Latest / trading places / TP9: Seedcamp Founders 🇪🇺 | Prediction Markets 📈 | Oracle $38B 💰 | Anthropic $183B 🤖

Transcript

TP9: Seedcamp Founders 🇪🇺 | Prediction Markets 📈 | Oracle $38B 💰 | Anthropic $183B 🤖 · trading places

• 0:00
  There's a lot of discomfort with this.
• 0:03
  Kind of the reason why we're doing this show is really to
• 0:04
  explain more and share these stories so people have, you
• 0:07
  know, more perspective on what the mindset, what the math
• 0:09
  should be. People do not want to share
• 0:11
  information and that this like late a private world.
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  You got to have fun with it too. Again, like I said, it is
• 0:17
  uncomfortable because there is a lot of game playing and there is
• 0:22
  a hoarding of not information and knowledge and obfuscation
• 0:25
  and it's just it's in the public market.
• 0:28
  It all becomes clear again. All right folks, welcome to
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  episode 9 of Trading Places, a very bad VC podcast about
• 0:58
  secondaries. Aman, we've got a lot of news to
• 1:01
  cover this week. What is exciting and interesting
• 1:04
  happening in the news? We do have a lot of stuff going
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  on, Dave. Most importantly, we've got the
• 1:08
  World Series going on. So the Blue Jays and the LA
• 1:11
  Dodgers are are playing as we take this, It's 11, but we're
• 1:16
  kind of watching the Blue Jays. I suspect all the San Francisco
• 1:18
  Giants fans, they're all going to be rooting against the
• 1:20
  Dodgers. And therefore, for the Blue
• 1:22
  Jays, we'll see if they can win their first World Series in 32
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  years. That would be kind of exciting.
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  Well, I guess no secret we're talking about sports because
• 1:29
  that's related to our first news story of prediction markets and
• 1:34
  I predict we're going to have a lot of news stories about
• 1:36
  prediction markets. Didn't we just cover prediction
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  markets recently? What?
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  What I thought, I thought we already had covered, you know,
• 1:44
  pretty big raises for Kaushi and Polly market, but they're back
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  in the news again. They are.
• 1:51
  Well, there's some new news this week.
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  We did cover them last time because they had both been
• 1:56
  raising huge up rounds over the summer.
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  They both raised in the earlier part of the year.
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  Kelsey is now looking for the at a $10 billion evaluation.
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  So a huge step up from the last time.
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  Polymarket is as well. I think the big catalyst has
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  just been this a chart that I'm showing here that shows the the
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  trading of this prediction markets.
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  So Polymark and Kelsey are the two big ones.
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  They had both been almost non existent in early 2024.
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  They both kind of peak around November at the around the
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  election time last year. And the election market was sort
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  of the big driver of growth. And then both of them had I
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  think significant activity, but it subsided off that election
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  peak. And now they're now they're back
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  even bigger, bigger peaks than what happened to the election.
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  And the big catalyst I think has just been sports betting.
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  Both of them have cleared regulatory hurdles around
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  August. Polymarket basically said we're
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  entering the US sports betting market.
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  We are going to get approval from the CFTC to do that.
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  Kaushi had sort of signaled that right around the time of Trump's
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  inauguration, I think January 20th or 23rd of 25, they'd said
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  we're getting into sports betting.
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  And now, now it's happening. So the, the sports betting
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  market's a whole new potential Tam for both those companies to
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  get into. I, I really like them getting
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  into sports betting. I think it'll be really, really
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  great. Just the one warning sign
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  though, is all the leagues have to take this seriously.
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  Do you? You might be too old to most of
• 3:19
  our viewers won't, but sports betting almost undid Major
• 3:22
  League Baseball in 1919. There was actually there were no
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  rules on sports betting back then, so it was legal the the
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  states regulated it. There were no federal laws, but
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  the 1919 White Sox basically threw the World Series.
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  That's a bit much. They they there were eight
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  players in the White Sox who took bets from get took money
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  from gamblers and who said and who shaved points in effect and
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  and tank their play. They were acquitted by a Chicago
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  jury. I know stunning that a Chicago
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  jury would have enough. But but but they but baseball
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  said, hey, even though you did everything, you know, you didn't
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  break any laws. You were convicted by a jury.
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  We can't have we can't compromise baseball with any
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  hints or allegation of of like a betting scandal.
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  But they actually brought in a new commissioner guy Kennesaw
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  Mountain Landis. He basically kicked out these
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  eight players and and including some very big players.
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  Joe Jackson. I don't know if I'm a sports
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  league and I'm seeing Polly market and Cal she come.
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  I am a little bit concerned, but we've we've got the NHL and
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  maybe a few others now signing deals with them.
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  So I think that is now a catalyst for creating these, you
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  know, new DECA corns. Well, I don't think the NHL is
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  the only sports industry that's got some scandals going on
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  lately. That was recently an NBA
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  gambling schedule. In fact, it's still happening
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  and under investigation at the moment probably.
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  You know, I don't necessarily have concerns about betting in
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  sports, but maybe the amount of advertising going on on
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  television, online, I mean, it's just like really been noticeably
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  through the roof lately. I don't know you've been seeing
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  it, but I've been seeing. In 2018, the Supreme Court
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  overturned a law that banned sports betting in most places in
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  America, a decision that has led to our lives today which is
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  waking up and being absolutely waterboarded by sports gambling
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  advertising. America's number one sports
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  FanDuel. FanDuel casino FanDuel.
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  Free chicken dinners with FanDuel Casino.
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  By gambling. At Bet MGM Sports.
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  Book Bet MGM. Bet MGM what do you want from
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  your sports book? Please help me helmet catch.
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  Stop guessing the helmet catch. Is it the Caesar's Sports Book
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  act with Caesar's rewards with the more you play, the more
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  stuff you earn and they have fast payouts because Caesar is
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  the man. My God, they even got the
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  Tennessee Kardashians. Sports betting has become
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  increasingly normalized in America over the last six years,
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  but critics wonder if beneath the legal gambling industry's
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  rise looms a public health crisis of unknown proportions.
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  So is regulated gambling a healthy future for sports
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  entertainment? Or have we opened a Pandora
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  sports book, putting millions of people at risk of addiction?
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  I caught the Chauncey Bullets scandal on ESPN and even as they
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  were doing it, it was a little ESPN ticker at the bottom
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  saying, hey, go to, you know, go to BET, go to ESPN.
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  Becks and Ling Bretsky is pushing, you know, bet MGM.
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  And so they are pushing it to their audiences.
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  I guess they're making money on it and that's good.
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  But if I'm a sports league and I'm seeing, you know, just
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  allegations of, of people, people who are in the leagues
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  changing their behavior or, you know, shaving points, it's a
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  definitely a branding concern. Now.
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  It's got to be something that the state regulators take
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  really. So I'm glad the federal
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  government's on board with this. But there are 50 states that are
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  going to regulate this now. And that's at least a a pause
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  for concern for polymarket and and calci.
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  But I don't know, Dave, I know you're a basketball expert.
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  What's your take on the NBA scandal?
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  Is this is that going to be something that that undoes the
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  the betting environment there or make them pause?
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  No, I I don't think I'm a basketball expert.
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  I am a huge NBA fan, but I'll I'll take the opposite hot take
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  here. I actually think this isn't as
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  much of a big deal because the only players that they were able
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  to pick up in a year and a half worth of this notable players
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  were Chauncey Billups and Terry was here and and again, it's
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  it's sort of a big deal to get an NBA coach, you know, but but
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  he wasn't actually involved in point shaving Skittles.
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  He was involved in the gambling fake.
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  I don't know, some kind of sketchy poker game that was
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  involved with Mafia related families and X-rays and all
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  kinds of things. They were I was betraying.
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  Well, no, but I'm just saying like in the in the potential,
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  like for like Terry Rozier was actually, you know, picked up in
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  some kind of potential point shaving scandal.
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  He's actual, you know, a real player.
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  But I'm just saying they had a year and a half, almost two
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  years to work on as many people as they could pick up.
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  I think they started with like 5 people and now it's like
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  expanded to like 30 people, which sounds like a big number.
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  But when you consider the potential for, you know, people,
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  big names in the NBAI actually think it's not as big as it
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  could have been. Probably this will get
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  investigated. There may be more names that
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  come out. It could even get bigger.
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  But I, I have a feeling the NBA will get control of this fairly
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  quickly. I think the real issue here is
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  it might not be good for society to have so much emphasis on
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  sports betting. And I, I think there's probably
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  going to be a lot of people that, you know, have gambling
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  addiction problems, unfortunately.
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  And I, and I really think we should be thinking about a model
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  that's maybe similar to cigarettes and alcohol for, you
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  know, limiting advertising both on TV and online for these kinds
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  of things. I, I don't think they should be,
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  you know, made illegal, but I do think we should have better
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  regulatory oversight of the advertising process.
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  We don't see cannabis ads on TV, do we?
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  We don't see a lot of tobacco ads on TV anymore.
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  And all that has an impact on what people think and feel about
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  that product, right when you look at the gambling ads right
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  now. They're all a. 120% positive,
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  but but I do think this is going to be a positive for, you know,
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  companies like Kaushi and Polymarket and, and probably
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  they will have a lot of impact on, you know, DraftKings and and
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  FanDuel. Definitely if I had a, if I had
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  a bet to, to use the phrase maybe an unfortunate 1.
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  I think polymarket and calci are I think they're really good.
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  If you bet on those things on prediction markets, it's just
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  better. You can, you can in normal proc
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  that with the casino or DraftKings and FanDuel is like
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  you, there's a house rake that's exorbitant.
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  You can't trade those bets, right?
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  So if you make a bet, you're, you're with it until the horse
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  wins or loses. With polymarket, you can buy the
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  bet, you can trade it the next day.
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  You can, you know, you can basically fade the bet and
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  actually a much better user experience.
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  I actually think that they will be winners.
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  And then they think sports, I think the FanDuel and DraftKings
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  are going to be significant. I think those companies are
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  toast actually. I think they're going to be
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  significant losers in this process unless they change their
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  user experience and. There actually was some recent
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  news about this. I think DraftKings acquired a
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  prediction platform called Railbird and they're planning to
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  launch prediction market platforms.
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  I think probably I would not be surprised to see both DraftKings
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  and FanDuel like offer prediction markets, but I guess
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  there's a question about whether they can really compete with
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  these companies that are pureplay prediction markets and
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  will they come in and you know start to take over more of the
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  space. So again, I predict we will see
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  more prediction markets in Major League sports and I think we'll
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  probably I would also predict we'll see more up rounds for
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  these companies at valuations that are pretty substantial.
• 10:44
  Well, moving on to our next news item, Google and Anthropic
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  announced a big deal. Again, this is kind of in the
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  cloud AI data center, sort of. World, we're going to cover
• 10:57
  Anthropic in our evaluation corner.
• 10:59
  We'll so we'll talk more about that whole company, but the
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  there is a significant deal between Google and Anthropic.
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  Google's already an investor in Anthropic.
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  They've already cut 2 billion. They had two, they put 2 billion
• 11:09
  in, in an earlier deal. They did 1 billion earlier this
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  year. So they're a $3 billion investor
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  in the company already and they're going to continue to be
• 11:17
  a investor. It sounds like an Anthropic with
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  a, a, a new deal that puts additional money into Anthropic.
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  I think it's a, it's basically Google trying to secure a major
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  cloud services provider. So they are, they are going to
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  Anthropic to provide that service.
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  I guess it's a way for them to essentially outsource their AI
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  development. They've, I think just been
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  behind on Gemini relative to where open AI and Anthropic are.
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  So, so this deal gives them additional capacity with an
• 11:44
  Anthropic. Anthropic is AI think culturally
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  very aligned with Google because the founders are Google alums.
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  And for them, it's just a way to get these, you know, a, a
• 11:53
  reduced reliance on GPUs, which are expensive and and scarce.
• 11:57
  And this is they're using tensor P us from, from Google.
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  So that's a, a win for them. And, and Anthropic, I don't know
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  how they're going to pay for it, but right now they're giving 14%
• 12:06
  of their equity to, to Google. So that's the, that's the quid
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  pro quo. And just the open question is
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  now, can Anthropic raise enough money in order to, in order to
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  pay for all this capacity? But this definitely solidifies
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  the link between these two major players.
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  Well, I think there's some parallels here between the deals
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  that NVIDIA was doing where they were sort of supplying chips, AI
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  chips to open AI and others here.
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  Google, although most people sort of think of them probably
• 12:33
  as a hosting platform. They operate their own data
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  centers. They also design their own AI
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  chips. And so I think this is a win for
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  Google to, you know, again, provide chips and capital to a
• 12:47
  customer that's going to use their hosting services and their
• 12:51
  their chips as well. So lots more deals happening
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  with all these companies at the chip level, at the AI data
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  center level, at the software platform level.
• 13:02
  But I don't think there's any question that Entropic and open
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  AI are now the front two, you know, companies on pureplay.
• 13:09
  I don't, I don't know whether XAI you know comes into that
• 13:13
  world as you know a third dark horse.
• 13:15
  I wouldn't be betting against Elon, but certainly from you
• 13:18
  know, revenue being generated, where, where do we think, you
• 13:22
  know, opening eyes probably around 12/13/14 billion in
• 13:25
  revenue on an annualized basis, think Entropic is 7 or 8 billion
• 13:30
  in revenue. Yes, that's right.
• 13:33
  It seems like opening like announced one 1 billion in AR on
• 13:38
  a monthly basis of 12/13 billion over the summer.
• 13:41
  I think by the end of the year they'll be close to 20 billion.
• 13:44
  They're clearly number one and and seems to be in a in in the
• 13:47
  major market position especially for consumers.
• 13:50
  Entropic probably is the #2 between seven 7 billion in ARR
• 13:56
  growing at a phenomenal rates. They're much more dominant with
• 13:58
  enterprises, not with consumers. And so they are, they are
• 14:00
  distant #2 on the consumer side, but maybe half the scale of, of
• 14:04
  Open AI. And, and then there's a long way
• 14:07
  to go, you know, to the others, XXAI, Cohere, maybe a couple of
• 14:11
  others are, are definitely in the, in the next year.
• 14:14
  And I think that's the, the, the, the horse race between
• 14:16
  those two is interesting. And Open AI is lined up now with
• 14:18
  Microsoft's as their primary partner.
• 14:21
  It seems like you know Google is playing that role for Anthropic.
• 14:29
  Stargate, put that name down in your books because I think
• 14:32
  you're going to hear a lot about it in the future.
• 14:35
  A new American company that will invest $500 billion at least in
• 14:39
  AI infrastructure. OK, well, another AI data center
• 14:44
  related story that's happening this time with Oracle.
• 14:47
  And this is not an equity round, but a $38 billion private credit
• 14:53
  or debt round that Oracle is running to help finance their
• 14:57
  expansion. I'm on $38 billion in private
• 15:02
  debt. That that seems like quite a bit
• 15:05
  of money, isn't it? It is, it's a, it's, it's very
• 15:08
  unusual for software companies because they're, they're
• 15:10
  typically run cleaner balance sheets.
• 15:12
  But you know, it turns out the data centers and the CapEx
• 15:15
  required for these types of transactions, it, it lends
• 15:19
  itself to debt financing. The good news for Oracle is that
• 15:22
  the interest rates are historically low and credit
• 15:24
  spreads are historically tight. So they're they're able to raise
• 15:27
  at probably going to be 7 or 8% tight interest rates.
• 15:30
  You'd much rather do that, I think than issue equity.
• 15:32
  It it does turn out that if you looked at it, I did a comparison
• 15:34
  of all the direct, what do you call the direct AI stocks and
• 15:37
  the S&P 500? There's probably 20 to 25 of
• 15:39
  them. On the one hand, you got folks
• 15:41
  like, you know, Google and NVIDIA that are running at 2020%
• 15:46
  debt to equity ratios. Oracle is 500%.
• 15:49
  So they, they have issued a ton of debt.
• 15:51
  They, they love to do it. They're apparently very good at
• 15:54
  it. But you know, at some point this
• 15:55
  does seem to be, there's a question like how much money can
• 15:58
  they, can they get? So I'd be interested to see
• 16:00
  where this interest rate's clear.
• 16:01
  But I think right now their math is like we can raise debt at a
• 16:04
  7% interest rate or, or equity at, you know, 10% plus.
• 16:08
  And so they're gonna, they're gonna continue to, to, to raise
• 16:10
  money this way. And that is, that is one of the
• 16:12
  biggest, you know, software CapEx, debt financings in, in
• 16:16
  recent memory. I can't think of a bigger one
• 16:17
  off the top of my head. Yeah, I think there's a larger
• 16:19
  conversation about how much money is being raised on a debt
• 16:22
  basis. I think Meta also raised a bunch
• 16:25
  of debt to finance some of their expansion.
• 16:27
  But in this case, you know, this is probably a pretty good story
• 16:32
  for President Trump because I guess we're going to see, you
• 16:36
  know, expansions, that money is going to be going to expansions
• 16:40
  for data centers in Texas and Wisconsin.
• 16:43
  I guess you could sort of connect the dots and say, you
• 16:45
  know, Oracle, which is run by Larry Ellison, who's also a
• 16:48
  Trump backer. You know, little bit of a
• 16:51
  positive story here for Oracle, but perhaps also a positive
• 16:55
  story for the Trump administration being able to,
• 16:59
  you know, again, wave the flag behind AI data centers as
• 17:02
  rejuvenating the American economy.
• 17:03
  Yeah, I guess so. Well, it's certainly good for
• 17:05
  Texas and Wisconsin, I guess. I guess that's where the
• 17:07
  development is happening. I, I have a feeling this won't
• 17:10
  be the last story we see or hear about AI data centers impacting
• 17:16
  not just federal but local economies.
• 17:29
  OK, well, another story which we've covered a little bit in
• 17:32
  the past is Tether. Tether is the largest, I guess,
• 17:37
  global stable coin operator, probably more than half the
• 17:41
  overall market. What's the news about Tether
• 17:44
  this week? Come on.
• 17:45
  Well, the interesting new information on Tether is, is
• 17:49
  that they are now over 500 million users, which is which
• 17:52
  just struck me as a a huge number given that what they are,
• 17:57
  they're they're the primary issue of stable coin in the
• 18:00
  world. As you said, they basically
• 18:01
  allow anyone to invest in the US dollar.
• 18:03
  You, you think about the US dollar and how many Americans
• 18:06
  there are, there are only 340 million Americans.
• 18:08
  So how does, how does Tether get 500 million people and there are
• 18:11
  only 300 million Americans? Well, most of the users are
• 18:15
  they're, they are, they are primarily outside of the US.
• 18:18
  There are a ton of, a ton of people in Latin America and
• 18:20
  Southeast Asia who are looking to hedge against their
• 18:23
  currencies and, and they're looking to basically buy U.S.
• 18:26
  dollars to hedge against the evaluation and to just to create
• 18:29
  a, a stable coin investment that allows efficient cross-border
• 18:32
  payments. It's actually very good, I think
• 18:34
  for the US dollar, at least in the short term, because all this
• 18:37
  money going into savings accounts that, that then go into
• 18:40
  U.S. dollars means that there's more liquidity and stability in
• 18:43
  the US financial system. But you know, that's, that most
• 18:47
  of this come from outside the US.
• 18:48
  And the other interesting thing that Heather revealed is that
• 18:51
  they are, I mean, they're very profitable, which we knew, which
• 18:53
  we covered. They're making over $13 billion
• 18:55
  in profit last year, which is twice as much as BlackRock, who
• 18:59
  is the biggest asset manager in the world.
• 19:01
  BlackRock makes 6 billion, these guys make 13 billion.
• 19:05
  So I just thought this was in terms of hitting these
• 19:07
  milestones for a, a, a tech enabled company that is doing
• 19:11
  this kind of financial inclusion.
• 19:13
  This is like this is these are these are huge milestones being
• 19:16
  set in like record, record time frames.
• 19:19
  My guess is probably a good bit of those users are coming from
• 19:22
  Asia. You know, I, I think stable
• 19:25
  coins are very popular, you know, out of East Asia, probably
• 19:30
  well, Southeast Asia, East Asia, China, Korea, Japan,
• 19:34
  Philippines. I don't know how much of that is
• 19:36
  actually legal in China, but and then maybe another big chunk is
• 19:42
  in Latin America. So I think if I look at some
• 19:45
  numbers that ChatGPT is saying about 45% of tethers global UST
• 19:50
  volume is coming out of the Asia, another percent is coming
• 19:56
  out of Latin America, only 11% is coming from the the US,
• 20:00
  Europe maybe 14%. It doesn't really solve much of
• 20:04
  a problem if you're an American or you're in a Western European
• 20:07
  euro denominated, you know, country.
• 20:09
  It's like, well, if I first of all, I've probably got a bank
• 20:11
  account and second of all, if I need to buy U.S. dollars, it's
• 20:14
  not that hard to do. I can probably go out and buy
• 20:16
  U.S. dollar denominated assets, treasuries, but the places you
• 20:20
  mentioned plus Africa, there's, you know, there's a massive
• 20:23
  opportunity in Africa where the, the number of bank accounts
• 20:26
  still very low, financial inclusion is still a, a real
• 20:28
  problem. People cannot buy U.S. dollar
• 20:30
  denominated assets easily through banks, Oregon
• 20:33
  brokerages. But this makes it, you know,
• 20:34
  this makes it trivial to do. And if you can, if you can earn
• 20:36
  a four percent, 5% yield on your U.S. dollars and hedge against
• 20:40
  your currency devaluating, I think it's a, it solves a
• 20:43
  massive problem in those parts of the world.
• 20:45
  So I think that's a tremendous benefit for financial inclusion
• 20:48
  globally. Well, I'm, I'm not sure that's
• 20:50
  always such a great buy given the US dollar has dropped
• 20:53
  against the basket of global currencies fairly substantially
• 20:56
  this year. But in terms of brand
• 20:58
  recognition and, you know, I think psychology of a lot of
• 21:02
  consumers, they probably still think of the US dollar as kind
• 21:05
  of the stable global currency, even if that's not completely
• 21:08
  true. I think we're going to see
• 21:09
  massive, you know, growth and adoption of stable coins, which,
• 21:13
  you know, also employs implies massive adoption of U.S. dollar
• 21:18
  as a global currency. I, I think people sort of forget
• 21:21
  or don't connect the dots on stable coins being tied to the
• 21:24
  US dollar. Each one of those, you know,
• 21:28
  stablecoin, you know, dollar users is essentially making a
• 21:32
  bet or buying, you know, treasuries in the US market or
• 21:35
  some kind of, you know, security connected to the US market.
• 21:37
  That's mostly what Tether does today.
• 21:39
  So that's certainly right. In the short term, I suspect
• 21:41
  what will happen is Tether will start to do things like to the
• 21:44
  extent that the US dollar is easy and liquid, you start
• 21:46
  there. But then, you know, a gold
• 21:48
  backed Tether fund or let's assume the Blue Jays win the
• 21:52
  World Series, which seems unlikely.
• 21:54
  Maybe a Canadian dollar back. Maybe that'll, maybe that'll be
• 21:56
  the, the impetus that Canada needs to market its dollar or,
• 21:59
  or a yen denominated fund. Or maybe, you know, he tied some
• 22:01
  basket of currency. So it's the, the US dollar is
• 22:05
  like the gateway drug and it, it opens up a lot of other
• 22:07
  possibilities. But for now, it's definitely
• 22:09
  benefiting the US financial system and the liquidity for the
• 22:11
  dollar. So that's, that's, you know,
• 22:13
  that's good for the US, too. All right, one more story we're
• 22:16
  going to cover here. This is a smaller AI story, but
• 22:19
  it's happening in Japan, a company called Sakana, which is
• 22:23
  I guess a rival to Open AI, but only, you know, in the Japan
• 22:26
  market, Sakana is raising about 100 million at a 2 1/2 billion
• 22:31
  dollar valuation. Now 2 1/2 billion doesn't sound
• 22:34
  like much when you compare that to open a eyes $500 billion
• 22:37
  valuation and drop it, get maybe three $500 valuation.
• 22:41
  But still kind of interesting that we're seeing regional AI
• 22:47
  companies that are having their own sort of, you know, great
• 22:51
  stories going on in Japan, not necessarily known as being a
• 22:55
  huge AI Center for development. But, you know, still, I think
• 22:59
  for a country with 100 million people, or almost 100 million
• 23:02
  people and a fairly advanced economy, it's, it's still kind
• 23:05
  of interesting. They're still top ten and
• 23:07
  because of their own unique language and culture, you would
• 23:10
  think that they would they would have AILLMA number of AILMS
• 23:14
  happening. So and that makes sense.
• 23:17
  I think every country is going to you know, they they don't
• 23:19
  want to be you don't need dependent on US primarily
• 23:22
  USAILLMS on the English language, right.
• 23:24
  You want to have you probably want to have technology that is
• 23:27
  more relevant to your your native language and culture.
• 23:30
  So it's it's it's good actually that there's development
• 23:32
  happening. It's I guess on a relative
• 23:34
  scale, it's still, you know, not more open AI is but 2.5 billion
• 23:38
  is still pretty healthy and NVIDIA is the big investor
• 23:40
  there. So NVIDIA is clearly continues
• 23:42
  the theme that we've talked about before, but just they're
• 23:44
  putting themselves at the very heart of the AI gold rush by
• 23:48
  being involved in everything. And anywhere that there's a ILM
• 23:51
  development going on. There are a couple of podcasts
• 23:53
  I'd like just to talk about, which I think we're both
• 23:55
  interesting on AI and the impact of work, which I just recommend
• 23:59
  that everyone look at. So on the one hand, there's a
• 24:02
  great podcast called the Dividend Cafe, which comes out
• 24:05
  every, it's daily on David by David Bonson.
• 24:08
  Many every week he'll do a deep dive on something and he looked
• 24:11
  at the future of jobs in AI. And then Kathy Wood was talking
• 24:14
  about the impact of AI on work about about a week ago now.
• 24:19
  And she is, she is definitely in this AI accelerationist camp
• 24:23
  where AI is going to change everything for the better and do
• 24:26
  it very quickly. And if you don't know what you
• 24:28
  are in terms of AI, you can take a quiz online.
• 24:30
  I, I did mine on, on Bloomberg and I came out as an
• 24:33
  accelerationist. And I don't know, I don't know
• 24:36
  if you take the quiz and you come out as a doomer, but her
• 24:38
  case for her bowl case for AI is what I like about article.
• 24:43
  I don't always agree with them and their investment philosophy,
• 24:45
  and I've heckled them before, is they're very clear about the
• 24:47
  assumptions that they think is happening.
• 24:49
  And what she does is she walks through a history of financial
• 24:51
  innovation and progress. And she goes back to like the
• 24:54
  1920s when we had three or four different waves of technology
• 24:58
  hitting from the chemical and synthetics and the materials and
• 25:02
  then the assembly line and the automobiles.
• 25:04
  And she shows how there was a big spike in productivity.
• 25:06
  And then she talks about the, the next big wave of evolution
• 25:09
  in the 80s. And then you can see the graph
• 25:11
  here, it's looks like the Rocky Mountains or something where the
• 25:14
  next really big mountain coming up that we haven't gotten there
• 25:16
  yet is like 6 different technologies that hit the same
• 25:18
  time. And the implication for her is
• 25:21
  that we're going to see 7% GDP growth annually within, you
• 25:24
  know, she doesn't say exactly when, but in the next couple
• 25:26
  years. And if that happens, then you're
• 25:29
  going to get a tremendous, first of all, inflation's going to go
• 25:31
  to around 0, which makes sense if the money supply stays
• 25:34
  constrained and you get a big productivity boost, which means
• 25:37
  companies will be a lot more profitable.
• 25:39
  And so she's, we're seeing, you know, multiple trillion dollar
• 25:42
  winners coming out of this AI boom.
• 25:44
  And I think the issue that I have with, with all of this is
• 25:47
  you can look at GDP per capita growth, productivity growth
• 25:50
  going back in the US since World War 2.
• 25:53
  This is a a graph I've been working on for a new book that
• 25:56
  I'm I'm publishing this this winter, which talks about this
• 26:00
  and the green spikes correspond to the accelerated students in
• 26:04
  in USGDP growth going back to World War Two.
• 26:07
  You can see the big boom in the 60s.
• 26:09
  That's the the highest chart, the highest green chart where
• 26:12
  the GP per capita was almost 4% a year.
• 26:15
  That kind of ties to what Kathy is saying in the 80s and 90s we
• 26:19
  had big spikes of close to 3% growth.
• 26:21
  Again, similar to what Kathy was saying weren't the competing
• 26:24
  revolution in the Internet. But if I look at the last 12
• 26:27
  years or, or 14 years now we're sub 1 1/2% and, and we are, it's
• 26:32
  actually the worst GDP per capita productivity period in
• 26:35
  American history. It's going back to World War 2.
• 26:38
  And so if all the technology is supposed to be happening and we
• 26:40
  have the benefits of the Internet and now AI and other
• 26:43
  automation, it doesn't seem to be showing up in the national
• 26:45
  accounts, which is, which is kind of puzzling, right?
• 26:48
  Like it's not just the US, but Western Europe and Japan and and
• 26:51
  Canada, like all these countries are seeing very, very low
• 26:54
  productivity impacts somehow in the last really in the last
• 26:57
  decade or so and since the 2009, since the end of the Great
• 27:00
  Recession in 2009. So this is the big, if I had
• 27:03
  asked Kathy this question, I don't know why I should answer.
• 27:05
  But hey, if it's if the impact of technology is so great and
• 27:09
  and it helps productivity, like how come it's not showing up at
• 27:12
  the national, you know, productivity numbers.
• 27:14
  It's the quarter line for Moneyball the movie.
• 27:17
  If he's such a good hitter, how come he don't hit so good?
• 27:20
  If he's a good hitter, why does he hit?
• 27:21
  Good. And this is the conundrum that I
• 27:23
  think is really at the heart of economics right now.
• 27:26
  Is this technology going to help if it's helping rates, but it's
• 27:29
  not, you know, where's the proof?
• 27:31
  So I don't know Dave, on your like if you believe the Kathy
• 27:33
  Wood bull case and if so, why do you think it's not yet showing
• 27:35
  up and then in his productivity in the productivity numbers
• 27:38
  across the country? Well, I'm, I'm not an economist,
• 27:42
  but I, I wonder if we're also sort of having to factor in the
• 27:46
  boomer generation retiring and perhaps a little bit of slow
• 27:49
  down based on demographics. I mean, it feels like the
• 27:53
  backdrop might be that, you know, the boomer generation
• 27:56
  retiring is slowing down, you know, overall GDP growth from a
• 28:01
  human factors perspective. But I do believe the AI
• 28:05
  productivity boost might not be, you know, connected to
• 28:09
  demographics. So so possibly the, you know, I
• 28:12
  don't know about 7%, that seems like a really big number.
• 28:16
  But I would bet that there's going to be AI productivity
• 28:19
  gains as we see AI sort of filter into the rest of the
• 28:23
  economy. Right now, I think it's mostly
• 28:26
  just focused on larger tech companies and their build outs.
• 28:29
  Maybe we're starting to see some tech company productivity gains,
• 28:32
  but I would guess that we do see normal company productivity
• 28:37
  gains from AI over the next 10 years like that does.
• 28:41
  That wouldn't surprise me at all whether it results in 7% GDP
• 28:45
  growth that that seemed like a stretch, but I would bet there
• 28:48
  is some positive impact to GDP. That I mean 7%, we've not seen
• 28:53
  that since I think the last tech boom that I can think of that
• 28:55
  had that kind of growth would have been the 1880s.
• 28:58
  So and it was appeared from the mid 1870s all the way into the
• 29:01
  the mid 1890s that, you know, that was driven and had similar
• 29:05
  technological impacts and had five, six, 7% growth.
• 29:08
  And we had, you know, open immigration and all kinds of
• 29:10
  positives that that accrued. But we haven't been anywhere
• 29:14
  near that recently. So I'd I'd be, you were
• 29:15
  definitely on the acceleration as part of the part of the
• 29:18
  curve. I can tell you right now the
• 29:19
  Dumors might say the AI, you know, they're the impacts will
• 29:22
  get washed away by democratic factors or or demographic
• 29:25
  factors or also by, you know, a lot of what happens with
• 29:27
  technology is to get, I don't know, social media and gaming
• 29:31
  and things that don't necessarily make us.
• 29:33
  Smarter or more? Productive, but create
• 29:35
  distractions and take you away from from maybe other things.
• 29:39
  And so I guess that's the, I guess that's the debate.
• 29:41
  But if you listen, if you like the accelerations of the idea,
• 29:44
  definitely listen to that Kathy Wood 19 Minutes podcast with All
• 29:48
  In. It's just a really good, I
• 29:51
  think, summary of the of the Bull case, whether you believe
• 29:53
  it or not. I wonder if there is a growing
• 29:56
  disconnect between technology driven positive impact to GDP
• 30:01
  and labor driven impact to GDP and maybe we're in a situation
• 30:07
  now where the technology component is independent of the
• 30:10
  labor components, in fact maybe even negatively correlated in
• 30:15
  some ways. One of the objections and maybe
• 30:17
  one of the explanations for why it's not feeding into the
• 30:19
  overall national accounts is, is something like that there's a
• 30:23
  labor shift happening and it relates to like shortages of, of
• 30:28
  workers and key industries that's taken away from
• 30:30
  productivity. And this is barely or not even
• 30:32
  offsetting. But I think the good news, the
• 30:35
  if you're the, if you, if you believe in the accelerationist
• 30:38
  view, the good news is there will be multiple trillion dollar
• 30:41
  winners, maybe $10 trillion winners coming out of the space
• 30:44
  the next 5 to 10 years. And that's a very bold case for
• 30:47
  for these technology bets and these unicorns in general.
• 30:50
  Yeah, I, I do wonder if we see some type of, you know,
• 30:54
  backlash, social unrest as a result of AI positively
• 30:58
  impacting a privileged few and not so positively impacting a
• 31:04
  larger group of unwashed masses. Now you sound more like a
• 31:08
  doomer, yeah. I'm I'm I'm acceleration this
• 31:11
  from the overall economic perspective.
• 31:13
  I may be a doomer from the, you know, broad population sort of
• 31:18
  perspective, but I think both could be true at the same time.
• 31:21
  Well, you're right, you're right to worry about it and how we
• 31:23
  cope with it is, is key. I'm, I'm a little more on the
• 31:26
  optimistic side in terms of the distributional impacts.
• 31:29
  I think this is actually one of the great technologies that will
• 31:31
  really benefit people in the in the, you know, middle, middle
• 31:35
  income, middle classes and and small distances I think will be
• 31:38
  huge winners with this over time, but it's definitely a
• 31:41
  disruptive period where this is going to be challenging for a
• 31:42
  lot of folks. Today we have Reshma Suhani and
• 31:54
  Carlos Espinel who are the Co founders and managing partners
• 31:58
  of Seed Camp out of the UK although they invest globally
• 32:02
  and across Europe. Welcome to the show, Reshma and
• 32:04
  Carlos. Thank you.
• 32:06
  Thank you. Why?
• 32:07
  Don't you guys tell us a little bit about seed camp and how many
• 32:10
  companies roughly do you guys think you've invested in over
• 32:12
  the last 1516 years? Over 500 is is kind of where we
• 32:18
  need the number. You know that that spray and
• 32:20
  pray strategy is never going to work.
• 32:22
  It's really just a terrible idea.
• 32:24
  And lo and behold, it has for you, for us, you guys have.
• 32:29
  Some tremendous wins under your belt.
• 32:31
  I don't know if I've I've got all of them but certainly
• 32:34
  transfer wise was a big win and UI path and Revolut.
• 32:38
  And Synthesia more recently and yeah.
• 32:41
  Amazing. Yeah.
• 32:42
  And revolutes, we were just recently covering, but it seems
• 32:45
  like it's completed a secondary transaction or tender offer at a
• 32:49
  $75 billion evaluation. Well, yeah.
• 32:51
  Could you tell us a little bit about the history of seed camp?
• 32:54
  Carlos and I started in European venture, UK venture around the
• 32:58
  same time and I think a few of us had very similar ideas around
• 33:03
  what venture capital should look like.
• 33:05
  And I think we were inspired, you know, by by YC, which was
• 33:09
  two years old at the time. Textures was also starting up, I
• 33:13
  think just before we kicked off and then saw Klein, who was at
• 33:18
  Index Ventures at the time, A lot of like minds coming
• 33:21
  together. You know, Saul and I kicked off
• 33:25
  on a journey to start C camp. 2007 eight time frame or
• 33:29
  something. Like that September 2007
• 33:31
  exactly. And so we had a whole
• 33:34
  application system coded in weeks by a brilliant Imperial
• 33:40
  College graduate, or maybe he was still student then.
• 33:44
  He's gone on to be a multi company founder, repeat founder
• 33:48
  and you know, got this incredible community together.
• 33:51
  Tavet was one of our first mentors.
• 33:53
  He was at Skype at the time this.
• 33:55
  Was the founder of Transferwise right?
• 33:58
  Exactly all these companies from all over the place.
• 34:01
  It was several 100 people over a week and it was just
• 34:04
  electrifying and I guess I mean really kicked off every
• 34:07
  everything it's. Probably worth adding that the
• 34:10
  great work that Saul and Reshma did in aggregating what was a
• 34:14
  fractured BC community in Europe to attend because the original
• 34:19
  seat camp wasn't just about supporting founders that were
• 34:23
  precede, it was also about bringing together the ecosystem
• 34:27
  that wasn't really coming together in any other way.
• 34:30
  This is pre slash, pre web summit, pre every single
• 34:32
  conference that we're quite familiar with now.
• 34:34
  They didn't exist. So it was a very difficult
• 34:39
  effort to convene all these funds for the purposes of
• 34:43
  reviewing companies. I was one of the mentors in in
• 34:47
  fund one, but it wasn't operational in the way that Saul
• 34:50
  and and Rashma were for fund One.
• 34:52
  It was too small. It was a 2.5 million fund.
• 34:56
  I think it still owes you money. Rashma, I don't know, but it was
• 34:59
  the catalyst, made a huge impact in the European ecosystem, which
• 35:02
  then allowed for a successful raise of a second fund, which is
• 35:08
  when I joined full time. But maybe you can carry the
• 35:11
  story from there. Yeah, knowing I think to your
• 35:13
  point, I'm like just ecosystem, you know, bringing together
• 35:17
  there was really nothing. I mean there were not none of
• 35:19
  these events as we just as we just said, I mean the point like
• 35:22
  Daniel, I could Spotify, you know, there was a seat camp
• 35:25
  event at which Shaq and he kind of showcased what Spotify was to
• 35:30
  Robert Scoville and he wrote about it and in the US market
• 35:35
  and that was kind of their a little bit of their launch into
• 35:37
  the US, right. And so that had I mean, we
• 35:39
  weren't even investors in Spotify.
• 35:41
  So it was just seeking which is this amazing place for everyone
• 35:45
  to to come together, center point of gravity.
• 35:48
  You know, anyone who would really made it in European tech
• 35:53
  would would come there. I think I remember visiting in
• 35:56
  2009 or 10. It was really a pretty magical
• 35:59
  and interesting time. I how did you guys feel about
• 36:01
  getting that program started and, you know, making those
• 36:05
  initial investments? Did you feel like that was, you
• 36:08
  know, a lot of pressure, untested strategy, or did you
• 36:12
  feel like, hey, yes, this is definitely going to work?
• 36:14
  We knew we got the great and the good of of Europe and UK in one
• 36:19
  place, right. And I think leaning into the the
• 36:23
  European brain dream that happened had happened into the
• 36:27
  US and getting Euro centric folks mindset wise like you
• 36:32
  coming over. Some of the New York and Boston
• 36:36
  VCs came over too, I think, right At least a few folks.
• 36:39
  Like the South African David Frankel, like the South African
• 36:42
  mafia and bring bringing them into into London on you know,
• 36:46
  Fred Wilson came to Slovenia even right.
• 36:49
  But what that critical insight was, we can't just rely on that
• 36:53
  and sit up, sit on, sit on our laurels for all of you guys to
• 36:57
  come over. We've got to bring the companies
• 37:00
  to, to you, right? So I think that was 2010,
• 37:03
  Carlos, right? 3/10/2011 you came on, you came
• 37:06
  on that time and we just sort of got on a plane and, and headed
• 37:10
  over with our with our companies and you know, got into the
• 37:14
  spaces of Sequoia, NEA, 500 startups.
• 37:18
  You gave us a lot of time. You guys hosted us for, for some
• 37:22
  of those US trips. And that was that was incredible
• 37:26
  because that is out of there that Fred invested in in
• 37:32
  Samantha and and Redpoint invested in earthly and and so
• 37:36
  on and so forth. That really unlocked US venture
• 37:40
  capital in European companies. Now that's not even again, it
• 37:45
  doesn't even you know, the become a point worth talking
• 37:50
  about because that happens just all the time anymore.
• 37:53
  But at the back then it was like, definitely tech crunch
• 37:55
  worthy, newsworthy. Yeah, you guys got started a
• 37:58
  little bit before us at 500, but we certainly felt like, you
• 38:01
  know, you know, partners in crime and getting that off the
• 38:04
  ground. And like YC and Techstars had
• 38:06
  started a few years earlier, but it was still early even for them
• 38:10
  as well. When did it feel like things
• 38:13
  were sort of starting to groove, starting to work?
• 38:15
  When we started, there was a premise of having a portfolio
• 38:22
  that represented early stage. It was a 22 plus company
• 38:27
  portfolio, seed camp fund one. It wasn't a high volume play.
• 38:32
  We, as most people do, look at what YC was doing and other
• 38:38
  other platforms are doing. And you're trying to figure out
• 38:41
  as you go along, what is it that founders need.
• 38:43
  And we learned a few things. The first thing we learned is
• 38:46
  what works in America doesn't work in Europe, at least doesn't
• 38:49
  work in Europe back then and now.
• 38:51
  Now there's more parity. But back then, for sure it
• 38:54
  wasn't, you know, multilingual, multi, jurisdictional, multi,
• 38:58
  whatever. You just couldn't assume people
• 39:00
  would get up from 1 country and go to another, and so that gave
• 39:03
  us a little bit of a different spin on what it is that we
• 39:06
  needed to be offering our founders.
• 39:08
  You said the first one was only two and a half million.
• 39:11
  What was the size of fund 2 and 3?
• 39:13
  A second one was 5 and 20. And did you guys see progression
• 39:17
  from your portfolio companies probably at least getting a few
• 39:20
  companies to larger amounts of capital in Series A might have
• 39:24
  been, hey, things are at least heading in the right direction?
• 39:26
  Again, both of our back backgrounds being, you know,
• 39:29
  engineer trained, we were looking for what are some KPIs
• 39:36
  in the in the short term. And I think absolutely, you
• 39:38
  know, Series A continues to be one of the proving grounds even
• 39:43
  today, you know, 18 years later, 25 since I since I started in
• 39:47
  venture. It is the the place where it all
• 39:49
  constricts and you, you got to really show a lot of different
• 39:53
  aspects of a company built, built to get come together.
• 39:56
  So Series A was a massive metric and I think critically for us.
• 40:00
  Getting US capital in Series A was also a, a, a key metric arr
• 40:07
  I mean, smaller numbers in those days, days, right?
• 40:09
  But like a million, right, was a very big #510,000,000 were, were
• 40:14
  very big numbers. And then obviously you're
• 40:16
  getting into where we got to with PATH and and why is in the
• 40:21
  second fund, PATH in the third fund, Revolute also in the third
• 40:25
  fund is a big thing was wow, these founders are different.
• 40:30
  They're not the same kind of founders from the first, from
• 40:35
  the first fund. They're not necessarily second
• 40:38
  time or repeat founders, but they have operational
• 40:41
  experience. You know, Tovet had that
• 40:44
  operational experience at, at Skype.
• 40:47
  Nick had the operational experience or trading
• 40:49
  experience, which would be very valuable for fintech.
• 40:52
  Daniel had literally been building path for four or five
• 40:56
  years before he any, he took any money in.
• 40:58
  So that that sort of operational experience.
• 41:00
  So, you know, is it just a different kind of a founder and
• 41:03
  we needed to be responsive to to that kind of a founder as as
• 41:07
  well. So things really evolved to to
• 41:11
  what Carlos said in in fund the end of Fund 2, but really into
• 41:16
  fund 3 is we, we made 100 investments.
• 41:19
  This third fund, I guess the time frame was. 2014 I'm having
• 41:23
  trouble. With the radar, Sir.
• 41:24
  What's wrong with it? I've lost the bleeps, I've lost
• 41:26
  the sweeps, and I've lost the creeps.
• 41:27
  The what, the what, and the what.
• 41:29
  So I, I think for a lot of VCs, there's several different things
• 41:32
  where you feel like OK, things are working. 1 is obviously
• 41:34
  being able to raise a larger fund or, or at least you know, a
• 41:37
  second and eventually 1/3 fund getting companies to series A&B,
• 41:41
  you know, you know, that's not maybe returning capital yet.
• 41:44
  At least you're making progress and hopefully having some
• 41:46
  markups and then obviously getting some exits.
• 41:48
  And maybe those were smaller exits in the beginning, but you
• 41:52
  guys had a sort of interesting, you know, solve for that.
• 41:55
  And I, I think, you know, obviously we would like to talk
• 41:57
  to you guys about the secondary market experience, but you guys
• 42:00
  packaged some of your early wins into a secondary sale sometime
• 42:04
  around 20/15/16. When?
• 42:06
  When? Your point on M&A is, is
• 42:09
  critical is we had, you know, Uber view sell, we had Samantha
• 42:13
  sell. And again, I think when we look
• 42:16
  at that, you say, who are they selling to U.S. companies?
• 42:19
  And and so you know, that started to put us into sort of a
• 42:24
  fund manager mindset is like, OK, we've sourced, we've
• 42:27
  selected these are we've won those deals.
• 42:31
  The companies themselves are winning.
• 42:32
  You're getting, you know, you're getting some of those points on
• 42:35
  the board. As you just said, you start to
• 42:37
  get into harvesting essentially is like, what is this, you know,
• 42:41
  you planted keeping with our, you know, theme of seed and seed
• 42:46
  camp is what comes, you know, at the other side of it.
• 42:51
  And I think a lot of managers out there forget that, that
• 42:54
  that's also a big part of the job.
• 42:56
  But M&A is a critical part. So is IPO.
• 43:00
  We hope, we hope to have that one day.
• 43:02
  But M&A is which means again you're harvesting now you start
• 43:06
  to be, you know, 2017 you're looking at a tenure fund kind of
• 43:11
  for the first one and you're looking at seven years in for,
• 43:15
  for the second fund. So where where some of those
• 43:18
  exits were, were were nice, they're still have fund mover
• 43:23
  and you do have this fund manager role.
• 43:25
  So yeah, 2017 we started talking to Molten to come in as an LP in
• 43:31
  our 4th fund. So we were raising our our 4th
• 43:34
  fund and credit to Molten just really creative, right?
• 43:39
  I mean, Simon Cook was the real driving force, right?
• 43:42
  And actually they were part of DFJ back then.
• 43:47
  You know, they split off and and set up on their own Auk entity.
• 43:51
  Yeah, I credit him with just that incredible creativity,
• 43:55
  which I think DFJ brought to the table in global venture capital.
• 44:00
  Is this partnering and power sharing and economics and lots
• 44:05
  of fun stories there too, I'm sure, which we don't know, you
• 44:09
  know, as as deeply, but that's it.
• 44:11
  It was like that's the foundation.
• 44:13
  Is this like willingness to be orthogonal, think out-of-the-box
• 44:18
  and and be creative, which, you know, Simon had in spades.
• 44:22
  And and we ended up selling our first two funds to Molten where
• 44:28
  critical asset for them was, was transferwise.
• 44:31
  Global Network was part of Tim Draper and he had been an
• 44:35
  inspiration to me as well and investing globally out of Soda
• 44:38
  Valley. Even his father had, you know,
• 44:41
  started to fund in India way back in the 90s.
• 44:44
  And then as you said, Simon, not just, you know, innovating in in
• 44:48
  several areas, but they actually took a fund of funds model and
• 44:52
  took that public in the UK, correct.
• 44:54
  Correct. Yes, alongside the main.
• 44:56
  Yeah, alongside the main fund. Initiating direct investments,
• 44:59
  fund investments and then secondary investments, they
• 45:01
  really were doing quite a bit of interesting stuff.
• 45:04
  Venture actually tends to be quite stoic and immovable.
• 45:08
  And yes, our models are, you know, 10 year life, right and.
• 45:12
  You know about innovation, but not so innovative ourselves.
• 45:14
  That's it. And so I think things like 500
• 45:18
  US few others, you know, molten index other brought innovation
• 45:23
  into a model that's just been man, quite stagnant at the time
• 45:28
  for sure. And now you've got emerging
• 45:30
  managers, you've got media VC, like there is just so much more,
• 45:34
  so much more. You say not as innovating
• 45:37
  ourselves, Dave. I would, I would argue that it's
• 45:40
  not even the VC's. It's the, I think the best
• 45:44
  example is this one of these stories I heard about how
• 45:47
  somebody had to cut off the legs and wings of the chicken to make
• 45:51
  it fit into a square box because of the ovens in a certain
• 45:54
  country only were a certain size.
• 45:56
  And sadly, the, the way that money is put into VC funds is in
• 46:00
  the similar vein. It's cut and chopped in and
• 46:03
  moved into a way that fits the narrative for a pension fund or
• 46:06
  an LP. And some of the innovation isn't
• 46:09
  at the VCGP side of things. It is at the LP side of things.
• 46:14
  And LP's have their own, you know, version of that, which is
• 46:17
  maybe the public markets or some, some cash flow forecasts
• 46:22
  for, you know, pensioners. And, and so I think what's,
• 46:24
  what's interesting about what Simon did with Moulton in taking
• 46:28
  Moulton public, because that was also one of the first things
• 46:30
  that that firm did that, you know, hadn't really happened
• 46:33
  before in Europe was taking that VC firm public and then floating
• 46:37
  it and then dealing with the cash flows from that for stock
• 46:39
  price. It was how do you evolve
• 46:42
  something, right? And, and if you look at the
• 46:43
  history of, of venture, it was predicated on borrowing PE type
• 46:48
  ideas in Silicon Valley. And is that even appropriate for
• 46:51
  an industry that moves at lightspeed?
• 46:53
  And I think even to this day, we're looking at ideas and how
• 46:56
  to evolve these things to match the, the growing needs of
• 47:00
  companies. And you know, during the
• 47:02
  software era, it felt one way. Now that we're moving into like
• 47:05
  data centers, AI defense space where those time frames are
• 47:09
  getting back to semiconductor time frames, it also feels a bit
• 47:12
  distorted. So I think it's just a bit of a
• 47:14
  side note to say that like the entrepreneurially minded ideas
• 47:17
  that we have for how we operate seed camp ultimately are
• 47:21
  restricted by the nature of the money.
• 47:23
  And similar to any other GP who's got ideas is how that
• 47:27
  money is it expected to be deployed and within the LP
• 47:31
  confinements. And one of the critical elements
• 47:33
  that I think we, we should probably note here is the impact
• 47:36
  Brexit had on our fundraise. Because you know, for many of
• 47:40
  you that, you know, probably remember, you know, when Brexit
• 47:44
  happened, one of our investors sadly chose to, to part ways
• 47:48
  with us on the basis of, of what Brexit was.
• 47:52
  And another one came in and replaced it.
• 47:54
  And instead. And it was just indicative of
• 47:56
  like how you had agreed terms on one thing and then there's
• 47:59
  another set of terms. And those terms are, you know,
• 48:02
  sovereign wealth fund type terms, you know, because it that
• 48:05
  fund belongs to a country and has specific jurisdictional
• 48:09
  requirements to justify the use of that money.
• 48:11
  And it's just a reminder that ultimately innovation around
• 48:14
  liquidity M and A secondaries is restricted by the the nature of
• 48:19
  the money that invests in you and what they expect and when
• 48:21
  they expect and how they expect. It, that's a great point.
• 48:24
  I want to pick up on that because actually the nature of
• 48:27
  our LP base changed significantly after the first
• 48:30
  two funds, hence hence. Timing here.
• 48:33
  Brexit happened in 2016. Yeah, so the both fund were you
• 48:37
  know raising 4th fund in the middle of that actually close to
• 48:40
  the 9th inning if Brexit happens and overnight if it came from an
• 48:46
  anchor in our fund too, we actually can't even invest.
• 48:48
  So that was that was fun, fun conversation to lose your anchor
• 48:52
  as as many he sees in the audience will know you can have
• 48:55
  the level of flexibility again depending on who who all is part
• 49:00
  of your model. So on the entrepreneur side,
• 49:02
  what level of flexibility and support you provide them?
• 49:05
  You know changes as I mentioned kind of that second and third
• 49:08
  fund, the nature of the founders that would take secamps money
• 49:11
  change and we had to evolve with that.
• 49:13
  But the LP base, so our LP base for the first two funds and I
• 49:17
  think the emerging managers in the audience will get it was non
• 49:21
  institutional or East non LP institutional.
• 49:24
  It was really angels VC funds themselves.
• 49:27
  So we had so much breath in which to, to operate and and
• 49:33
  have the creativity to, to operate, which is really the
• 49:36
  sole reason like I think the ultimate kind of sign off from
• 49:40
  the LP's came for the sale of funds, Funds 1 and 2 is.
• 49:45
  When you sold, I guess fund one was 2 1/2 and 2 was 5.
• 49:50
  So you had seven and a half million, You know that you had
• 49:53
  what, roughly speaking, And this was 7 and 10 years later.
• 49:58
  Exactly. What was the on paper number
• 50:01
  that you were dealing with and how did you guys think about,
• 50:03
  you know, where what you were getting back?
• 50:05
  Did you sell everything you know?
• 50:07
  Did you think about selling a partial amount?
• 50:08
  Was that even a possible, you know, option or not?
• 50:11
  And how did that affect your fundraising?
• 50:13
  Look, those LP's in that seven and a half million, you know,
• 50:16
  fund together if you count them was was gosh, we hope to make 1X
• 50:20
  back. I would say I'm not.
• 50:23
  Sure. You had a lot of flexibility
• 50:24
  because these were smaller funds, smaller checks, and
• 50:27
  they're probably happy anything happened.
• 50:29
  The fact that you're talking about here to answer your
• 50:31
  question like a 4X plus return this, you know, absolutely blows
• 50:38
  out out of the water. And yes, we know we're giving
• 50:41
  upside on transferwise we're you know, we're we're going to be
• 50:45
  sellers here at a point where it's right, like in a sweet
• 50:49
  spot, But that's OK. It's it's IRR.
• 50:53
  If people should read up that concept, it matters.
• 50:55
  So you know, it's it's IRR. It you guys, 10 years, seven
• 50:59
  years, you and Carlos, you know, need need something off the
• 51:03
  table too. Not dissimilar to founders
• 51:06
  taking some secondary in later stage rounds as we have all now,
• 51:10
  you know, gotten it used to and experienced with right.
• 51:13
  So it was kind of this, it was a little bit 7 1/2 almost as a
• 51:19
  mindset of you've invested in you guys as, as you know,
• 51:22
  founders and taking this company and scaling this company into
• 51:26
  funds 456 onwards, which unlocked the result, you know,
• 51:31
  win, win, win for everyone. Molten I think did another like
• 51:35
  3-4 X on top of top of that as well.
• 51:38
  So I think a key fundamental principle we have in secondaries
• 51:42
  is you got to leave money on the table and that's OK.
• 51:47
  So you can't hang the market perfectly anyways, and there's
• 51:50
  got to be something in it for the buyer.
• 51:53
  I think that's a really great point because probably a
• 51:55
  different concept from selling a liquid asset where, you know,
• 52:00
  there's market information, there's probably more definition
• 52:04
  around what the price is and the holder buyer of that security
• 52:09
  can, you know, turn around and sell that again without much
• 52:12
  friction so you can optimize for a fair value.
• 52:15
  But if you're selling an illiquid asset, kind of the
• 52:18
  person buying it is taking on all the liquidity risk that you
• 52:21
  are now leaving. And you know, you got to give
• 52:24
  them some opportunity to sort of think, well, I'm also going to
• 52:27
  get, you know, an IRR that's hopefully, you know, north of
• 52:30
  1520%, you know, depending on the holding period, they'd like
• 52:33
  to see a 234X or better return on their investment as well.
• 52:37
  And so I think that's really different mindsets.
• 52:40
  That's hard, you know, for anybody doing secondary selling
• 52:43
  the first time, I think you don't, you don't really think
• 52:46
  about like the buyer's psychology as much or at least
• 52:50
  you know that you're thinking about your own psychology and
• 52:52
  hey, am I selling at the right time here?
• 52:54
  Is there still more upside? I think for me, probably the the
• 52:57
  initial lessons were probably with Twilio in our first
• 53:01
  portfolio, Credit Karma in our second portfolio.
• 53:04
  And then kind of around the IPO of Twilio in 2016 was kind of
• 53:10
  that that scenario for us because we had a decision about
• 53:14
  whether to distribute the entire position once it came out of
• 53:18
  lock up, which is kind of very similar to that that secondary
• 53:21
  sale decision as well. And at the time I had been
• 53:24
  thinking about whether to hang on to some portion of that.
• 53:27
  I had thought that the IPO Trulia while great was still
• 53:30
  undervaluing the company and I had a really big argument with a
• 53:34
  whole bunch of my other, you know, team and founders about
• 53:36
  whether to hang on to some of that or not.
• 53:37
  I actually called Fred and asked for his advice about this.
• 53:41
  And he he gave me some advice was like, well, you're not
• 53:44
  really paid to be a public fund manager.
• 53:47
  You're a private fund manager. This is your first sort of
• 53:50
  significant exit. It's probably just not worth the
• 53:52
  risk. And then not a year later, he
• 53:54
  wrote a post that I think, you know, the summary of that was
• 53:57
  sell a third, hold a third, think about the other third.
• 53:59
  And I was like, Fred, where was that blog post whenever we were
• 54:03
  having that conversation? But even there, I think, you
• 54:06
  know, he's optimizing for someone who's maybe already more
• 54:10
  established as a fund manager. And, and I think you have to
• 54:13
  think about like, what's the trajectory of your career as AVC
• 54:17
  as well as the price that you're optimizing for?
• 54:19
  Because at least in your case, I would guess you had, you had
• 54:22
  raised fund 3, but you hadn't raised fund 4 when you did that
• 54:25
  sale or was it connected to the raise of fund?
• 54:27
  Four, yeah, I think we had raised and deployed.
• 54:29
  We were in the process of raising fund four.
• 54:32
  And as you know, people know LP's do tend to look not just
• 54:36
  the most recent fund because too young for a precede scene, but
• 54:40
  they're definitely looking. And what are you, what are you
• 54:41
  doing with your first fund, which is 10 years old, which is
• 54:46
  7 years old? So Fred Wilson is the person
• 54:48
  you're talking about. Absolutely.
• 54:49
  Like great, great thinking of moving things from art to
• 54:53
  science. And so look, you get emotionally
• 54:56
  attached to the companies, you get emotionally attached to
• 55:00
  founders, you get maybe emotionally attached to some
• 55:02
  theoretical numbers on some spread sheet.
• 55:05
  So you got to go back to the math.
• 55:06
  The math ultimately makes sense. There's a power law and that's
• 55:10
  math. And IRR is a math.
• 55:12
  And and so you look at the model of you know this, the third or
• 55:17
  third of third. It's the entire position of Fund
• 55:19
  One and Fund 2. Say that again.
• 55:22
  You sold the entire position. All the fun one and fun too.
• 55:25
  We, we did, Carlos and I retained the ability to have
• 55:29
  carry going forward with Moulton's ownership and then we
• 55:33
  had the relationships with our founders too.
• 55:35
  And we, we can talk to the founders about it especially,
• 55:40
  you know, Tavet and and Crystal about that and and others as
• 55:43
  well. So again, to have buy in, to
• 55:45
  have alignment and and then Moulton was actually very
• 55:49
  helpful to the wise guys in their IPO learning and, and and
• 55:54
  have to you know how to be a UK public company, right.
• 55:56
  So that's an introduction that was really valuable.
• 55:59
  This is probably a good point, Dave, to distinguish between the
• 56:04
  sale of an LP position and company share sales, because
• 56:08
  they're not the same thing. Right, absolutely.
• 56:10
  So again, for readers, I think the concepts here we're talking
• 56:12
  about are direct secondary where you're selling position in a
• 56:15
  company versus fund secondary or LP or GP secondary where you're
• 56:21
  selling in the fund. The silliest metaphor I can
• 56:23
  think of is if our funds were a bus and the assets within the
• 56:29
  bus did not change. We were still driving the bus.
• 56:32
  The engine changed. That was all that happened.
• 56:34
  The LP went from a variety of LP's to one LP, which is molten.
• 56:38
  The relationship that we had with the founders was the same.
• 56:40
  We managed the fund. So it's just like nuance.
• 56:43
  It's important nuance because it changes the nature of the
• 56:46
  relationship and everything else is like.
• 56:48
  So you respond Manager is GPS but you flopped out the LP's.
• 56:53
  Correct, correct. So it's a, it's a slightly
• 56:54
  different structure than let's say when we have an opportunity
• 56:58
  to participate in a sale of shares in a company, also a
• 57:03
  secondary, but that's a a very different thing and that reduces
• 57:07
  our ownership in the fund of that company's shares.
• 57:12
  Got it. Have you guys done other
• 57:15
  secondary sales in individual companies out of the funds?
• 57:18
  Yeah. And and actually, I think that
• 57:20
  we've come up with our own rule. It's not quite a third, a third,
• 57:23
  a third. It's more like 20% in that that
• 57:26
  you never quite know if this is the first and last opportunity
• 57:30
  you'll ever have. And so 20% is always a good
• 57:33
  number to just make sure that beyond a certain DPI that you
• 57:38
  just start forcing yourself to to create liquidity.
• 57:42
  Talking about selling 20% of your existing position in in a
• 57:45
  company. Correct.
• 57:49
  For the company share sales, yes.
• 57:51
  And so I think what we have seen from history is that not
• 57:56
  everything that you think is going to go up is going to
• 57:57
  continue going up. Not everything that you think is
• 57:59
  going down is going to stay down.
• 58:01
  But your opportunities aren't as linked to those ideas as as
• 58:07
  you'd like. Sometimes they just show up and
• 58:08
  you got to like make a quick judgement call about that.
• 58:11
  And so that's why now we just like, if there's an opportunity
• 58:15
  and it clears the DPI threshold, then it's 20%, you know,
• 58:19
  immediate. So don't overthink it because
• 58:21
  otherwise you're back to what you described, Dave, which is
• 58:24
  we're not public market investors.
• 58:25
  And whilst we're not talking about public markets, it starts
• 58:28
  getting into like the sort of crossover fund.
• 58:30
  We're not, we're not growth fund investors.
• 58:33
  And you start getting into this really murky territory of not
• 58:36
  knowing exactly when things are going to happen.
• 58:37
  But maybe rush my there's a story there you want to share?
• 58:40
  Yeah. I mean, I think look as pre seed
• 58:43
  and seed investors, it's such a unique position.
• 58:46
  You're not holding on board seats most likely, right.
• 58:51
  We don't take board seats at all actually.
• 58:52
  But you're probably most likely you're not holding a board seat.
• 58:55
  So you don't have representation on the board that a series
• 58:59
  ABCDEF investors do and you're not founders and employees,
• 59:06
  right. Sometimes you might own common
• 59:08
  shares, sometimes you might own crafts, but but without.
• 59:12
  So you're just in this tough position, neither represented
• 59:16
  not represented on the board essentially at all, but like
• 59:18
  neither at that late stage nor nor founder and employee.
• 59:23
  So I think to to Carlos this point, it's you therefore make
• 59:27
  the most out of the out of those opportunities on the on the
• 59:30
  stack and the and the journey. And so you know you I path or a
• 59:35
  path, we, we sold multiple times in the private market on that
• 59:40
  journey. And then we also held at at IPO
• 59:43
  and sold after the lock up and, and actually held probably a bit
• 59:48
  too long out of the very 5% that we owned or 10% that we owned.
• 59:54
  And we learned some good lessons out of that which which resonate
• 59:58
  with. We are not a public company
• 59:59
  investor, right. But to Carlos's point, the
• 1:00:01
  selling of 20%, twenty percent, 20% it, it sold 80% of economic
• 1:00:08
  kind of return value, not 80% of interest, but like 80% of
• 1:00:12
  economic return value from the initial investment.
• 1:00:14
  So I think you've got to be conscious you are not in
• 1:00:17
  control. You're like one of the least in
• 1:00:19
  control of your of the. We had an interview with Mark
• 1:00:24
  Suster in our second episode about a month and a half back
• 1:00:27
  and we were talking about, you know, the buyer remorse or
• 1:00:29
  seller remorse situation and. If I sell 25% of my position and
• 1:00:36
  the company triples, quadruples, goes up by 10X, you suddenly
• 1:00:40
  feel like shit 'cause you spend all your time calculating how
• 1:00:44
  much that $15 million would have been worth.
• 1:00:47
  OK. Now if you sell 40% of your
• 1:00:51
  position and the company tanks you're like fuck I should have
• 1:00:55
  sold 100. Percent, yeah.
• 1:00:58
  So you are guaranteed emotionally to lose unless you
• 1:01:03
  get over yourself. There's kind of like the no win
• 1:01:06
  to some extent. You know, if the price of the
• 1:01:08
  security goes up, then you feel like you shouldn't have sold and
• 1:01:12
  or sold as much. And if it goes down, then you
• 1:01:14
  wish you had sold more. And so it's, it's very hard to
• 1:01:17
  sort of feel like you make the perfect decision in all those
• 1:01:19
  scenarios. And I think the, the point
• 1:01:21
  you're making with selling 20%, you're sort of dollar cost
• 1:01:24
  averaging, you know, on the way up, hopefully on the way up.
• 1:01:29
  But you know, as you point out, you know, there's a time frame
• 1:01:31
  where maybe you're sitting in a period like 2020 or 21 and hey,
• 1:01:36
  that compounding isn't going to keep happening in the next few
• 1:01:39
  years, even though you might think of that like as if it's,
• 1:01:42
  you know, predictable, it's very unpredictable in many ways.
• 1:01:45
  And you might not have the opportunity for liquidity, you
• 1:01:50
  know, on a continuous basis. There's a lot of discomfort with
• 1:01:53
  this, you know you're. And you won't know too much
• 1:01:57
  about it. There's not that many people
• 1:01:58
  that have done it or talked about it.
• 1:02:00
  Like the kind of the reason why we're doing this show is really
• 1:02:03
  to explain more and share these stories so people have, you
• 1:02:06
  know, more perspective on what what the mindset, what the math
• 1:02:09
  should be. Yeah.
• 1:02:10
  So and then so it is extremely uncomfortable and then you've
• 1:02:14
  got to embrace that, embrace that you've got to be
• 1:02:17
  comfortable in your discomfort. And so our model is built on
• 1:02:22
  comfort in the discomfort. So we have the privilege, luck,
• 1:02:28
  whatever. Now in our 7th and you know, 7th
• 1:02:31
  fundraise, we have a model that has the experience of these
• 1:02:36
  outcomes which are stepwise. And no, they aren't holding even
• 1:02:40
  100% right to that perfect moment in the public market when
• 1:02:44
  you and then it just crashed, whatever crashed down or stayed
• 1:02:47
  maybe, but like, no. So, so I think we, we built
• 1:02:50
  comfort in that discomfort, but it is a, it's a highly
• 1:02:53
  uncomfortable place to, to be. I think the other thing you
• 1:02:57
  pointed out or maybe Carlos pointed out is, you know, you
• 1:03:01
  don't really have a lot of visibility into what's going on
• 1:03:04
  even though you might have been an early investor in the
• 1:03:06
  company. If you're not on the board, if
• 1:03:07
  you're not, you know, we're seeing day-to-day operations or
• 1:03:11
  at least quarterly board meetings, you may be not at all
• 1:03:13
  clear what's going on. You may be sitting pretty early
• 1:03:16
  in the press stack and that might, you know, that might have
• 1:03:19
  a a lot of potential impact on you know the liquidity that
• 1:03:23
  happens in the future. If you're not, you're not really
• 1:03:26
  on the same terms as you know the rest of the capital in the
• 1:03:29
  capital stack and you and you don't have as much information
• 1:03:31
  about what's going on. Yeah.
• 1:03:33
  And it's turning those disadvantages into advantages,
• 1:03:35
  turning the discomfort into comfort.
• 1:03:38
  Hopefully that's where the magic is for for success, right?
• 1:03:41
  Like hard. That's why hopefully the hard
• 1:03:43
  things have the power law over return.
• 1:03:45
  And so I mean, what we, you know, we have close
• 1:03:48
  relationships with our founders. Many of them are LP's in our
• 1:03:52
  fund. So I think there is that sort of
• 1:03:56
  embassy building sounds sounds a bit, I don't know, naff, but
• 1:04:00
  like that it is. It is education, empathy
• 1:04:02
  building is like, you know, hey, this this model of precede and C
• 1:04:06
  goes away if there's no liquidity and you know, in in a
• 1:04:11
  certain time frame, right. So it's a it's a lot of that.
• 1:04:14
  It's energy spent on that and always being supportive to to
• 1:04:19
  the founders through that pole, you know, and post IPO as well.
• 1:04:23
  Like path is a great example where Daniel is an LPNR fund,
• 1:04:28
  crew capital, which is at his own venture capital fund.
• 1:04:32
  We know all the principles there.
• 1:04:34
  We make Co investments with crew capital, right.
• 1:04:37
  And so it's preserving that that relationship across that entire
• 1:04:41
  journey and, and really, again, making sure as to what, what
• 1:04:45
  extent you can like that, that alignment is, is known.
• 1:04:49
  Your interests are known. It might not always be there,
• 1:04:52
  but at least the interests and you know are understood and and
• 1:04:56
  known, if not always agreed upon.
• 1:04:59
  Did you guys have any different perspective on secondary sales
• 1:05:03
  out of fund three and four having, you know had that
• 1:05:05
  experience before with your first two funds?
• 1:05:09
  Yeah. And I think, you know, probably
• 1:05:11
  more restriction on now creativity to Carlos's Carlos's
• 1:05:15
  point, different governance structure, a more owners
• 1:05:18
  government governance structure written in the written in the
• 1:05:22
  LPA. So again, you're conscious to
• 1:05:24
  that and and and managing for that.
• 1:05:27
  But you know in in fun, but also like a lot more experience under
• 1:05:32
  our belt, our model working for for us.
• 1:05:35
  And so I think Fund 3 in Revolut 2, we've sold along the journey,
• 1:05:40
  the company has enabled, you know some investor sales to
• 1:05:45
  happen as as well. We worked with them in the past
• 1:05:49
  to help new investors gain more ownership in the company through
• 1:05:55
  buying some of our shares. So that's been, you know, board,
• 1:05:58
  board approved and support it. So we worked really hand in hand
• 1:06:02
  with with that team too. So we sold in Revolute as a
• 1:06:05
  private company a few times half as as mentioned, we we do that
• 1:06:11
  in you know, Synthesia and fund out of a fund for company as as
• 1:06:15
  well. So probably less kind of mass
• 1:06:19
  creativity, but within the structures we can we employ the
• 1:06:23
  experience of the past to give us as much as I think.
• 1:06:27
  Maybe the only thing I would add, and it's just because it's
• 1:06:30
  important to factor in the context.
• 1:06:33
  You can't just let's assume that all this brilliance is like in a
• 1:06:37
  vacuum. It's not, it's, it's the
• 1:06:39
  context. The context means that the
• 1:06:41
  secondary market, those that are willing to engage with companies
• 1:06:45
  early and earlier has matured since we've been investing in,
• 1:06:50
  you know, in and doing even talking about these things since
• 1:06:52
  2014 roughly. So that means that the
• 1:06:55
  opportunities to buy in and to offer somebody like us and other
• 1:07:01
  investors like us to buy in knowing the risks of the stage
• 1:07:05
  of a company at B or C that has changed materially like that
• 1:07:09
  didn't exist. And this is the role that
• 1:07:10
  Practical VC is doing right and others is that you're generating
• 1:07:15
  opportunities for us in a way that we couldn't even come up
• 1:07:19
  with our own. Like Molten just opened up the
• 1:07:21
  floodgates and now there's all sorts of different stages of
• 1:07:25
  secondary. It's not even like just at the
• 1:07:27
  very end, it's now happening at all different stages.
• 1:07:30
  And I think that's an important thing because otherwise it
• 1:07:32
  sounds like we're just creating these things out of a vacuum,
• 1:07:35
  which would be impossible for a small fund.
• 1:07:37
  Yeah, hugely good point. Yeah.
• 1:07:40
  And I think, you know, again, something we talked about on the
• 1:07:43
  show with a couple of our fund managers and again, particularly
• 1:07:45
  with with Mark Shuster was when you're a fund manager, a seed
• 1:07:48
  fund manager, you think a lot about raising the fund
• 1:07:51
  portfolio, construction, deployment, follow on how to
• 1:07:55
  help the companies. I think there's a lot of
• 1:07:58
  emphasis on the front end of the fund, particularly the first
• 1:08:01
  three to five years. There's a little bit of emphasis
• 1:08:04
  on the next, you know, five years, but not that much.
• 1:08:07
  You know, I think a lot of VCs, particularly emerging managers,
• 1:08:10
  they think about their job being, you know, sourcing deals,
• 1:08:13
  you know, analyzing and evaluating those deals,
• 1:08:16
  investing in those deals and then helping founders probably
• 1:08:20
  in the early stages get to the next round of capital.
• 1:08:22
  Maybe if they're on the board, they stick around and help them
• 1:08:24
  for subsequent rounds. But I don't think many VCs think
• 1:08:27
  about the end game and they and they don't think about probably
• 1:08:31
  2 critical areas. One is, can they help companies,
• 1:08:34
  you know, get to an IPO or if not an M&A, but also for the
• 1:08:38
  companies that are they're still growing, like how do they manage
• 1:08:41
  their upside in a way that as you kind of identified are, are
• 1:08:45
  somewhat, you know, take advantage of compounding, but
• 1:08:49
  also hedging against the risk of, you know, downturn in the
• 1:08:51
  market or downturn for the company and still delivering,
• 1:08:54
  you know, returns for their investors.
• 1:08:56
  And I think there's probably been a change of thinking about
• 1:09:00
  how much active management you need to have as a fund manager
• 1:09:04
  when the portfolio was pretty much static at that point.
• 1:09:06
  You're not really deploying any more capital, but you are
• 1:09:09
  managing positions, which now might be very concentrated,
• 1:09:13
  particularly if you have ability.
• 1:09:14
  Big winner, you know, again, in your case, probably like a
• 1:09:17
  revolute or UI path where it becomes a big part of the
• 1:09:20
  portfolio. And, and we had that experience
• 1:09:22
  with, you know, 500 fund one and two with talk desk and Canva
• 1:09:26
  became, you know, very large positions, more than 6070% of
• 1:09:30
  the overall fund at one point. And I think most fund managers
• 1:09:33
  don't realize you have some very big decisions and, and sometimes
• 1:09:39
  even your non decisions are decisions about, you know, how
• 1:09:43
  do you manage that to, you know, that big position and, and do
• 1:09:47
  you take some money off the table?
• 1:09:48
  When do you have the opportunity to take money off the table?
• 1:09:51
  Is that an efficient sale or not?
• 1:09:53
  What's the compounding growth rate that you think is happening
• 1:09:56
  for that company? Really, really complicated
• 1:09:59
  decisions and a lot of fuzzy information.
• 1:10:03
  And it it's, it's fuzzier in a different way, right at the at
• 1:10:06
  the precede. See to your point those first
• 1:10:08
  3-4 years, five years it's fuzzy on no one knows anything better
• 1:10:13
  in terms of product market fit you.
• 1:10:16
  Don't know how big they're going to get, etcetera.
• 1:10:19
  Later it's fuzzy because people are actively making it fuzzy.
• 1:10:24
  People do not want to share information and that this like a
• 1:10:28
  private world is you got to you got to have fun with it too.
• 1:10:32
  Again, like I said, it is uncomfortable because there is a
• 1:10:37
  lot of game playing and there is a hoarding of not information
• 1:10:41
  and knowledge and obfuscation and it's just it's and then the
• 1:10:44
  public market, it all becomes clear again, right.
• 1:10:46
  And so, so this late stage private getting larger and
• 1:10:50
  larger, more impactful like it is, it's a very different it's a
• 1:10:55
  different system. So yes, you, you need to you
• 1:11:00
  need to evolve, you know, my like.
• 1:11:03
  So we've, I mean you'll see when we publish our 7th deck,
• 1:11:07
  hopefully upon successful conclusion of underpacing on
• 1:11:10
  slide share again you'll see, you'll see a new category of
• 1:11:15
  talking us talking about which is like this liquidity and and
• 1:11:18
  harvesting if you want to call it is, is we do.
• 1:11:22
  Go ahead. When you guys think about exits,
• 1:11:24
  how much weight do you now put upon the secondary sale piece
• 1:11:28
  versus say M&A or IPO? 1/3 a third, a third?
• 1:11:33
  Would that be a nice nice no. Maybe IP OS even less, right?
• 1:11:38
  Because it's just very few takes.
• 1:11:40
  Too long. Yeah, Yeah.
• 1:11:42
  Just to answer that, to answer that mathematically, we have a
• 1:11:46
  model today that is takes all our successes to date and
• 1:11:51
  multiplies the multiple of those relative to a portfolio of 100
• 1:11:55
  companies and assumes that the aggregate secondary positions
• 1:11:59
  add up to that multiple. So when those happen and what
• 1:12:03
  generates them is kind of not really factored in.
• 1:12:06
  It's more of what is the total multiple as required from
• 1:12:09
  certain positions to deliver the kind of returns that we do.
• 1:12:13
  So it's because it's 100 companies.
• 1:12:15
  We generally have like a bit of a statistical model.
• 1:12:17
  We know that two companies are going to move the fund, 10 are
• 1:12:20
  going to roughly provide positive DPI and the rest are
• 1:12:23
  going to be somewhere in the middle of of one extra below.
• 1:12:26
  And so with that knowledge, every single secondary
• 1:12:30
  opportunity, whether it's M&A or something else, which we don't
• 1:12:32
  think it's not, it's not it's too complex to try to model out,
• 1:12:35
  but it's more of does it add up to that, that two that 10 or
• 1:12:40
  that 9? Right.
• 1:12:41
  So I think you know to be as honest transparent here like I
• 1:12:45
  would say, I don't know 90% is secondary.
• 1:12:48
  No, Carlos, like value what like multiple return wise if not 95%.
• 1:12:52
  I mean the M&A we've done 5060 + M and A transactions, but the
• 1:12:59
  aggregate value of that is is smaller and then IPO obviously
• 1:13:04
  so far well we've inherited IP OS from when selling shares and
• 1:13:09
  taking shares and then that you know our own intrinsic IP OS and
• 1:13:14
  we stayed, stayed on in, in one out of the two cases.
• 1:13:18
  So like yeah, very small percent.
• 1:13:20
  So it is really like 9095% probably secondary they the
• 1:13:25
  nature of them varies obviously as we just went through, but
• 1:13:29
  that's the majority I think. For early states managers, my
• 1:13:32
  guess is IP OS are becoming a smaller and smaller percentage
• 1:13:35
  and it's mostly M&A and secondary and probably more
• 1:13:40
  secondary picking up the slack for the IPO given the size of,
• 1:13:45
  you know, what we're seeing lately.
• 1:13:47
  Even even though the IPO market has warmed up and we're now
• 1:13:49
  seeing IP OS, yet most of those companies have, you know, 4500
• 1:13:53
  million in revenues. Some cases, you know, you know,
• 1:13:56
  a billion in revenue. You don't see that many
• 1:13:59
  companies going public with less than 400 million in revenue, at
• 1:14:02
  least in the US And that just makes it a very, very long time
• 1:14:07
  to exit. I think probably north of 12
• 1:14:09
  years now starting to get to maybe 13 to 15 years for median
• 1:14:13
  IPO time. Exactly, I I heard a rumor that
• 1:14:17
  some LP's are forecasting 17 years.
• 1:14:20
  That's, I mean that is worrying for their own constituency right
• 1:14:24
  of hard. To make a 10 + 2 model, you
• 1:14:27
  know, in a normal fun fit if the, you know, medium time frame
• 1:14:30
  is 15 years for, for us Canva in fund 500 fund 2 is now a 15 year
• 1:14:36
  old company and we've done very well, but you know, still
• 1:14:40
  there's already been some partial secondary sales there.
• 1:14:42
  So we're not hadn't been waiting for the entire position to exit,
• 1:14:46
  but still that's it's a very long time for a company to, you
• 1:14:49
  know, take to go public. And this case, the company is
• 1:14:52
  doing more than 3 billion in revenue and you know, growing
• 1:14:55
  and profitable, but it's still has decided to made or made
• 1:14:58
  private for at least a little bit longer.
• 1:15:00
  Yeah, yeah. And which is that's why like
• 1:15:02
  when we think about path, it was 7 years, six years actually from
• 1:15:08
  our investment to liquidity, that's actually pretty fast.
• 1:15:11
  That's insane. What do you guys see as kind of
• 1:15:15
  the next stages for you guys in your careers and where your seat
• 1:15:19
  camp is going? And I guess maybe a little bit
• 1:15:21
  broader predictions for what's what's been happening in the UK
• 1:15:24
  and European market. And you know, obviously there's
• 1:15:27
  been a lot of attention around AI companies and data centers
• 1:15:29
  that's really been very focused even in the Bay Area, it's very
• 1:15:33
  focused in San Francisco. But what do you guys see as kind
• 1:15:37
  of your areas of focus or interest going forward?
• 1:15:39
  Maybe it's I'll kick off with like kind of US collectively.
• 1:15:45
  We love doing pre seed and seed investing.
• 1:15:48
  We love backing repeat founders, first time founders, operator
• 1:15:54
  turn founders, like collectively seed camp.
• 1:15:57
  Yeah, that's our bread and butter.
• 1:15:59
  We live and breathe that, you know, individuals of us are
• 1:16:02
  definitely looking at the second-half of life of a of a
• 1:16:06
  company and our fund for, you know, me and me sitting here in
• 1:16:10
  the US particularly. And then we also recognize we're
• 1:16:16
  actually good at this. So you know, LP's listening to
• 1:16:20
  this one like you're like. You're not fucking to retire, I
• 1:16:22
  guess. At least not.
• 1:16:23
  No, you are good at this. This is why we keep investing in
• 1:16:25
  you. So we have built out a select
• 1:16:27
  strategy which is our, our growth fund.
• 1:16:32
  But you know, people don't necessarily know this.
• 1:16:34
  We raised over 80 million in, in SPD's, yeah, between that first
• 1:16:41
  fund and kind of when select started for us two to three
• 1:16:44
  years ago is to to invest more in wise and path and and and so
• 1:16:50
  forth. So we at Sithesia and and and
• 1:16:53
  9th and and so forth. So we have done that and it, you
• 1:16:57
  know, it keeps that entire framework of us being part of
• 1:17:01
  your journey from zero to M and a second IPO and and so forth.
• 1:17:06
  But it separates it out into its own like that fund, the select
• 1:17:10
  fund has very different considerations and lifetime and,
• 1:17:15
  and, and IRR and multiples and, and, and hit rate and it's power
• 1:17:20
  law. It's different from of exceed
• 1:17:21
  and precede. So we've, you know, separated
• 1:17:23
  those out to be able to manage effectively.
• 1:17:26
  But collectively, we just love being on that day one journey
• 1:17:30
  with our with our founders all the way to an an eventual
• 1:17:35
  outcome. So I think we're not done seeing
• 1:17:38
  innovation coming out of Europe because of Europe.
• 1:17:40
  And so that's what we hope to be capitalizing on for the next
• 1:17:43
  second. Yeah.
• 1:17:44
  And I think the one point I'll add, and I've been saying it a
• 1:17:46
  lot the last year, is Europe needs to become a demand market.
• 1:17:52
  The way China is, India is US is there's just so much inherent
• 1:17:57
  demand in those geographies for solutions and money moves,
• 1:18:03
  talent moves, things just move right and in, in the system.
• 1:18:08
  Europe needs its own demand profile and these sectors are
• 1:18:12
  really interesting right with with particularly with health
• 1:18:16
  defense, you know, fintech as well.
• 1:18:19
  You can have those European for European for you in Europe
• 1:18:23
  unicorns. And so I think this demand needs
• 1:18:26
  to explode in your Europe. That's my great hope is like
• 1:18:31
  otherwise it'll always be incredible talent that seed camp
• 1:18:36
  can certainly benefit you from helping take global founders
• 1:18:39
  themselves. Can Europe cannot benefit from
• 1:18:42
  that. You know, by alone by itself.
• 1:18:45
  It needs to benefit from demand really be explosive as well.
• 1:18:50
  Well, I think you guys have, you know, managed to get into some
• 1:18:54
  great companies that are not just, you know, cross-border
• 1:18:57
  sort of wins, although you know, a lot of their success is based
• 1:18:59
  on fact that they are, you know, cross-border.
• 1:19:02
  But you have, you know, huge companies in Revolute UI path
• 1:19:06
  transferwise that really are, you know, success stories out of
• 1:19:09
  Europe. Well, thanks.
• 1:19:11
  Thanks for spending a lot of time with us and I guess
• 1:19:14
  continued wishes for success across the pond.
• 1:19:18
  I think my favorite thing is like remembering the names.
• 1:19:22
  All these new names have cropped up on the scene, right?
• 1:19:25
  All the good new names. So all the great new talent, but
• 1:19:27
  fun to revisit. On the on the subject of names,
• 1:19:30
  I think it's going to irritate you again, Dave, but again,
• 1:19:33
  thank you for all the stuff you've done for Europe, whether
• 1:19:35
  you take credit for it or not. A lot of the a lot of the work
• 1:19:38
  that you did to help bring American entrepreneurship and
• 1:19:42
  ideas and and models to to Europe early days.
• 1:19:45
  Anyway, it's really been fun seeing you guys progress over
• 1:19:48
  the years and again, just been inspired by you guys success and
• 1:19:54
  great, great stories on the secondary sales that I think
• 1:19:57
  really are instructive for other fund managers to be thinking
• 1:20:00
  about, even for seed fund managers that don't readily
• 1:20:03
  think about that stuff. Awesome.
• 1:20:05
  Yes, No, such a pleasure. Thank you so much.
• 1:20:17
  Welcome back to Valuation Corner this week.
• 1:20:19
  Professor Virgie, who are we covering?
• 1:20:22
  Anthropic, which is in the news this week because they just
• 1:20:25
  announced a new deal with Google.
• 1:20:27
  They are clearly the number 2 now in the LLM space.
• 1:20:32
  They're the geniuses behind Claude and the Claude family of
• 1:20:35
  AI applications in large language models.
• 1:20:38
  They're very focused on enterprises.
• 1:20:40
  I'd say that though they're among the leaders or maybe the
• 1:20:42
  leader in the enterprise LLM space, they're #2 behind open AI
• 1:20:46
  in the consumer space. But figured it'd be good to to
• 1:20:50
  cover them and maybe do a comparison between those two and
• 1:20:52
  see which way we think the winds blowing and which one is the
• 1:20:54
  better bet. So Anthropic about a month ago
• 1:20:57
  completed the biggest funding round ever for venture capital,
• 1:21:00
  $13 billion funding round and at $183 billion evaluation.
• 1:21:05
  It was led by some great investors.
• 1:21:06
  What I would describe is the A+ tech investors here in the
• 1:21:09
  Valley, Lightspeed and Iconic. And then Fidelity, which is one
• 1:21:13
  of the big crossover fund and money managers in public
• 1:21:15
  markets. And then MGX out of Abu Dhabi.
• 1:21:18
  This is a 3X step up from their last valuation, which was done
• 1:21:22
  only six months ago in March at a $62 million valuation.
• 1:21:25
  So what's justifying a 3X jump in valuation in six months?
• 1:21:31
  Well, among other things, they're arr stunned from 1
• 1:21:33
  billion to 7 billion in that period.
• 1:21:35
  So they have 7X to their annualized revenue.
• 1:21:38
  So that's, that's part of it. Certainly made a lot of progress
• 1:21:41
  as a, as a company in just six months.
• 1:21:43
  So their valuation now at 180 billion, it's now the probably
• 1:21:46
  just behind Open AI and SpaceX. And I guess Bytedance, they're
• 1:21:51
  probably #4 or so in the list of most valuable companies around.
• 1:21:55
  If we do a comparison between them and Open AI, just in terms
• 1:21:58
  of evaluation, I've laid out some key metrics that they've
• 1:22:01
  both reported just to do a side by side.
• 1:22:03
  So Open AI is 13 billion in ARR, Anthropic is 7.
• 1:22:06
  So Open AI is about about twice the scale right now in terms of
• 1:22:11
  evaluation, though Open AI closed at a $500 billion
• 1:22:13
  evaluation last month. So they're actually three times
• 1:22:15
  more valuable. So the sales multiple, if you
• 1:22:17
  want to think of it that way, is about 25 X at Open AI and 18X
• 1:22:21
  for Anthropic. So maybe a little bit of a, you
• 1:22:24
  know, evaluation edge to Anthropic growth rates.
• 1:22:29
  I mean, I don't know, the open AI is at 5X year over year.
• 1:22:33
  Anthropic is at 7X year over year.
• 1:22:35
  Both those numbers are so ridiculously high that I don't
• 1:22:38
  even know how to compare those things.
• 1:22:40
  Do you remember the movie Spaceballs, Dave?
• 1:22:42
  The you remember, you remember the.
• 1:22:44
  Scene when they're ludicrous speed.
• 1:22:50
  That's right. And then open AI is like, you
• 1:22:53
  know, they start off with lightspeed and then we got to go
• 1:22:54
  more than lightspeed to go to ridiculous speed.
• 1:22:57
  And then they go to ludicrous speed.
• 1:22:58
  And somehow I think in tropics that Plaid, they're, they're all
• 1:23:01
  the way up to 7X year every year or so.
• 1:23:04
  I don't know if this sustains or you know, how this, this, this
• 1:23:07
  goes for it, but they're definitely at ludicrous speed or
• 1:23:10
  Plaid, depending on how you judge these things.
• 1:23:12
  The two fastest growing startups that I've ever, I've ever seen.
• 1:23:15
  What the hell? Was that spaceball?
• 1:23:19
  1. They've gone to Plaid.
• 1:23:23
  I think the other thing to think about in terms of these
• 1:23:25
  companies is where do they focus?
• 1:23:26
  So Open AI is clearly in the consumer space and they've lined
• 1:23:30
  up with Microsoft and then Tropics bet is on enterprises
• 1:23:34
  and they're their primary partners.
• 1:23:35
  So these customers are Google and Amazon.
• 1:23:38
  Anthropics got a little bit more of a safety focus, which we can
• 1:23:41
  talk about because I think that's also creating a, you
• 1:23:43
  know, a differentiation for them.
• 1:23:45
  One way to think about these things, and I don't know if this
• 1:23:47
  necessarily applies to LMS, but the market leader clearly sucks
• 1:23:50
  up most of the value in these types of algorithmic search
• 1:23:54
  businesses. But if it was laid out as open
• 1:23:56
  AI on the left, they are by far now the market cap leader.
• 1:23:59
  But there's a lot of competition in it, right?
• 1:24:01
  Entropic and and then you've got folks like Mistral and Cohere
• 1:24:04
  and Grok and X dot AI, Google, Gemini and and then Meta, which
• 1:24:08
  is open source. But most of the valuation seems
• 1:24:10
  to be headed towards open AI. We saw something similar with
• 1:24:14
  the search wars of the early 2000s.
• 1:24:17
  Google ended up taking up about 90% of the market cap of the
• 1:24:20
  search engines and then everyone else was reduced to, you know,
• 1:24:23
  to basically nothing and, or being rolled up into some other
• 1:24:26
  big tech company. I don't know if if LMS have the
• 1:24:29
  same kind of market concentration, but at least one
• 1:24:31
  thing to think about betting on Anthropic, where open AI is
• 1:24:34
  who's the market leader and how much of the market cap will go
• 1:24:38
  to the market leader? Is it 90%, is it 60% or is it, I
• 1:24:41
  don't know, is it much more like 20%?
• 1:24:44
  Over time? I think what Anthropic's done is
• 1:24:46
  they've carved out a bit of a niche for enterprise LLMS
• 1:24:49
  Cohere's got a bit of a niche now for like regulated
• 1:24:51
  businesses. So they're all finding areas
• 1:24:53
  where they can concentrate. But if this does go the way that
• 1:24:56
  the search engines go, then I think the bet has got to be on
• 1:24:59
  open AI, which now seems to be the number one leader and
• 1:25:01
  running away with it as opposed to anyone else.
• 1:25:03
  But I don't know, Dave, you lived through the search wars.
• 1:25:05
  Would you feel comfortable betting on the number two or the
• 1:25:07
  number 3 in this industry? I might think about it more in
• 1:25:10
  terms of number of users that each of these platforms has.
• 1:25:13
  And although Gemini is still maybe emerging as a competitor
• 1:25:18
  for AI, they're sort of, you know, by default, they have
• 1:25:22
  access to all of Google's user base.
• 1:25:24
  And I think you could sort of make the case Meta as well-being
• 1:25:29
  that, you know, Meta's AI products are being exposed or at
• 1:25:32
  least being filtered through all of Meta's, what, 3 billion, you
• 1:25:36
  know, users on their various platforms.
• 1:25:39
  So whether that's Instagram, WhatsApp, you know, Facebook
• 1:25:42
  itself or other Meta products, again, from a Google
• 1:25:46
  perspective, they have, you know, not just, you know, Google
• 1:25:49
  as a search platform, they have, you know, YouTube as a video
• 1:25:53
  platform. Yeah, potentially all of the
• 1:25:57
  Android platforms as well. So I would still put, you know,
• 1:26:01
  Google and Meta, you know, as interesting players there.
• 1:26:06
  I don't know what's, you know, Grok's current user base is
• 1:26:09
  that's probably not quite as large.
• 1:26:12
  But because Elon is trying to tie together, you know, Twitter
• 1:26:16
  and and Grok and you know, all those properties, I think, you
• 1:26:21
  know, maybe there's they're in that platform as well.
• 1:26:23
  That makes sense. And maybe the the way to think
• 1:26:25
  about that is there's a alliances happening in the space
• 1:26:28
  which maybe gets that we're going, but just open AI has a
• 1:26:30
  great consumer technology. It doesn't have the access to
• 1:26:33
  the data that that some of these other platforms have.
• 1:26:36
  There's sort of two camps forming.
• 1:26:37
  I think on the one hand, on the, on the left hand side is
• 1:26:39
  Anthropic, which has now a big investment from Google and they
• 1:26:43
  get access to Google technology and they're lined up with one,
• 1:26:46
  you know, one set of partners. And the other hand is open AI
• 1:26:49
  and Meta and Google, where more the AIAI acceleration is.
• 1:26:53
  And obviously, you know, open AI is got huge investments from
• 1:26:55
  Microsoft and they get access to their, their data and their
• 1:26:58
  distribution platform. But it is, it is kind of
• 1:27:01
  creating this, these two different camps and how to think
• 1:27:03
  about the industry and how to regulate the industry.
• 1:27:05
  And that actually created a little bit of a brouhaha this
• 1:27:07
  week with one of our friends, David Sachs, who who is, as you
• 1:27:11
  know, with the Trump administration.
• 1:27:13
  And he was not very happy with Anthropic and what they were and
• 1:27:17
  their position on AI safety regulation.
• 1:27:21
  And so they came under some criticism from the
• 1:27:22
  administration. And I think that's also you got
• 1:27:25
  to think about that, how to play the industry.
• 1:27:27
  Just to summarize where Zacks was going as he is criticizing
• 1:27:30
  Anthropic and their support for state by state regulation and
• 1:27:33
  their opposition to a federal ban or maybe a better way to
• 1:27:38
  stay as a moratorium on regulation of AI.
• 1:27:41
  And he accused of them of being too woke and too left wing and,
• 1:27:45
  you know, and, and trying to sneak regulations in that'll
• 1:27:48
  benefit them and hurt everyone else.
• 1:27:51
  So it's worth just exploring what the what the nature of this
• 1:27:54
  is. So first of all, the founders of
• 1:27:56
  Anthropic are Dario and Daniella MO Day, your brother and sister.
• 1:28:01
  They have hired a number of folks who used to work with the
• 1:28:03
  Biden administration. I guess that alone would would
• 1:28:06
  be cause for some suspicion if you're the current Trump
• 1:28:09
  administration. But folks like Elizabeth Kelly
• 1:28:12
  and Ben Buchanan were, you know, senior White House advisors for
• 1:28:16
  for Donald Trump. And maybe the Taron Schauber was
• 1:28:19
  maybe the most significant or maybe it's the most important
• 1:28:21
  lawyer working for the Biden administration.
• 1:28:23
  So there is a Nexus between anthropic and, I guess former
• 1:28:26
  Biden regulators. There's a bit more to it than
• 1:28:29
  that. So Danielle is married to Holden
• 1:28:31
  Karnovsky. Holden Karnovsky is the founder
• 1:28:34
  of Open Philanthropy along with Dustin Moskowitz.
• 1:28:39
  Justin's one of the Facebook billionaires and so he's got a
• 1:28:41
  lot of money and connections to to Facebook and Open
• 1:28:44
  Philanthropy has got a very strong alliance with effective
• 1:28:48
  altruists and folks who really want to regulate the AI
• 1:28:51
  industry. If you go to Open Philanthropy's
• 1:28:54
  websites, their mission statement Soundsbury Vanilla
• 1:28:56
  when you look at it, but look at the people that donate to
• 1:28:58
  they're giving 10s of millions of dollars to grants into
• 1:29:01
  effective altruists like this one here, Effective Ventures
• 1:29:04
  Foundation. What all these effective
• 1:29:07
  altruists believe is that AI can be a a massive force for a
• 1:29:11
  catastrophic risk in a negative to society, a malevolent
• 1:29:14
  misaligned AI taken over the world just like their biggest
• 1:29:17
  nightmare. And they want to solve that
• 1:29:18
  through more tech regulation, federal state, they've got some
• 1:29:21
  very strong views about it. And so as the Trump
• 1:29:24
  administration has tried to regulate this, they are there in
• 1:29:27
  the camp of there should be no strong federal regulation yet.
• 1:29:31
  They should actually be a preventive moratorium on state
• 1:29:34
  by state regulation. And they've tried to slow down
• 1:29:37
  tech regulation in a way that's going to harm innovation.
• 1:29:39
  That effort was supported by open AI and and Meta and A16Z
• 1:29:44
  and Google. And on the other side of it was
• 1:29:46
  Anthropic and open philanthropy. And they, if you look at with
• 1:29:49
  the stuff that they have put out about the effects of AI, but
• 1:29:53
  their policy had, Jack Clark wrote a very dark paper, I would
• 1:29:56
  say, called Technology Optimism and appropriate fear.
• 1:30:00
  Like it's a very different view of, of, of AI and what it can do
• 1:30:03
  to society. And they supported California's
• 1:30:05
  recent regulation bill. So I think there's now a divide
• 1:30:08
  between the the two camps and which side Anthropic, I guess in
• 1:30:11
  a good way, is more safety focused and maybe it lets them
• 1:30:14
  differentiate in the industry, but they're on the they're on
• 1:30:16
  the wrong side of this debate. If you look at the other players
• 1:30:19
  in the space like open AI, meta and E16Z.
• 1:30:21
  So I don't know whether that's a good or a bad thing for their,
• 1:30:24
  you know, for their valuation. It may be that you want to stand
• 1:30:27
  out and differentiate in a crowded field.
• 1:30:28
  This is one way to do it. Like, hey, we are the we are the
• 1:30:31
  safety AI. Like I said, it'd be like AI
• 1:30:34
  don't know a car company in the 1920s saying, Hey, we're going
• 1:30:36
  to be on the vanguard of like seatbelts, you know, we are pro
• 1:30:38
  seatbelts and everyone else and everyone else saying let's, you
• 1:30:42
  know, let's not rush to regulate the industry.
• 1:30:44
  And maybe that's a way that they can stand out and be more
• 1:30:46
  differentiated. But I don't know if this this
• 1:30:48
  put some of the crosshairs of the industry or the OR the
• 1:30:50
  current administration, which could be a negative.
• 1:30:53
  Well, I I think I'm going to take a little bit of an opposite
• 1:30:55
  view here and suggest that perhaps David Sacks comments are
• 1:31:00
  coming more from A2 camps being our political parties than
• 1:31:04
  necessarily 2 camps for AI acceleration or deceleration.
• 1:31:09
  I do agree that probably there has been historical focus for
• 1:31:13
  Anthropic being a little bit more cautious.
• 1:31:16
  I think if you maybe take a look at what happened with Grok and
• 1:31:21
  Elon's acceleration, there was a period of time where Grok
• 1:31:26
  started espousing Nazi sort of views and white supremacist
• 1:31:31
  views. And basically, you know, for a
• 1:31:33
  few days Grok was taken offline. I don't know whether, you know,
• 1:31:38
  there was any readjustment of sort of settings or philosophies
• 1:31:43
  up until that point. I think people may have had a
• 1:31:46
  perspective that, OK, the doomer conversation is a little over
• 1:31:50
  the top. Maybe we don't need to be
• 1:31:51
  slowing down our research on AI that much because hey, China's
• 1:31:55
  not going to be slowing down their AI research.
• 1:31:58
  I think that was probably, you know, one of the arguments
• 1:32:00
  before about, you know, not over regulating.
• 1:32:04
  Hey, we don't, we don't want to be Europe here in terms of, you
• 1:32:07
  know, our development of AI. But I do think when you see
• 1:32:11
  things happen with Grok, when people maybe took off all of the
• 1:32:15
  guardrails, there are some rational fears about what
• 1:32:19
  happens with AI in a completely unregulated environment.
• 1:32:22
  So I I think you know, kind of kind of an interesting divide of
• 1:32:27
  camps. Then you didn't mention Dustin
• 1:32:29
  Moskowitz is also a very significant contributor to
• 1:32:32
  Democratic causes. Another ex PayPal colleague of
• 1:32:36
  ours, Reid Hoffman, is a significant Democrat,
• 1:32:39
  Democratic, you know, reporter, but he's actually pretty, you
• 1:32:44
  know, pro AI in many ways and was original backer of open AI
• 1:32:49
  as well. So I do wonder whether some of
• 1:32:52
  the commentary is more of a backlash to Anthropic not
• 1:32:56
  willing to play ball with the Trump administration on some of
• 1:32:59
  their policies. And, you know, baby sacks coming
• 1:33:03
  down a little bit more against them because of, they're getting
• 1:33:05
  out of line. I, I think the regulatory
• 1:33:09
  capture argument is an interesting 1.
• 1:33:12
  And that's been applied previously to open AI as well.
• 1:33:17
  Even though there's a leader in the field sometimes open AI was
• 1:33:20
  suggesting, you know, regulatory capture strategies to maybe slow
• 1:33:25
  down other competitors. So I, I think it's a complex
• 1:33:28
  playing field to really figure out.
• 1:33:31
  But all this politics and, you know, woke comments aside, I
• 1:33:35
  think probably at the end of the day, we just look at the numbers
• 1:33:38
  and, you know, right now open AI and entropic are one and two in
• 1:33:43
  terms of, you know, valuation and usage and revenue.
• 1:33:46
  And at the same time, I, I don't know that either of them is
• 1:33:51
  really completely that, you know, against AI, you know,
• 1:33:55
  acceleration maybe one's a little bit more cautious than
• 1:33:58
  the other. I think that.
• 1:33:59
  Could be a good thing for entropic actually, even though
• 1:34:02
  they might, they may find themselves on the on the, on the
• 1:34:04
  wrong side for now of maybe some partisan and maybe some
• 1:34:07
  partisanship with the comments. And, and that's fair, but it's a
• 1:34:11
  way for them to stand out in the field.
• 1:34:13
  If they if they do say we're going to take a, we're going to
• 1:34:15
  have a more safety focus, like it or not, it's going to be part
• 1:34:19
  of what makes us the, the better AI.
• 1:34:21
  It's going to be harder to have our AI tell you dangerous things
• 1:34:26
  to we, we may even have ADEI focus.
• 1:34:29
  That's not, you know, I know that's not currently the flavor,
• 1:34:32
  at least for the current administration and maybe most of
• 1:34:34
  the tech industry, but there is an audience for it, right?
• 1:34:37
  There's a constituency for it. And so if they market themselves
• 1:34:39
  that way, like like the automobile company in the 1920s
• 1:34:42
  that was pro pro seatbelts, you know, maybe they find a niche
• 1:34:46
  market that they can that they can exploit and defend
• 1:34:48
  themselves with. And it's just a way to stand out
• 1:34:50
  and differentiate. I think.
• 1:34:51
  So I do think they're going to be a winner in the long run.
• 1:34:53
  And the fact they've now got this tie up with Google and with
• 1:34:56
  Amazon Web Services means they've got a lot of key
• 1:34:59
  partners in the ecosystem that are backing them.
• 1:35:01
  I think that's going to be a very big positive.
• 1:35:04
  They do seem to be growing at A at a phenomenal rate at a 7
• 1:35:07
  billion and counting in ARR. So there's no, there's no
• 1:35:10
  quibbling with the numbers, that's for sure.
• 1:35:12
  So an 180 billion, it feels like they're, you know, they are
• 1:35:14
  probably I think a good bet in the industry just going to be
• 1:35:17
  they'll be the number two behind open AI.
• 1:35:19
  But that's that's still going to be a massive prize.
• 1:35:22
  Yeah, I think there's maybe a separate conversation about how
• 1:35:26
  the Trump administration is getting involved in corporates
• 1:35:31
  in a way that maybe is a little bit concerning.
• 1:35:34
  I, I think you recently saw, you know, Trump make comments about
• 1:35:39
  Intel's CEO because of ties to China.
• 1:35:44
  I think there was also some commentary about Microsoft's
• 1:35:48
  senior executives having Biden related ties and suggesting that
• 1:35:56
  Microsoft should fire some of their senior execs over that.
• 1:35:58
  So I, I do want to sort of like caution a little bit here that,
• 1:36:03
  you know, on the one perspective, you know, hey,
• 1:36:05
  maybe there's some use of, you know, AI dumerism to, you know,
• 1:36:11
  slow down AI. But I think there's also maybe
• 1:36:13
  just an involvement of the Trump administration getting into, you
• 1:36:17
  know, what had previously been considered to be hands off, you
• 1:36:20
  know, corporate America. And I wonder whether the Trump
• 1:36:23
  administration starts to think about wanting to own a piece of
• 1:36:27
  some of these AI companies and maybe picking winners and losers
• 1:36:30
  based on who's willing to play ball.
• 1:36:32
  So I, I generally have been, you know, a fan of, even though I
• 1:36:35
  don't agree with Sax's politics, I think he's probably done a
• 1:36:37
  positive thing for crypto and IAI that I think maybe the Biden
• 1:36:42
  administration was a little slow, you know, going after.
• 1:36:46
  But I worry that maybe now we're tipping the pendulum a little
• 1:36:48
  bit too far the other direction. And the US is starting to look a
• 1:36:52
  little bit like China in some ways, and how it's picking
• 1:36:55
  winners and losers in, you know, AI companies.
• 1:36:58
  And I, I don't think that's good for, you know, corporate
• 1:37:01
  America, at least not in the long run anyway.
• 1:37:03
  I think we're getting off the valuation corner into political
• 1:37:06
  discussion here. I think it is no question that
• 1:37:09
  Anthropic is quite a valuable company.
• 1:37:12
  And it was interesting when you were comparing the two between
• 1:37:15
  Anthropic and Open AI, at least based on the current valuation,
• 1:37:18
  you might give the edge to Anthropic, at least in terms of
• 1:37:22
  revenue and growth relative to valuation.
• 1:37:26
  They're definitely growing faster.
• 1:37:28
  I think they're a little bit more favorably valued given that
• 1:37:30
  that relative scale something like 18X you know to to sales
• 1:37:34
  versus more than mid 20s for open AI.
• 1:37:37
  So on that on that basis, I think they probably do, you
• 1:37:39
  know, they're probably favorable.
• 1:37:40
  The downside is that the number two in the market and the number
• 1:37:42
  twos don't usually get valued like the number ones.
• 1:37:45
  But you know, but then again, I think the the extent of that
• 1:37:48
  market leadership advantage is it's, it's, it's probably not
• 1:37:51
  what it was in the search business.
• 1:37:52
  It's probably quite, quite different that I suspect all
• 1:37:55
  these companies will be will the three or four that we mentioned
• 1:37:57
  will be winners in the long run. So I think it's a pretty good
• 1:37:59
  bet where it's at right now. Yeah.
• 1:38:02
  And I, I'm not sure that the distance between 1:00 and 2:00
• 1:38:05
  is increasing right now. I wonder if it's maybe
• 1:38:07
  decreasing a little bit? I think it's too early to tell.
• 1:38:10
  They're both growing at at phenomenal speeds, right?
• 1:38:13
  And so when you're going between 5:00 and 7:00 X year over year,
• 1:38:17
  it's just hard to, it's hard to know how that plays out.
• 1:38:19
  I think the question now is open IS got more customers, more
• 1:38:22
  consumers and Anthropic is doing great with an enterprise.
• 1:38:25
  So if they can execute within their, within their area of
• 1:38:28
  focus, it's hard to tell where this plays out long, long term.
• 1:38:31
  But if you can, you can definitely have two very, very
• 1:38:33
  big technology winners in this space in a multiple trillion
• 1:38:36
  dollar market and and be happy with both investments.