna be some of the world's greatest companies created over the next twenty years.
Speaker 1:Yeah.
Speaker 6:Who knows if they're even the Anthropics and OpenAI's of the world. There might be companies that never even existed. I'd use this analogy, had we sit here in '99, we wouldn't have talked about ByteDance or Facebook or SnapFat or any of these things. Like, any these things the 5,000,000,000,000 social media is a $5,000,000,000,000 market today. Like
Speaker 1:Yeah.
Speaker 6:I think that and then, you know, like, a huge amount of people that are building new companies will fail. I mean, it's just like the failure rate will be high when you'll have a few. But, like, the prize is is gigantic for the guys that win. And so, but, you know, you know, a there's lot of companies from 2012 and 2015 and 2018 sitting around in 2022, and it will be 25 in a few years that people don't know what to do with.
Speaker 1:Yeah. And I think a lot of founders wanna move on, start a new company, do something that's with a fresh team. And we actually saw it with betting spins. One of the companies they acquired was able to spin out their AI products Yeah. Experimentation division, take the founders, some key employees who wanted to go on that journey.
Speaker 1:Other folks were able to stay with the business and there's a whole different story and chapter emerging.
Speaker 6:Yeah.
Speaker 1:But always great to catch up. Thanks so much. Yeah. Great to see you.
Speaker 6:You. Talk to
Speaker 1:you soon, Mitchell. You're man. Have a
Speaker 6:great one. Goodbye.
Speaker 1:Let me tell you about public.com. Investing for those that take it seriously. They got stocks, options, bonds, crypto, treasuries, and more with great customer service. And I'm also gonna tell you about MongoDB. What's the only thing faster than the AI market?
Speaker 1:Your business on MongoDB. Don't just build AI. Own the data platform that powers it. And we have some very special guests joining us right now. We have David Rosenthal and Gilbert from the from Acquired.
Speaker 1:I'm not even gonna call it the Acquired podcast. I think it's just Acquired. We need to adjust the cameras a little bit, but thanks so much for being here. Congratulations on all the progress. What's the latest in your world?
Speaker 4:You know, talking about home improvement.
Speaker 1:Yes.
Speaker 4:David and I spent a lot of time
Speaker 1:You knew you knew what was gonna be viral this weekend, and you were like, everyone's gonna wanna get away from AI psychosis
Speaker 2:Palette clinic.
Speaker 1:Touch graphs and go to Home Depot.
Speaker 8:We actually have already gotten a comment on our Home Depot episode who just came out was, thank God something Yeah. My mind off
Speaker 1:of imagine How did you pick how did you pick Home Depot? What stuck out to you about the company? Was it just the next one in the queue? Or was there something that drew you to this company in particular that got your wheels turning? I know you found a lot of interesting stuff during the process, but what was the inciting element?
Speaker 4:So it's like a top five listener requested episode. Really? There's probably a lot of people thinking that's a boring company. I don't know why they did it. But we would get emails every week, David, for the last Yeah.
Speaker 4:Two, three years saying, when are you gonna do Home Depot?
Speaker 1:Okay. And where did you start? What was the initial research process?
Speaker 4:Well, the most curious thing is how large it is.
Speaker 1:Yeah.
Speaker 6:I mean,
Speaker 4:that every giant retailer does everything. Walmart, Costco, Amazon, these are general retailers. Home Depot is a specialty retailer, but somehow is worth, you know, fluctuating between 300,000,000,000 and 350,000,000,000 because home improvement is just an absolutely enormous category and they own, depending on how you sort of frame the market, like 50% of the market.
Speaker 1:Yeah.
Speaker 4:And so they they sort of they they picked the most interesting category to be in and then they built a business that had scale economies so they could negotiate the best prices, do the most volume and so they're this giant business in a giant category.
Speaker 1:Is the And that's the Yeah. Yeah. Is the only source of strength scale economies? Has that been the the story the whole time, or is the brand also important? Like, what else plays into
Speaker 8:College game day, baby.
Speaker 1:College game day. Okay.
Speaker 8:No. Brand has been very important. Lots of things. I mean, the come back to that in a sec, Sure. We picked it for the reasons Ben said.
Speaker 8:Yeah. But then when we got into researching, we realized Home Depot is actually the greatest total returning stock, public US public stock since the day it went public. So, like, you could have bought any other stock Yeah. Apple, Nvidia, Microsoft, whatever, on any other day
Speaker 4:Since 1981.
Speaker 8:Since 1981 when Home Depot went public Yeah. You would not make as much money as you would have if you had bought Home Home Depot on the day of its IPO.
Speaker 1:They beat Domino's? I thought Domino's was the best stuff.
Speaker 2:Monster's is up there too.
Speaker 1:Monster's good.
Speaker 8:Yep. Yep. Yep. The Monster's number two.
Speaker 4:Even if he bought Nvidia on IPO day
Speaker 1:in No way.
Speaker 4:1998, that nothing will exceed your total return with dividends reinvested Oh. Compared against buying Home Depot on IPO day in 1981.
Speaker 1:So there are people that put in a thousand dollars and what do they have now?
Speaker 4:$34,000,000
Speaker 1:for a thousand dollar investment. And and it feels like is is Home Depot, because it has a consumer ish brand, does it actually attract a different different cohort of investors? Like, is it is it is the is the actual investor base more diversified? Are there more employees who who participated in that? Yes.
Speaker 4:So they had this strategy that one of the unique things they did early on was instead of recruiting employees that you would for any retailer, you know, Walmart employees, they recruited former trades people.
Speaker 1:Mhmm.
Speaker 4:So plumbers, electricians, people that could actually help you with your home project. And the goal is, hey, if if you buy, you know, a successful toilet and you manage to install it yourself, you're probably gonna get interested in redoing a bathroom or building a shed or, you know, an ADU or something. And they their goal was to kind of level you up and they were in a category where they could take someone who was originally in to buy a 10¢ washer eventually turn them into a $100,000 customer. That doesn't really exist anywhere else in retail. Yeah.
Speaker 4:And because they could do that, they kind of bet the company on being able to do it. And so they built this whole engine around this like shoot the moon strategy of we're going to get really big, we're going to get big fast, and we're going to motivate our entire employee base to do so. So even back in 1980, they were giving out compensation to employees, like retail employees on the floor in the form of stock.
Speaker 2:Wow. Wow.
Speaker 8:Which is because these people became like multimillionaires. It's awesome.
Speaker 2:Yes.
Speaker 1:How important are the founders to the story? How singular is the founding story versus potentially a violation of the great man theory of history? Take me through the role of the founders in that journey because yeah. To to basically till today.
Speaker 8:Yeah. I mean, Home Depot is crazy because Bernie Marcus was the CEO and sort of the the primary person, but it was this team and they all had different superpowers. So it was Bernie Marcus, Arthur Blank, who owns the Atlanta Falcons today. Yeah. A guy named Pat Faraj, who was the merchandiser.
Speaker 8:And then Ken Langone, some folks listening might know who Ken Langone is. Yeah. He was an investment banker, but he was one of the cofounders and like, it was all part of this strategy. Right? So like, Ken took the company public when it was basically a year old, two years old at this tiny valuation because he could and then he helped architect
Speaker 4:million dollars. $32,000,000 market cap at IPO.
Speaker 1:Wow. And is that just like a is that just his his unique ability as an investment banker to get that deal done? Because we've seen smaller IPOs happen through like SPACs and there's some there's some oddities out there in the market where I could see, you know, oh, if this company, thousand x's, it could be a crazy story.
Speaker 2:I've actually been surprised that we haven't seen a a super subscale company do an IPO in this Yeah. In this market. Right? Because you could imagine if if you just took, for example, three decently smart AI, you know, researchers and you put them in a vehicle and took and took it public.
Speaker 1:Yeah. But it would go public at 10,000,000,000 already, so you don't have the upside. You can't Like, there's no
Speaker 2:there's no scenario. We're saying $32,000,000
Speaker 1:IPO.
Speaker 2:Well, okay. Yeah. Yeah. That that's correct. But but at least the bankers would be able to price it much much lower than that and then it would trade up to Sure.
Speaker 2:You know, some some insane and and it it would right now, there's too much incentive for venture capitalists to say, don't don't do that. That'd be crazy. Let me give you $500,000,000 and you can take some secondary or whatever. Yeah. There's lot of reasons not to do
Speaker 4:robust private market financing, especially not for a retail concept. I mean, the retail concepts that they're they're capped. Right? How big could it possibly get? But they sort of invented this, like, giant category and then took half of it.
Speaker 8:And it almost happened with the the VC dynamic almost happened with Home Depot because Ken Langone got famous because he took Ross Perot's company public, like EDS. Yeah. And so when he and Bernie and Arthur were starting Home Depot, Ken took him to Ross and was like, oh, we'll just get my buddy Ross to finance this thing. And Ross there was a deal on the table. Ross Perot is gonna own 70% of Home Depot and bankroll the whole thing.
Speaker 8:70%, which today would be worth about $230,000,000,000.
Speaker 1:Yeah.
Speaker 8:And the whole thing blew up because Ross tried to dictate the type of car that Bernie and Arthur were gonna drive. They drove Cadillacs and Ross pro this is you can't make this shit up. Ross was like it was like, my guys don't drive Cadillacs, they drive Chevrolets. If you're gonna drive a Cadillac, that's gonna be a problem for me. Okay.
Speaker 8:And so the Home Depot guys walked away.
Speaker 2:It is sort of seemingly kind of random to be Cadillac guy building it.
Speaker 1:You have to remember that back then like a Cadillac was like a Mercedes g wagon and a Chevy was like a Ford Taurus. Like, yeah, like, the brands have now coelastic
Speaker 2:but still It I don't think of Cadillac as like the It was like, oh, you spent money. Yeah. But you're you're you're running a home home improvement you know, contractor supply business like No.
Speaker 1:Cadillac Wall Street on.
Speaker 5:It's a limousine company.
Speaker 2:No. But I just think that's notable. They're not driving like an f one fifty or
Speaker 8:because the founders, including Ken, they weren't home improvement guys. They they were retail guys who saw the opportunity in this category, had gotten into it in another company in the past and then started Home Depot. Home Depot was basically their prior company mashed up with Costco. They knew Saul Price who had started Costco. Oh.
Speaker 8:They saw what Saul was doing with Costco in San Diego and they were like, oh, we can do the same thing with home improvement and it'll crush.
Speaker 1:What was their rotisserie check? You want my money, you gotta LARP. You have to LARP his blue collar. So What was their rotisserie chick? A membership model like Costco?
Speaker 1:Did they ever pull anything else from Costco?
Speaker 4:They pulled a lot from Walmart, interestingly. I mean, the the obvious stuff they pulled from Costco. So it's gonna be a giant warehouse. We're not gonna face the labels out. You're gonna have to go up to the pallet and, you know, just grab it off yourself however it shows up in the pallet.
Speaker 4:Yeah. There there's those obvious parallels. Interestingly, they got a lot from Walmart. The employee compensation stuff Sure. They got from Walmart.
Speaker 4:And then the what was the other thing they got? Oh, everyday low prices.
Speaker 1:Okay.
Speaker 4:Walmart sort of invented that idea of like things don't go on sale. Sure. It's just everyday low prices and obviously they moved away from that now. But that was Home Depot's ethos for a while too.
Speaker 1:Yeah. But no cure. Was it only?
Speaker 2:Was it up only or was there some dark days? Like, what what was the
Speaker 4:There was the company almost completely died in two thousand and six, seven going into the housing crisis. Yeah. But not for the reason you think. You would think like, home improvement company is probably falling apart because the the macro is changing and actually housing's at the root of it. Yeah.
Speaker 4:They had brought in leadership, a new CEO in 2000 who was just the first few years were good, but then just absolutely the wrong person for the job and the the the culture got kind of messed up. The whole value proposition to customers became like less and less clear and they really tried to focus. It was it was a GE guy that came in, really tried to focus on six sigma. We're gonna be as efficient as possible. We're gonna have as few employees on the floor as we can.
Speaker 4:We're not gonna hire expensive specialized employees. We're gonna try to get more general retail staff. And it it really watered down the whole value proposition. And actually, Frank Blake, who became CEO in January 2007, is credited with saving the company. If you ask Ken Langone, he said Frank absolutely saved the company.
Speaker 1:Wow. What was COVID like for Home Depot?
Speaker 4:Crazy.
Speaker 8:Not the greatest thing that ever happened to them.
Speaker 4:They they they grew
Speaker 2:So you're saying they may have been
Speaker 1:Behind it.
Speaker 2:Behind it? They're pointing fingers. Pointing That
Speaker 8:would really be a conspiracy.
Speaker 4:They built up an astonishing amount of supply chain and ecommerce readiness in the like three, four years leading up to it.
Speaker 1:Okay.
Speaker 4:And I mean, they just had so much capacity for everyone who was trapped at home, wanted to improve that space in their home, but also didn't really want to go to the store to get all of this stuff. It was this, like, ridiculous perfect thing that fell into their lap.
Speaker 1:Mhmm. How how do you square the fact that Home Depot's been on this tear? America seems to be very into these DIY projects, into building things. There's been this, you know, centuries long build out of the American home, and yet there's so many talking points about we can't build things in America. There's a housing crisis.
Speaker 1:There's not enough housing. How can these two things coexist at the same time? What's actually going on here?
Speaker 8:Home Depot is the perfect end around this, at least in the early days because it's it's DIY.
Speaker 1:Okay.
Speaker 8:You don't need permits when you're just doing this yourself. You don't need permission. That was the whole ethos of the company. Contractors and pros now are half the business. Yeah.
Speaker 8:But even still, it's mostly residential. Yeah. And a lot of that just skirts around all this bureaucracy.
Speaker 4:Got it. And I completely agree with you that America's not building enough housing, especially single family homes. We're building a lot of condos and townhomes, but, people wanna live not necessarily in cities, but near cities and in single family homes, and we aren't building many of those. Home Depot is experiencing like the most ridiculously awesome secular tailwind from that ever because America
Speaker 2:has
Speaker 4:a giant housing base that gets older every year.
Speaker 1:Oh, yeah.
Speaker 4:So the median age of a home is up like fifteen to twenty years
Speaker 1:Yep.
Speaker 4:Versus when they were getting founded. And so for them, it's just this like almost an annuity that people need to be working on these old houses.
Speaker 1:So new homes don't need as many trips to Home Depot. So you think Home Depot might secretly be behind the housing crisis.
Speaker 4:Look, you're the conspiracy theorist. Can kind of put words
Speaker 2:in your mouth. Behind Wow.
Speaker 5:This goes
Speaker 1:way deeper. It's the most powerful company in the world. Forget the AI company. That's a side
Speaker 8:investing in Home Depot than in Nvidia. Yeah.
Speaker 1:You know, you need to apply the the the skepticism that you apply to every AI leader's blog post to the Home Depot team for sure. Every move they
Speaker 2:did you guys do any projects to as part of your Oh, yeah. Did you like try to Did
Speaker 1:you add a fourth bedroom or something
Speaker 4:in your house personally? Just do shopping trips. I didn't do major projects. Okay.
Speaker 1:Every time I go, I'm back seven times. Like that retention, it's sort of like anti churn. Like you can't get out with just one trip because you go and you're, oh, I need a different nail. I need a different screw and then you're back there a couple times.
Speaker 8:There's so many beautiful dynamics to it. This is it. Like, you know, if Yeah. At least for the DIYs and for the pros, jobs can't stop.
Speaker 1:Yep.
Speaker 8:You know, if you're trying to get something done on a weekend yourself or if you're a pro, it's your job during the you run out of nails, you gotta go to the Home Depot.
Speaker 1:Yeah. Yeah. Is the retail footprint strategy? Have they been just growing the number of locations continuously? No.
Speaker 1:Have they been consolidating?
Speaker 4:Is is this a leading question?
Speaker 1:Do you know the answer?
Speaker 4:It's nuts.
Speaker 1:Home Depot
Speaker 4:grew stores like crazy. I mean, seriously, it was like the original blitzscaling company from 1979 until 2006.
Speaker 2:Yeah.
Speaker 1:And we're not talking McDonald's scale, but we're talking thousands of stores?
Speaker 8:Twenty twenty three hundred stores.
Speaker 1:2,300 stores. Okay.
Speaker 4:And then they stopped. Okay. Dead stop in 2007 and they essentially didn't build another store until two years ago.
Speaker 1:Woah. Wow. That's crazy. And was that just because they were
Speaker 2:driven so much of the performance because you have like, you know, one of your primary costs of, you know, all this CapEx and then suddenly you're like, no, we're we're pretty much good. We've we have our, you know, storefronts.
Speaker 4:And and they just focused on ecommerce build out Yeah. And building more fulfillment centers and specialized fulfillment centers for ecommerce. And I I it was just like, okay. We already have most of the good real estate. We're just gonna focus on store efficiency and building all of this fulfillment supply chain stuff.
Speaker 4:And now they've started building again. They're like, okay. We took, what was it, a decade and a half off and time to build.
Speaker 1:So they went to all the other leaders in the space, told them let's just stop the expensive CapEx right now, make sure the margins are in a good place so we can get out, perform in the public markets, you know, tinfoil. Yeah. They wanted to pace the frontier. That's what
Speaker 8:they want Pace the frontier.
Speaker 1:Exactly. Pace the frontier of their retail expansion. Is there but on the structure of their actual retail footprint, is there a similar you know how people with McDonald's, and I think you've you've you've illuminated this a lot on like, is McDonald's just a real estate play? Like, they own all the real estate. Does what is that dynamic with McDonald's?
Speaker 1:And then is that is it the same with Home Depot? Like, is there a value to a company of just like getting a lot of retail space or, like, owning a lot of buildings? Or is that always just, a sideshow that people put too much, too much focus on?
Speaker 4:I actually don't know for McDonald's. The thing I do know for Home Depot is it's not like you just look at their real estate portfolio and say like, oh, that's half the market cap right there. Sure. But it does benefit them in that when they build a Home Depot somewhere, all this other stuff gets built around them.
Speaker 1:Oh, yeah.
Speaker 4:And then they don't have to go renegotiate the lease in ten years or risk losing it to their competitors. So they now do own Yeah. All or most of the stores because it's sort of a durability thing.
Speaker 1:What what what are some examples of things that get built up around them? Like, HVAC repair shop or something? Like like what what are you what are you referring to there?
Speaker 4:Food, beverage, you
Speaker 5:know, food
Speaker 4:They anchor shopping centers.
Speaker 1:Oh, okay. Okay. Like whole like, there might be a Best Buy across the street. There's Target.
Speaker 2:Yeah. Yeah.
Speaker 1:Oh, okay. Okay.
Speaker 2:It. Stores. Yeah.
Speaker 1:It's not specific to what you need to do a home home
Speaker 4:actually don't want you going anywhere else. The whole strategy is if this should be your one stop shop, we're gonna stock an insane amount of stuff and you shouldn't have to go anywhere else for your project.
Speaker 6:Mhmm.
Speaker 2:I I I think that robotics are gonna be another tailwind for them because if you assume that if you assume that a humanoid and let's say like, you know, let's be generous with the timeline, a humanoid in
Speaker 1:A thousand years.
Speaker 2:Two hundred years.
Speaker 8:Depends how much we pay ten years.
Speaker 2:Ten years. Ten years. You're you're walking out of your house in the morning and you can tell your humanoid like, hey, I actually want a fence there. They'll just spend the day building a fence. Right?
Speaker 2:And it sounds crazy, but today we do a lot of digital work like this where you're like, hey, I wanna understand. I wanna build this piece of software. I wanna do this. This is gonna transition into the real world and and it's just not that hard to imagine doing a lot more because you have this sort of like latent labor capacity that you you already have as like an individual, somebody, you know, with a house or whatever. And you you you're gonna probably wanna do a lot more than if you have to coordinate with somebody and and then there's someone else's fee and all this stuff.
Speaker 2:So I think that's interesting.
Speaker 8:Yeah. And I think you're you're even more right than maybe you're thinking about because the logistics for getting this stuff to your house is quite unique. Like, imagine trying to put, you know, £3,000 of lumber through the Amazon logistics
Speaker 1:system. Totally.
Speaker 8:You know, and Amazon has built out some side channels to be able to do this, but this is all that Home Depot has been investing in for the last twenty years when they haven't been building stores is this. Like, you can get 3,000 pounds of lumber in two hours at your house.
Speaker 1:Have there been any, like, misadventures
Speaker 2:I where actually need lumber.
Speaker 1:They've house. They've considered like going up market or going into Yeah. Potentially like home decoration, furniture. There's a whole bunch of adjacencies that could be opportunities but also risks.
Speaker 4:Yeah. So the biggest one is HD Supply. Yeah. In the early two thousands, they bought a bunch of companies and tried to sort of squish them together and then make this distribution business. Like a different way to distribute to pros, pro contractors outside of our using our physical store footprint.
Speaker 4:That ended up being this, like, big distraction. They needed to spin it off. Hilariously, a decade later, they ended up buying the most valuable part of it back, and it actually is part of the business now that they're sort of ready to do that expansion.
Speaker 8:Interesting. Other one China and international. Yeah. Just the culture around DIY and home improvement is not the same in most places of the world and
Speaker 1:Sure.
Speaker 8:Definitely not the same in China.
Speaker 1:So they tried to expand their footprint there and were basically unsuccessful?
Speaker 4:They opened a dozen plus stores, maybe And, dozens of yeah. Interestingly, in China, it's not cool to be working on your house on your own, like why can't you hire someone to do that for you? The wealthy people want to live in cities which don't really need much DIY. Sure. So it's very different.
Speaker 1:Are new.
Speaker 4:Yeah.
Speaker 1:Yep. Seems very un American over there. I don't get it. Potentially a completely different country.
Speaker 2:Lowe's is roughly has like roughly a third of the market cap. Was there ever a period where where they were more neck and neck? Obviously. Yeah. Break break down maybe that, like, the most kind of competitive period before they seemingly kind of ran away with it.
Speaker 4:So Lowe's is over a century old. It was Lowe's market for the longest time, and Home Depot started, you know, many decades into Lowe's's existence and then just went and basically discovered this new business model of Sure. Giant warehouse store, five times the amount of square footage that Lowe's or any of these other sort of regional chains at the time, essentially hardware store has had. And it turned out that your ROI on a giant store that had everything was much higher than your ROI on a bunch of little stores that had a limited number of things. And so Lowe's to their credit, when Home Depot passed them in 1989, Lowe's really woke up to this and said, okay.
Speaker 4:We're completely changing our whole business. And so they started shutting down the old store concepts and building basically Home Depot clones at first, and then they they kind of develop their own twist on them. But that's why they're so similar today.
Speaker 2:Mhmm. Interesting.
Speaker 1:Do you have an idea for how Home Depot's ecommerce penetration maps to other physical stores like a Walmart? Like, it just it feels like the the urge to, I need this particular nail. I'm going there right now. The project must go on. I would assume that Home Depot, even if they've been successful in e commerce, they haven't been as successful as shifting the revenue there as other other retailers.
Speaker 1:But what's what's actually happened?
Speaker 4:So the sleight of hand there that you did unintentionally is for most people Mhmm. Most retailers, ecommerce equals delivery.
Speaker 1:Yeah.
Speaker 4:And that is not true at Home Depot. An enormous amount of their ecommerce is in store pickup. Uh-huh. Because in your case, you know, you're home, you're doing the project, you have the wrong size nails, but, like, you have four hours to finish this project. You got a family, you gotta go do TBPN stuff.
Speaker 1:Yep.
Speaker 4:And so you're not really willing to wait the extra hour
Speaker 7:Yeah.
Speaker 4:To have it delivered to you. You're just getting in the car, but you wanna know that when you get there, it's gonna be ready for you. It's going be super easy to pick up. So I don't remember the exact stat, but I it might be like half of their ecommerce is actually pickup.
Speaker 1:Yeah. I wonder where all this goes because I I recently DoorDash something from Best Buy and and it was an amazing experience because it was faster than me driving to Best Buy and back because they found a local driver who was able to just pick it up. So there was like no way that I could ever outperform it because
Speaker 2:That was the first time you ordered local delivery or
Speaker 1:I mean it was just it was the first time I
Speaker 2:ordered delivery that wasn't like John discovers
Speaker 1:I'm wondering if they're more optimistic on that or drone delivery or anything else. Like do you have any idea of where the current management team is seeing the future of Home Depot? Like, what are they actually excited about? Because sometimes it's just e commerce, sometimes it's basic AI stuff, sometimes it's new delivery trends. Like, management team always has like a stump speech for like where they think things are going and maybe it takes a couple years to get there, but what are they excited about?
Speaker 8:Well, huge focus of the company and and most of their growth for the past decade or so, COVID excluded Mhmm. Has been from pros, from contractors, and getting bigger and bigger contractors and builders more deep into their supply
Speaker 1:Mhmm.
Speaker 8:Workflows. So and and ecommerce is actually a big part of this too. You know, a lot of the smaller contractors, residential GCs, they're already Home Depot is their primary just in time supply and increasingly, like, their main supplier. But if you think about, like, really big builders, multifamily, commercial, you know, cranes, all big stuff. Historically, Home Depot has not been penetrated into that.
Speaker 8:They've been penetrating a lot more into that. So now Mhmm. Now you need, like, corporate relationships. Yeah. You need, like, orders aren't just, like, coming to the store.
Speaker 8:You need to be able to deliver it or or go to the store, but it all needs to be in a very different enterprise kind of system.
Speaker 4:Yeah. But it's not drones. Like, it's not any of the things you were just saying. It's AI a little bit. They they talk a lot in their annual report about the ways they're using AI to better help people find the right products that they want and use the website and build their IT systems and all that.
Speaker 4:But they sell big heavy stuff. Yeah. So trucks.
Speaker 2:Yeah. I'd be a little worried if they were like, we're getting into drone delivery. It's like, oh, I'm I'm happy to hear you're gonna be flying Why don't you be the last? Yeah. You're last.
Speaker 8:You're last. Rentals is a big part of their business. So you think about you need a concrete mixer. You need some kind of specialized tool. You need a backhoe.
Speaker 2:Yeah. Okay. So I I needed this episode. Needed this episode to like two weeks ago because I I got a bunch of
Speaker 1:Dirt delivered.
Speaker 2:I wanted my my oldest has like an electric dirt bike thing and I was like, well, he's got an electric dirt dirt bike, he needs a So I got all this dirt delivered thinking, oh, it's gonna I'm just gonna, you know, use a shovel or whatever. I start getting out there with a shovel and it's like, okay. Now I'm basically doing kettlebell exercises for four hours straight like moving dirt around. I even had Nick on our team stop by to hang out and I was like, get ready to shovel some dirt buddy. Felt felt bad about that one but I I was not even aware that I could just get get get that equipment delivered.
Speaker 1:That'd be fun.
Speaker 2:Question from the chat. Is the is the smell natural or is it engineered? Like like
Speaker 8:did have they because
Speaker 2:that feels like it's a part of the brand now and so that's something they need to like if they lose that, like they lose all the nostalgia and all all the memories that that kinda come flooding back when when you walk in there.
Speaker 1:Is the smell mostly sawdust? Is that what it is? I don't know. Anyway, what do you think?
Speaker 4:Wanna tell the store opening?
Speaker 8:Yeah. Yeah. So I don't know about the smell today. I assume it is intentional, if not engineered. But in the early days, there's a famous story about the first two store openings.
Speaker 8:The store managers thought they were gonna surprise everybody and, like, do a really fun thing for the store opening. They hired a cleaning crew to come in and polish the floors the night before. And then the founders come in at like four in the morning and they lose their tops. And they're like, what are you doing? These need to be action places.
Speaker 8:We can't have polished floors. And so they grabbed a bunch of forklifts and started like skidding them around the floors and they sprinkled sawdust all over the place.
Speaker 1:No way. Wow. Yeah. That's super thoughtful. Last question for me.
Speaker 1:What I feel like you guys are fantastic at finding archival images, just odd documents. Was there anything from this process that stuck out as, like, your favorite piece of Home Depot lore or fun fact or obscure image or document or something like that?
Speaker 4:Yes. So we we relaunched a new website this year.
Speaker 1:We've been working with
Speaker 4:this fantastic designer, Ed. And she found this she she launched this thing called artifacts. So if you go to acquire.fm/artifacts, you can see the artifacts we discovered from any given episode. She found the Moody's manual from 1977 and 1978 that Ken Langone referenced when he looked at the original share price of Handy Dan, which is where the founders worked before they started Home Depot and, it became interested in their company. So I like, I thought we were pretty good at this, but what Elliot has found is nuts in terms of some of the old stuff that she's doing for artifacts page.
Speaker 1:Some of these annual reports are are super super cool. The the visual design of the first annual report, so much imagery there. I feel like I don't know. This would be like dunked on in the modern era being like too many images, not enough facts. But I I think it tells the story really really clearly.
Speaker 1:This is acquired. Fmartifactshomedepot. The team's showing it on screen right now.
Speaker 2:What Acquired episode should people go listen or re listen to to have some historical
Speaker 1:What's the companion piece?
Speaker 2:No. No. No. Oh, No. I was gonna say historical context for this moment Oh.
Speaker 2:In AI where in tech where there's like extreme tension, extreme infighting, you know, people that are generally aligned on a bunch of things are suddenly deeply misaligned and have different interests. Anything that stands out?
Speaker 4:This was before Acquired episodes were good, so I always hesitate to recommend this one. We were still warming up. But Standard Oil.
Speaker 1:Oh. Yeah. Okay.
Speaker 4:In like twenty seventeen, eighteen, we did
Speaker 2:I had a feeling. Yeah.
Speaker 1:Yeah. That's good. And
Speaker 8:the other one I'd throw it out is Lockheed. Lockheed Okay. Interesting. Coming out of Yeah. The wars, World War two.
Speaker 4:Last Supper. That there's famous in of the defense industry. Yeah. Where the Yep. The the secretary of defense gathers all the prime contractors around at the end of the cold war and says, we are shrinking our procurement budget and expected to shrink basically every year for at least the next decade.
Speaker 4:And so there's gonna have to be less of you. I don't have any say over antitrust, so I'm not really advising you to do anything anti competitive, but you need to figure out how we have less mouths to feed.
Speaker 2:Mhmm. Wow.
Speaker 1:And then
Speaker 8:sort of the punchline of the whole episode, which we didn't know going in but discovered is Lockheed and the military industrial complex created Silicon Valley.
Speaker 7:Like Yeah.
Speaker 8:Literally. Lockheed created the town of Sunnyvale.
Speaker 1:Yeah. That's crazy.
Speaker 4:I believe that. And I think there were something like 10 times more employees working in the secret Lockheed, Lockheed Missiles in Space
Speaker 2:Missiles in in
Speaker 4:Bunnyvale than the rest of the tech industry combined at the time. I mean, it's like they they literally brought everyone here and started it all.
Speaker 8:All those early Silicon Valley startups selling chips, who do you think they were selling to? They were selling to Lockheed and the military.
Speaker 1:Yeah. Wow. Yeah.
Speaker 2:It's amazing. Well, we'll listen to those. It's great to see you both.
Speaker 5:Great see
Speaker 2:Let's hang out soon.
Speaker 1:Let's hang out soon.
Speaker 2:And Great see
Speaker 8:you guys.
Speaker 2:Yeah.
Speaker 1:Congrats. Have a good rest of your week. Hanger. We'll talk to you soon. Good.
Speaker 1:Goodbye.
Speaker 2:Cheers, guys.
Speaker 1:Let me tell you about console.com. Console builds AI agents that automates 70% of IT, HR, and finance support, giving employees instant resolution for access requests and password resets. Our next guest is with us in the waiting room. We'll bring in Faraj from Cognitive, the founder and CEO. Welcome to the show.
Speaker 2:How are doing?
Speaker 3:Great to be here. Thank you so much for having me.
Speaker 1:Thanks for hopping on. Since it's the first time on the show, I'd love for you to kick us off with an introduction on yourself and the company.
Speaker 3:Sure. Thank you first of
Speaker 5:all for the opportunity. My name is
Speaker 3:Faraj Alaei. I'm the founder and CEO of Cognitive. I've been in this industry for over forty years, the last thirty of it in Overnight? Since back to business. Yeah.
Speaker 3:Yeah. I've I started when I was only two years old,
Speaker 2:guys. So Straight out
Speaker 1:of the crib.
Speaker 3:Exactly. Yeah. Prior to founding this company, I I founded semiconductor company back in the late nineties, took it public on Nasdaq.
Speaker 2:Wow.
Speaker 3:And then I took another start up, built it up, and took it public, and NYAC in 2017. Sold it in 2019 to Marvell Semiconductors. I went on for two, three years and did investing, you know, helping other entrepreneurs get their ship off the ground. And that's when I learned enough about AI to kind of have the light go on and see, realize that perhaps with AI, I could actually solve some of the issues that I had as an entrepreneur building two semiconductor companies. And and that's really kind of like like, it's been the mission for me now in the last two and a half years.
Speaker 1:What is your process for finding opportunity and how has it changed? Because are you looking at the applications of how people are using chips, where there's demand, where their bottleneck is, and then going and working backwards to design a chip that improves things? Like, you've been doing this for for so long that it's clear that there's not a one size fits all solution. So what is your process for actually discovering opportunity? Yeah.
Speaker 3:So, you know, a lot a lot of times, you know, ideas that, you know, you pursue in life come from your own experiences. Right? So building these companies, over time, I started to realize that the cost of developing any kind of chip is just getting, you know, bigger and bigger. I When I started my first semiconductor company, I raised 50,000,000. When I took it public, had 17 left in the bank still.
Speaker 3:Wow. The second one, I raised 200,000,000, and frankly, I took it public because I didn't want to do another private round. I wanted to just go public and and and raise public money. And now it takes several $100,000,000 to do a chip. Chip cost of developing chips has skyrocketed.
Speaker 3:Complexity has gone up. Time it takes to build a chip, to design a chip, it's two to three years. And, you know, then it takes another year or so to get your customers up and running. And then you have a year, five years, six, you start to make some money. And the problem is is that the software is moving so fast that leaves chips behind by almost six years, right?
Speaker 1:Mhmm.
Speaker 3:And so we need to close that gap. And the third problem in our industry has been that we have diminishing number of electrical engineering students graduating to keep up the good work as the industry grows. We have, you know, diminishing resources, more complexity on the chips, higher costs a longer time, and we're completely getting out of sync with software. So my thought process was, as I was learning more about AI by investing in AI companies and learning from other entrepreneurs in that field, that it was a great intersection of these two really awesome technologies to be able to solve all that problem, collapse that time by a large factor, reduce the cost it takes to do a chip, and then we can do these chips a lot faster, and that gets the software going faster, right? So you get this, essentially this flywheel working.
Speaker 3:And so it led to the idea of building a frontier model lab that focuses only on semiconductors. So unless other large frontier labs that are working on general intelligence, I set out to build artificial intelligence for chips. So we call it ACI, artificial chip intelligence. And giving that focus and that particular sliver of the world knowledge required really to bring together, you know, scientists from math and physics and pair them up with people who have twenty, thirty years experience actually designing chips. You know, people in this company on the chip side have done hundreds of tape outs, which is the process of completing a chip and sending it to a fabrication facility, and then bring in other software people that can kind of encapsulate all of that knowledge and capability in an enterprise class product that then chip designers can use to make the chip design a lot faster.
Speaker 3:What a lot of people don't realize is that 90% of the time in the chip business, our engineers are spending doing things that can be done by these models now. Right? And so what we need to do is to get those folks, instead of wasting their time, to be on the creative side where they can think about new products, new markets, new capabilities, and then use this essentially, these digital designers to help them get the project through. So that's been really a passion of mine for the last two and a half years.
Speaker 2:How you know, we've had a bunch of new chip startups on the show, and you were kind of mentioning this earlier, just like how significant the timeline is to get from concept to tape out to to, you know, powered and and actually, you know, doing workloads. How much like These startups are taking some amount of technical risk, obviously execution risk, but then there's the other technical risk of like, is the architecture still gonna be relevant by the time? And can I scale up my production enough? We we had a founder on the team yesterday that pretty much all the labs and the hyperscalers are saying like, I don't just need to know that this is gonna work and be relevant when when you're ready. I need to know that you can hit, you know, gigawatt scale.
Speaker 2:So how much right now, it feels like there's just demand everywhere, and so these companies are getting funded and they're getting kind of pilots and stuff like that. But how much do you worry about the sort of technical risk that these teams are taking on knowing that every there's so many different players that are gonna be innovating over the next five years that by the time they actually are ramped up, will there be will there be a real market for them?
Speaker 3:And honestly, you put your finger on one of the toughest jobs for people in semi industry. When we start a brand new project, whether you're in a small company or in a startup, when you start a new project and you know that this chip is not going to go in production for another five years, I mean, nobody on the planet has that kind of clarity five years from now what is needed, right? Because the world is changing, and you know, we're all limited as human beings about how far in advance we can see and analyze. And so the risk you're taking on acceptability of this device in market is one of the overriding things. And the way we deal with it in the ship business, we've used to deal with it, is recognizing it's going to take five, six years to get there, is we pack these devices with a lot of things that may or may not be necessary.
Speaker 3:But it's sort like our insurance policy, and essentially hedging against what might change in the industry, right? And so it's a very, very tough place to be, because the chips get bloated, their power consumption goes up, their cost is unnecessarily high, and even with all of that, you don't really know whether you're going to get there and there's going to be a, you know, your hunter is not whether a hunter is going to the dog is going to hunt or not. So with by collapsing the time in the time you know, the collapsing time that it makes to do a chip, you're actually getting rid of all of those unknowns. You're increasing the probability of you hitting the market dynamics that you want at the time you want it with the right kind of power and performance. And that we have not had in the semiconductor industry for a very, very long time as shifts have gotten more complex.
Speaker 3:And what my vision is and what I love to do is to be able to return our industry back to a point where, like I did with my first company, you know, four or five of us went to Sand Hill Road, raised a reasonable amount of money, and were able to bring a chip to the market, and you know, get and it get it deployed and take a company public. That possibility needs to return back to our industry to bring the innovation back, and frankly, up with the world that has now woken up with the chip thing, and they wanna you know, we're gonna have a lot more competition on the world scale. Right? And and so we need these kinds of innovations to get us there.
Speaker 2:In some there's been a variety of teams working on math specific models and it's been interesting over the last, you know, month or so as we've seen generalist models actually go out and solve some of the most, you know, important open problems and, you know, we saw Navier Stokes and everything. Why do you think that semiconductor design is gonna work out differently than than you know, and and why is somebody gonna be able to go zero to one with a new chip with cognitive chip and and not with a a more generalist model? Is that because of having the right, you know, data sources? You know, what how how how do you sort of compete over time assuming that, you know, the frontier will just continue to advance?
Speaker 3:So the models are as good as the data that you use to train them. If they've never seen enough of the examples, then they actually don't know, you know, how to get it done. And so no amount of reasoning is going to get you to something you've never seen. Yeah. Right?
Speaker 3:So it's very fundamental that you use the data from your industry to train these models. The reason large scales LLMs are not good in chip design is because chip design data as an open source is actually not available. Very little of it available. And what's available is not very useful, frankly. So what you need to do is to start from ground zero and build data sets that can be used to train a model, and then you train that model with that data.
Speaker 3:So the knowledge is inside the model. The reasoning is inside the model. And in that way, a specific model trained on a specific technology becomes very, very powerful, right? So the reason, for example, software, these LLMs do a good job in software, because for the last thirty some odd years, software has had a history of having open source data widely available. And that's why a lot of these large, you know, frontier models do pretty well in software because they're all essentially consuming the same data.
Speaker 3:That doesn't exist for semiconductors. And we're the first company that actually took that on, and for the last two and a half years has been building a data moat that we think today is the largest data set in the industry for semiconductors. So if you train them on the right data, then they get the right intelligence. But that's also kind of not frankly enough, because semiconductor industry is the process of getting a chip from idea formation to architectural innovation, all the way out to something physical that, you know, is going to have transistors that are physics items, right, all put together and working well requires complete understanding of the workflow that a mature semiconductor industry goes through to ensure that everything works. You know, when we talk about putting hundreds of billions of transistors on a piece of silicon, and they work, they work because not one of them can be misplaced.
Speaker 3:Right? So you can't, you know, make things up. It's not like poetry. It's not like, you know, talking about some trip planning. Right?
Speaker 3:It needs to be you need to bring that precision, and that precision of workflow really can come from people who've done it and putting them alongside the mathematicians who can use to train. And that's that's all like how we built this company out. We wanted to do the hard work because we think this is gonna be, for a long run, a fundamental way that we're gonna design chips. Our industry cannot go on taking four years to design a chip and cost hundreds of millions of dollars and not know whether there's gonna be a good market for it or not. That's not sustainable.
Speaker 3:That's not investable.
Speaker 2:Yeah. It feels it feels like it we're we're gonna have like biotech style or pharma mechanics where you have this massive massive investment and then it's like almost a coin flip on whether or not or or worse on whether or not there will actually be a market there and it'll it'll function and and scale. You said you raised $50,000,000 for your first company. That was it's still a lot of money, but it was definitely a lot more money back then. What was the prehistory?
Speaker 2:Why why did why were you so successful on Sand Hill?
Speaker 3:Yeah. So so this this goes back to to the days when people were using dial up modems. Right? And and we were inventing this new way of building a chip that was DSL technology. It's the way broadband is served to many of our homes today.
Speaker 3:And we had a, you know, a good solid approach, a great team. It was one of the funnest times of my life when we were building that company. And we went from opening the door to having a chip in hand that we were selling and generating revenue, and we took the company public almost three three years to the day we opened the door. That still holds the fastest record semiconductor company has gone from inception to the gold public. But, you know, in in these kinds of things, you need to have a good idea, you need to have a great team, you need to have good timing, you need to have good luck.
Speaker 3:All of those came together for us, fortunately, the first company, and it just kind of all clicked, and it was we had a hell of a time doing it, and so that's how it came about. On the second company, we built a product for data centers. So data centers at the time were transitioning from one gig to 10 gig, and we built those world's first 10 gig chips, and that was, you know, the success there. This So time, I'm not building a chip, but I'm building a system that helps everybody else build chips faster.
Speaker 2:Amazing. Makes sense. Very, very cool. Well, we'd love to have you back on Yeah. As you continue to make progress and it's amazing to meet you.
Speaker 1:Yeah. Thanks so much for hopping on Thank the
Speaker 2:you. Be Also, give us what's the what's the art on the wall that the chat was asking about? Is that Tom Tom Brady?
Speaker 3:That's Tom Brady. I'm a big Patriots fan and Nice. It's yeah, Tom Brady all the way in the Pats.
Speaker 1:Amazing. Pats.
Speaker 2:There you go. I bet you could get Tom in in the next round.
Speaker 1:Yeah. He might have some of this. There. It'd be fun.
Speaker 2:Make it happen. Awesome. Great to meet you. Alright.
Speaker 1:Talk to you soon.
Speaker 2:Good. Talk to you. Thanks.
Speaker 1:Let me tell you about Codex. Codex is a powerful workspace for getting work done with AI agents. Whether you're writing code, analyzing data, creating content, or automating business workflows, Codex helps you move projects forward from start to finish. We
Speaker 2:got some breaking news.
Speaker 1:What's the breaking news?
Speaker 2:The president just phoned Jensen live on stage at the all in summit. Woah.
Speaker 1:Wait. Jensen was on stage? Yeah. Or the president was on stage? Jensen was on stage and he gets a call from Donald Trump.
Speaker 2:Trump says the great thing about Jensen is that he can create the best AI chip in the world but can't figure out how to put me on speakerphone.
Speaker 1:What? That's a wild wild thing.
Speaker 2:Very, big big moment. So anyways, that's that's crazy. Apparently, yeah, Mike Isaac says, okay, wow. Poor folks there. Trump called Jensen in the middle of his interview.
Speaker 2:He was on stage and Jensen put the phone on speaker phone.
Speaker 1:Woah. Okay.
Speaker 2:Jensen thanked Trump for his social media post this morning pouring cold water on alarmism.
Speaker 1:Yeah. Jensen's been anti doom for this entire cycle. We'll see we'll see where it all goes. I'm sure there'll be more. Brad Gerstner chimed in because we have a new oh, there's a video.
Speaker 1:Do we wanna play the video? Trump calling Jensen live on during the all in pod interview. And, I mean, we just read it out, so I think you know what's gonna happen. But this is a wild moment.
Speaker 6:The great thing about life is that Jensen can develop the most complex computer chip in the world that nobody can copy for ten years. But he can't figure out how to put me on speakerphone.
Speaker 1:He is on speakerphone. He is on speakerphone. I
Speaker 2:think he must have had a hard time getting it set up.
Speaker 1:Okay. Mister president, you're you're now talking to the planet. It's the joke again. Can copy for ten years, but
Speaker 6:he can't do your or not to put me on speaker. No.
Speaker 1:An odd joke. Okay. Well, anything substantive come out of it? I'm sure we'll know more tomorrow.
Speaker 2:We'll be back.
Speaker 1:We'll be back at 11AM Pacific. Thank you for tuning in. Leave us five stars on Apple Podcast and Spotify. I'm off to go get some rest, and we'll see tomorrow.
Speaker 2:Love you.
Speaker 1:Newsletter. Tbpn.com.