SPEAKER_01
It is less important to be exactly true than it is to be directionally true, because it's really hard to shift the Overton window. Most people try to moderate their approach to something. Because of that, they're not directionally pulling hard enough to shift any strategy. Whereas I think Peter is just like, I'm going to get super, I'm going to dig in my heels on this. Just to move the window a little bit. And that tiny adjustment that ends up being made is really powerful. [SPEAKER_03] All right. Well, very excited for this. What a crew we have here. Delian, you excited to be here? [SPEAKER_00] Oh, yeah.
SPEAKER_01
[SPEAKER_03] Yeah. I've been looking forward to this for a while. In the line, Zen. [SPEAKER_03] 100%. It's going to be hard. And Trey. [SPEAKER_03] Oh, sorry. Tiger Den. [SPEAKER_03] The Tiger Den. [SPEAKER_03] Yeah. That's right.
SPEAKER_03
[SPEAKER_01] Can we run that back? There was a lot of discombobulated commentary in there. We're going to try to. [SPEAKER_02] We're going to try to have a serious conversation. That's going to be this whole two hours.
SPEAKER_03
I got to do this with Trey, and that was amazing. We wanted to bring it all together. My first question is actually for Ev. And we're going to start in a really positive place. We really respect what you guys have done and what you do as a firm. I hope that's the same. But Ev, you've worked at both. You've talked about what makes Benchmark unique. I've obviously gotten to hear a lot about that from you. But I'd be curious for you to talk about what you loved about Founders Fund. Maybe compare it a little bit to what's different from other places, maybe Benchmark.
SPEAKER_00
[SPEAKER_02] But I'd just be curious for you to start here. I think when people that aren't in the investing business think about what investors do and what the day-to-day or what an investment committee looks like within a venture firm or any investing firm, I think they have this idea in their head that the team comes together. They've done a bunch of research. They've done a bunch of work. And they have this very intellectually honest debate about the merits and considerations of the investment and weighing the risk-reward and then coming to some intellectually perfect decision about that investment, given all the information that they've gathered. And that's just not how any firm actually operates. There's so many other politics or organizational structures and incentives that push you away from this truth-seeking place. And so I think that the really unique thing about Founders Fund that when I came in, I thought was amazing and unique was not only that it was a culture that truly bought into the process of truth-seeking and really putting truth-seeking on a pedestal above the hierarchy of who's a GP and who's not a GP or any of these other things. But then also there was organizational incentives and structures in place to keep that the same, no matter who is in the halls of Founders Fund. So the one that I've mentioned before is this 1% mechanism or provision, which is for any investment that you do at Founders Fund, 1% of that investment on a dollar basis is set aside for the people that worked on the investment to basically angel invest up to 1%. 1% of the total dollar amount. And it's not just some workplace benefit. The entire idea of that mechanism is to basically measure the conviction of the partners or the investors that are sponsoring a given investment.
SPEAKER_03
[SPEAKER_02] You guys will do that? [SPEAKER_01] Yeah. If somebody doesn't want to do it, are you a thing? [SPEAKER_01] No, I think it's really important to be mindful to liquidity constraints, obviously. People on the team have very different personal financial situations. So it's not super prescriptive, but it is a useful tuning because you don't have to do the full 1%. You can split it up between the different parties that work on the deal, or you can say, hey, I have five grand or whatever that I want to put towards this. It's not a signal of lack of conviction. It's just based on liquidity constraints.
SPEAKER_03
[SPEAKER_00] I think it's more helpful on an individual comparative basis. If you're known for doing lots of 1% and on this one you're choosing not to, people will ask. But if you typically don't and then don't, that's not necessarily a signal. Are there any other incentive aligning mechanisms like this that you guys have going? Or what would you, I guess, what would you two ascribe? Obviously you've been at Founders Fund much longer than I was. What would you ascribe? And do you agree that the thing about truth seeking is the highest calling of the team? And what do you ascribe that to if it's cultural, if there's organizational things that lead to it?
SPEAKER_03
[SPEAKER_01] When I first joined Founders Fund, I didn't have any interest in venture capital. I just ended up there because Peter basically told me that I was going to do it. And I wasn't clear that I had an option. [SPEAKER_01] I love that. That's the best kind of recruiting process.
SPEAKER_03
[SPEAKER_01] And so when I showed up, I didn't know what I was doing. And I had this hypothesis that venture capital was going to be more like what you said. It's this diligence exercise and you meet with hundreds of companies a year and you do a deep process on each of them. And the hard part is making the literal investment decision. It's not what it is at all. It's there are tens of thousands of companies that are raising at any given point. 99% of them are obviously knowably bad within a second. And so really it's about access and finding the super high conviction things that you want to pour your energy into. And I think that's what makes Founders Fund unique is that we're just very internally honest about that. And if you're not personally super high conviction, I really want to do this deal. I'm going to fight for it. I'm going to be willing to argue. I'm going to be willing to put my reputation on the line disagreeing with Peter. If you're not willing to do that, you're just never going to get a deal done. And so that's really all it is at the end of the day.
SPEAKER_03
[SPEAKER_00] Yeah. I spent a little bit of time early in my venture career at KV. And one of the things that I find very uniquely different between the two models is at FF, so much more of what we do. [SPEAKER_01] And if you're not personally super high conviction, I really want to do this deal. I'm going to fight for it. I'm going to be willing to argue. I'm going to be willing to put my reputation on the line disagreeing with Peter. If you're not willing to do that, you're just never going to get a deal done. And so that's really all it is at the end of the day.
SPEAKER_03
[SPEAKER_00] Yeah. I spent a little bit of time early in my venture career at KV. And one of the things that I find very uniquely different between the two models is at FF, so much more of what we do and I'd have to look at on a dollars basis or deal count basis. But there's so much more that I feel like rises from below, if that makes sense, where it's individual team members that have really strong conviction and then are steadily presenting that case to other colleagues and working their way up. And then at FF, still every check of a meaningful size requires Peter's approval. But it's almost always that person steadily gaining conviction and convincing others and then eventually presenting that case to Peter. Much more so than top down, Peter saying we need to go invest into this thing. And I think that creates some truth seeking by default because there's such high activation barrier of Peter's got many things going on. Trey's got many things going on. And so if you're going to take up their time, especially because venture is not the only thing that they do, you're going to want to have a really compelling case as to why versus at other places where the GPs are really full time only investing GPs. I find that they also are the ones leading a lot of the investments themselves, which I feel that's less the case at FF.
SPEAKER_01
[SPEAKER_03] The incentive thing is interesting. I feel that one of the things I've noticed here that Evan and I have talked about is that because there's nothing at Benchmark to fight, everybody's equal. You're never going to get a promotion. You're never going to get a raise. And so because a lot of that stuff is stripped out, it leads there to be nothing other than just try to make good investments and try to help your teammates make good investments. Versus I think at a lot of big firms that gets harder because there are other competing interests that people have. But I think Founders Fund seems to have avoided a bunch of that through a lot of these mechanisms that we're talking about. There's the 1% thing. There's the fact that a lot of senior people are crazy busy. But I also feel that you guys have a cultural thing where there seems to be something to it. I think Ev's talked about how in a Founders Fund partner meeting, people can get pretty heated over ideas or even maybe at each other. But somehow at the end, everybody still really likes and cares about each other, which I think is the inverse of that, which is ruinous empathy or toxic collegiality that I think is much more common where people are very polite. Very polite. And then after the meeting, they're like, look at that idiot. I can't believe he thought that.
SPEAKER_01
I just think the EQ of the team isn't high enough to be able to operate in that way. We just got a little sprinkle of it. And so as a result, we have everybody just says what they think and moves on. Because I just don't think people are tuned to even understand how the things they say have an emotional impact on other people.
SPEAKER_03
Would a super high EQ person not work particularly well at Founders Fund?
SPEAKER_02
[SPEAKER_01] Either that or they'd be really good at manipulating. Just take four million people. One or the other. I'm not really sure. It could go either way. They'd never know.
SPEAKER_03
[SPEAKER_02] Yeah. They'd never know. They'd never know. Yeah, exactly. Actually, can I ask what is Peter's interpersonal experience? Because I think he clearly is deeply attuned to people in some important way. Is this thing you're describing about EQ related to him? Is it different from him? Because obviously when you have a founder of a firm, of course a lot of the DNA is going to go through it. But does much of this come from him?
SPEAKER_03
[SPEAKER_01] One of the things that he said to me very early on, we were talking about having kids and what we wanted for our kids. And we were talking about intellect as being one of these things that you as a parent think about wanting for your kid. And he said something along the lines of I think 130 is roughly the right IQ, because anything over 130, there are too many tradeoffs. And I think that's you're not hiring people for their EQ or lack thereof. You're hiring people to have really high IQ that are able to hold their own in these debates. And the reality is, when you do that, there are tradeoffs, right? And so we're kind of experiencing the result of those tradeoffs.
SPEAKER_03
Too smart for your own good. [SPEAKER_01] Yeah. Or maybe it's exactly for everyone's good, because we don't have these weird harbored politics and animosity. At least I don't feel I've never felt that. Before the pod told me that he can't stand you. [SPEAKER_01] But other than that, I think everyone likes each other. Of all people, I think Dahlia and I are very cool with one another.
SPEAKER_03
[SPEAKER_00] I think Peter deeply understands people, but from an intellectual framework level. I think he's very good at quickly understanding where is somebody biased? Where do they have blind spots? What are they good at? What are they not good at? In terms of how his words will have emotional impact, Trey said yeah. But I think when it comes to deciding on whether or not to make an investment, it's actually much better to understand somebody's intellectual capabilities versus the emotional impact side of it. And I think also right now is probably amongst the best cultural states it's been in the time that at least I've been there. But even from the history that I've heard. And I think there's a variety of reasons as to why that is. But definitely one of them is if you look at the median age or median tenure of somebody on the team.
SPEAKER_03
[SPEAKER_00] Yeah, I think that poor rat. [SPEAKER_00] But I think when it comes to deciding on whether or not to make an investment, it's actually much better to understand somebody's intellectual capabilities versus the emotional impact side of it. [SPEAKER_00] And I think also right now is probably amongst the best cultural states it's been in the time that at least I've been there, but then even from the history that I've heard.
SPEAKER_02
[SPEAKER_00] And I think there's a variety of reasons as to why that is. [SPEAKER_00] But definitely one of them is if you look at the median age or median tenure of somebody on the team, it's probably something on the order of seven or eight years, which is, I think, reasonably high relative to most venture firms. [SPEAKER_00] Amongst a spread of, call it 12 people that are there. [SPEAKER_03] Has the culture gone through ups and downs? [SPEAKER_03] I mean, you've been there a long time. [SPEAKER_03] Oh, for sure. [SPEAKER_03] Yeah. [SPEAKER_03] And do you think it matters?
SPEAKER_02
[SPEAKER_03] Like maybe more accurately, what do you think the impact is of good and bad cultures at various points in time? [SPEAKER_03] Because obviously you can make a great investment in the context of a terrible culture and vice versa. [SPEAKER_01] Primarily it's can you retain the people that you have that are doing a good job? [SPEAKER_01] I think that's ultimately the thing. [SPEAKER_01] Because you're right, you can have Bridgewater as an example, great performance. [SPEAKER_01] But I think it's a really hard place to work for a long period of time.
SPEAKER_01
Yeah. That's the tradeoff that you're making at some of these funds. It's usually not a systemic problem. It's usually there are individuals inside of these systems that tend to buck against what the general expectation is from the team for what they signed up for. If that makes sense. Yeah. And then when they feel there's been some sort of violation, things get dicey. When I first came into Founders Fund, it was definitely people were in their offices, staying very quiet, staying away from each other. And I was walking through the halls trying to give people high fives and they were saying, what's going on right now?
SPEAKER_00
[SPEAKER_01] This is really weird. [SPEAKER_01] Yeah. [SPEAKER_01] But then things got really collegial and it kind of goes in waves depending on how people are vibing, how we're adding to the team, whether or not we're exiting rapidly when people aren't working out.
SPEAKER_03
[SPEAKER_01] Yeah.
SPEAKER_02
[SPEAKER_01] And just being really honest with ourselves about what we want in the long run. [SPEAKER_03] Yeah. [SPEAKER_03] I was just thinking as you were saying that, you obviously worked really closely with Keith for a long time and then you didn't. [SPEAKER_03] And I'm actually interested to hear, we've never talked about this, but what are your reflections on having this apprentice relationship for, I don't know what it was, five, seven years? [SPEAKER_03] Yeah.
SPEAKER_01
[SPEAKER_03] Five and a half years, six years. [SPEAKER_03] Yeah. [SPEAKER_03] You're doing your own now, with him going back to Kosa. [SPEAKER_03] Has that been seamless and smooth? [SPEAKER_03] Do you reflect on that a lot? [SPEAKER_03] Because I think it was an uncommonly tight apprenticeship model. [SPEAKER_03] You don't see it all the time. [SPEAKER_00] Yeah. [SPEAKER_00] I mean, obviously the single biggest influence I've ever had on my career.
SPEAKER_01
[SPEAKER_00] And I think that'll probably be the case for the rest of my life because there's nothing that compares to those early periods where it was the only person that I basically worked with for a really extended period of time. [SPEAKER_00] Versus now, Trey and I work together a lot, but it doesn't compare. [SPEAKER_00] Yeah. [SPEAKER_00] I'm also not spending 12 hours a day with Trey, even when we're most collaborative. [SPEAKER_00] There's always this talking point that I give to founders or investors, which is within an operating company, there are actually a decent set of constraints that you have to live by.
SPEAKER_01
[SPEAKER_00] Which is you have to serve your customers, you have to fundraise, you have to actually hire talent, et cetera. [SPEAKER_00] And so if you were to examine the cultures of Anduril and Varda as an example, there's for sure differences. [SPEAKER_00] But in the grand scheme of distribution curves, they're probably not that different relative to the distribution curve that you see in venture. [SPEAKER_00] Because in venture, there's effectively only one rule, which is IRR and make money. [SPEAKER_00] And then the rest is totally free form.
SPEAKER_01
[SPEAKER_00] And so if you were to compare the benchmark versus FF cultures, my guess would be that you would see way more differences in that versus XYZ to top tier startups, which would actually be much more similar.
SPEAKER_00
I do think that seeing Keith operate in these different environments, very closely with him. I do think my net reflection on it, and I think he would agree with this, is his work style, personality, how he likes to do things actually just fits into how Kosa's culture operates a lot better than I think it did at FF. I'm not sure that would have been obvious without actually doing what he did and in some ways sampling the two. And I do think also him coming over to FF helped fix some of the things that he wanted to get fixed at Kosa. So I think actually the whole process and outcome was the best for everyone all around.
SPEAKER_00
Obviously now not working with him day in, day out is an interesting experience where it definitely took me some time. And I remember Trey and I went on this super long walk, maybe a week after it was clear that's where things were headed. It had already been steadily happening over the prior year or two where I was doing more deep tech. I was doing more art of things, which are very not the Keith, fintech, et cetera type of things. The thing that made me comfortable with in some ways staying was actually looking back at the prior year of investments and realizing that of the people I worked with on votes on a check, the prior year was actually 80% Trey and Scott Nolan.
SPEAKER_00
And it was only 20% Keith. And so I was thinking, oh, well, I'm already doing this job.
SPEAKER_03
[SPEAKER_00] Out of the wing. [SPEAKER_00] Yeah. [SPEAKER_00] Yeah. [SPEAKER_00] I'm out of the wing already, basically. [SPEAKER_00] I was doing more art of things, which are very not the Keith, fintech, et cetera, type of things. [SPEAKER_00] The thing that made me comfortable with in some ways staying was actually looking back at the prior year of investments and realizing of the people that I worked with on votes on a check. [SPEAKER_00] The prior year was actually 80% Trey and Scott Nolan. [SPEAKER_00] And it was only 20% Keith. [SPEAKER_00] And so I was, oh well, I'm already doing this job. [SPEAKER_00] Out of the wing. [SPEAKER_00] Yeah. [SPEAKER_00] Yeah.
SPEAKER_03
[SPEAKER_00] I'm out of the wing already. [SPEAKER_01] The other thing that's worth mentioning about this is that Keith stylistically is a really good coach or mentor because he's very hands-on. [SPEAKER_01] He wants to do updates. [SPEAKER_01] He wants to get in the weeds with how something is going.
SPEAKER_01
That's the opposite of really Peter and myself. We're not that at all. I think I'm a terrible lead. I'm a bad, I don't mean lead investor.
SPEAKER_03
[SPEAKER_01] I mean, board manager.
SPEAKER_01
Yeah. I'm not a good board member.
SPEAKER_02
[SPEAKER_01] I'm not a good manager. [SPEAKER_01] I'm not a good mentor. [SPEAKER_01] I'm just not wired. [SPEAKER_03] Are you sure that means not a good board member? [SPEAKER_03] Because I think a lot of great board members are. [SPEAKER_03] I agree about the manager thing, but. [SPEAKER_01] I think it depends on what you're looking for out of a board member.
SPEAKER_03
[SPEAKER_01] If you're looking for someone that's going to get their hands dirty and help you with things tactically, then I'm probably not going to be very good at that. [SPEAKER_01] But if it's protecting the founder and being an advocate for the founder and staying out of the way and not creating unnecessary friction. [SPEAKER_01] Well, that I'm great at. [SPEAKER_01] I'm great at not creating additional friction. [SPEAKER_01] But I think that stylistically it's super different. [SPEAKER_01] Delian will reach out to me and be like, hey, there's a company that I would like your read on. [SPEAKER_01] Or there's a question that I have that's hyper tactical.
SPEAKER_01
But am I going to reach out to Delian and be like, let's review. Am I going to reply to that email? I don't know. It's just not me. And I think that maybe you got to the point where the thing that you legitimately got in droves from Keith was not something that made sense in the long run. [SPEAKER_00] I remember when I first started working with him, I would describe it as getting to work with this person. [SPEAKER_00] It's one of the greatest of all time.
SPEAKER_03
[SPEAKER_00] And he has this knowledge tree through all the situations that he's been with, the different business models, startups, founder conflict, lawsuits, et cetera.
SPEAKER_01
[SPEAKER_00] In each situation that I get to observe him in, I got to see one branch of that tree. [SPEAKER_00] And then as you get to observe him over the course of six years, you kind of actually create the meta layer tree. [SPEAKER_00] And it's, ah, this is the tree of knowledge that works for Keith.
SPEAKER_03
[SPEAKER_00] And I've definitely adapted a lot.
SPEAKER_01
[SPEAKER_00] I would say of my equivalent, it's probably 60, 70%. [SPEAKER_00] It's probably mostly overlap with Keith.
SPEAKER_00
And then my 30% is mostly the hardware-y, physics-y materials, those types of things. But 70% of how I get excited about a seed round, how I operate with a founder afterwards. I definitely still largely take the Keith style venture assistance role balance with, I'm deeply involved with Varda. So maybe I can't quite do what sometimes Keith does in terms of depth of involvement with companies. Yeah. But I definitely take a different approach to it than Trey and Peter do. [SPEAKER_03] Yeah. [SPEAKER_03] What you said about Keith fits beautifully at KV. [SPEAKER_03] He's a particularly distinct personality. [SPEAKER_03] So maybe you see it more sharply with him.
SPEAKER_00
[SPEAKER_03] But I think we probably all are great in one environment and terrible in another. [SPEAKER_03] There's people who are an amazing founder for one thing, horrific for the next. [SPEAKER_03] So much of life is getting yourself into the place that you're supposed to be in. [SPEAKER_01] If I was at a venture fund where there was an expectation that I take a board seat on the deals that I lead, I would quit. [SPEAKER_01] There's just no way.
SPEAKER_03
[SPEAKER_01] I couldn't do it. [SPEAKER_01] I don't like being on boards at all. [SPEAKER_01] Even for companies that I started myself. [SPEAKER_00] Even Monday partner meetings, if we had to do those, if you told us that we had to sit through four or six hours of us taking pitches all together and then discussing them all together and discussing the portfolio every single week. [SPEAKER_00] I think the entire Founder Fund team would quit. Yeah. Do you not like the board member stuff because you think the board member theatrics or it's because you're, I made the investment and you should figure it out and I don't want to be part of it.
SPEAKER_01
[SPEAKER_03] I've thought about this a lot. There are three things. Okay. The first reason I hate it is the board member theatrics. It's people who. It's exhausting. Who believe that somehow they are better at running the company than the founder and they stand on a soapbox and try to convince everyone in the room that they're really smart. [SPEAKER_03] I hate when you're in a board meeting and someone's there and they're like this. [SPEAKER_03] You could tell that they're, this is my Super Bowl. I'm about to show up. I'm about to show up. [SPEAKER_03] Come on.
SPEAKER_01
And also if you invested in the company, you should probably believe that the founders are the right people to run the company. Otherwise, you shouldn't have invested. So that's the first thing. The second thing is information density is at an all-time low. A pitch meeting, in 30 or 45 minutes, I can do a full dump of everything that I believe that I need to know. And if I have follow-up questions, I can do that asynchronously or whatever. But I can't tell you how many times I'm sitting in a board meeting that's scheduled for three hours.
SPEAKER_03
[SPEAKER_01] And it's, dude, we could have done this in an email. [SPEAKER_01] Just tell me what the numbers are. [SPEAKER_01] Tell me what your struggles are. [SPEAKER_01] Yeah. [SPEAKER_01] Otherwise, you shouldn't have invested. [SPEAKER_01] So that's the first thing. [SPEAKER_01] The second thing is information density is at an all-time low. [SPEAKER_01] A pitch meeting, in 30 or 45 minutes, I can do a full dump of everything that I believe that I need to know. [SPEAKER_01] And if I have follow-up questions, I can do that asynchronously or whatever. [SPEAKER_01] But I can't tell you how many times I'm sitting in a board meeting that's scheduled for three hours.
SPEAKER_03
[SPEAKER_01] And it's like, dude, we could have done this in an email.
SPEAKER_00
[SPEAKER_01] Just tell me what the numbers are. [SPEAKER_01] Tell me what your struggles are. [SPEAKER_01] Yeah. [SPEAKER_01] Answer a couple questions. [SPEAKER_01] Let's get out of here. [SPEAKER_01] And then you think about how expensive that three-hour meeting is. [SPEAKER_01] They had their whole exec team there. [SPEAKER_01] Yeah, it's crazy how low the information density is. [SPEAKER_01] And then the third reason is that I don't actually think that I'm adding a lot of value. [SPEAKER_01] And I don't like being in situations where I don't feel like I'm adding a lot of value.
SPEAKER_00
[SPEAKER_01] And so when I sit through this thing where I sponge up a bunch of information, maybe I interject one or two things. [SPEAKER_01] It's like this is not only a waste of my time. [SPEAKER_01] It's a waste of everyone else's time to have me sit here and pretend that I'm going to know the right things for you to do in all these moments. [SPEAKER_03] Okay, so you don't want to do it. But do you think venture should have people who do want to do it and are engaged and do the whole board member thing? Or do you think the whole construct is wrong?
SPEAKER_00
[SPEAKER_01] At some stage, I think you need to have governance. Like there should be a board that serves a function. I think these boards are pulled together way earlier than they should be. A Series A company should not have a board. It's just really stupid. What are you reporting on? Oh, we built additional features into our product. It's like, who cares, dude? It's like, I don't. [SPEAKER_03] I just don't understand. I can imagine a Series A board meeting and they're like, yeah, we had a great month.
SPEAKER_00
[SPEAKER_01] I don't give a shit, man. I really don't care. It's exhausting. There's almost a perfect correlation between the funds or people that think you should have a board at a C or a Series A and the type of people you don't want on your board long term.
SPEAKER_00
Okay. I think the core thing at FF is for a decent chunk, especially with the venture team, we're constantly comparing it against just going to work on our own companies. And so I just think the way that we view venture is very different where it's like, we are working on this because we're explicitly choosing to not work on the company. And so this better be very high value relative to somebody who's doing it full time. That is like, well, I need to figure out some way of making myself feel valuable in this world. And so board member theatrics is one way of feeling good about it.
SPEAKER_00
[SPEAKER_02] Well, then you both have boards at Varda and at Anderil. Do you feel like you've been able to take these things that you really don't like about boards? And how would you grade, not to put you on the spot, but how would you grade the work that you've done to make the boardroom at Varda and Anderil?
SPEAKER_00
[SPEAKER_01] Massively condense information density. That's the number one thing is that there's no such thing as a useful three hour board meeting. It's 90 minutes tops, only run through the most important stuff. Obviously, you can have additional materials that people want to dig in more deeply async, but keep it really, really tight. At Anderil, one other thing is that there are only three board members, me, Palmer and Brian, and we've controlled that. We don't want to have seven investors as board members because it just increases friction in a way that isn't actually useful for the company. From the third point on, my ability to add value, I feel differently because what Delian said, which is that this is also my full time job. And I actually feel like I am doing the things that are most valuable for me to be doing personally with the company as chairman, as a co-founder of the business. My biggest point of feedback to most companies is just on the information density side. It is crazy to schedule a two hour board meeting or a four hour board meeting. I mean, if you can't do this in 60 to 90 minutes for an early stage company, what are we even doing? It's just absolutely out of control.
SPEAKER_00
Trey is actually on the Varda board. So he can maybe grade how we do independent of my assessment of it. I do think early on we did a pretty decent job of keeping it very dense. And now in the later stages, there's almost like I think of it as three sections of the board meeting where because we have completely different customer sets from our DOW business and our pharma business, we typically end up doing a DOW update. And it's basically just for Trey. No, because he's one of the best DOW people of all time and definitely way better than anybody else on the board by many orders of magnitude. And then even then we just did our last one yesterday and I'm sure Trey midway through was just like, we were asking like, do you know this customer group? Do you know this? And Trey's like, nope, completely different than where Anderil works and does, etc. I can give high level guidance. But you guys are the ones that know this. I imagine that was going through the back of your head.
SPEAKER_00
[SPEAKER_01] I also did the whole thing in 30 minutes.
SPEAKER_00
Yeah, it was 30 minutes. So we ran through it quickly. And then on pharma, we do find it incredibly valuable. Some of our external board members, including Samir from KV, where they're on any particular deal, pharma asset, etc. There's just so many dynamics that it's actually honestly hard to have all of that internal expertise. And so there I actually find it deeply valuable. And then the third section is ops, finance, etc. There it's like, yeah, it's where at our current stage of amount of capital raised, deployment, etc. it is helpful to have some external governance on even down to just founder comp, executive comp, and getting external perspectives.
SPEAKER_00
[SPEAKER_03] This is another area where I would say benchmarking and Founders Fund are pretty opposite. where they're on any particular deal, pharma asset, etc. There's just so many dynamics that it's actually hard to have all of that internal expertise. And so there I actually find it deeply valuable. And then the third section is ops, finance, etc. There it's where at our current stage of amount of capital raised, deployment, etc. It is helpful to have some external governance on even down to just founder comp, executive comp, and just getting external perspectives.
SPEAKER_01
[SPEAKER_03] This is another area where I would say benchmarking and Founders Fund are pretty opposite, [SPEAKER_03] where you guys are, as much of the work as possible is on building. [SPEAKER_03] It's in some ways the investing is, we'll do as much of it as we can, [SPEAKER_03] but it's competing with operating in a lot of ways versus that benchmark. [SPEAKER_03] Everything is designed so that there's literally nothing else to do but invest. [SPEAKER_03] That's the goal almost. [SPEAKER_03] Benchmark wants there to be nothing for the partners to do but make investments and work with those companies. [SPEAKER_03] You want it to be very hard to make investments.
SPEAKER_01
[SPEAKER_00] You want there to be lots of things that compete for your attention that aren't investments that are better things. [SPEAKER_00] Yeah, exactly. Yeah, it's being professional at anything. If you're a professional baseball player, you're going to hit a lot in the batting cage. You're going to take a lot of ground balls because that's what you're being paid to do.
SPEAKER_03
[SPEAKER_01] It's what you have to do. [SPEAKER_01] And so if you're a professional investor, you're going to feel like I have to be doing deals all the time. [SPEAKER_01] Now, the challenge is having discipline around that because sometimes the right decision is not to invest.
SPEAKER_01
That's right. And so if you're... [SPEAKER_03] By the way, one good way to implement that is by saying if you want to make an investment, you have to be on the board for the next 10 years. I mean, I would never make an investment. I would just be like, come out. If I had to make trades. If I had to make trades. You're going to pay 1,000x multiple on revenue. And you're going to be on the board for 10 years. [SPEAKER_02] And you have 2,000 hours of board meters. [SPEAKER_02] Delian, you said something recently that did really resonate, which is the investing side of things should almost be an exhaust.
SPEAKER_01
[SPEAKER_02] Or you see it almost as a side hobby or an exhaust of what you already do in your operating day-to-day job at Varda. [SPEAKER_02] And I do think that there's, even as a mental framing, I was trying to frame that for myself.
SPEAKER_00
[SPEAKER_02] And it's, in some ways, depending on the stage of investing that you're doing, you could see your job as, I'm a researcher and I am a networker with this group of people. [SPEAKER_02] Whether it's, say you're in cybersecurity, cybersecurity experts or whatever. [SPEAKER_02] And then the exhaust is that once in a while I do an investment. There's this investment that we were just talking about earlier that you guys met yesterday this week that we just led the seed round on that I think is a perfect example of this.
SPEAKER_00
Where it's, I, over the past couple of years, have just gotten deeply frustrated watching cognitions and cursors that's out of the world completely transform. How a backend software engineer at a ramp or a meta or, you know, name your favorite software company, significantly improve their productivity. And then you just look at the sets of tools that we use internally at Varda for our firmware engineers, thermal modeling, etc. It's the same stuff that I was using in 2012 when I was building robots. And it's, there's effectively no change. The software is slightly updated, but there's no improvement in productivity.
SPEAKER_00
And so I just started spending a ton of time looking at all the tools in that category. Some are now later stage companies in our portfolio, like nominal, I think is one of these that was an early example of this. But the one that you guys met this week was this example of, I was just so frustrated that there's this very rote manual work that our junior mechanical engineers do that felt like the classic type of thing that AI should clearly be able to not just slightly improve the workflow on, but just completely remove. And then I'd probably met at that point, maybe 15 different companies that were in this space, frustrated by all of them.
SPEAKER_03
[SPEAKER_00] I met the 16th one. [SPEAKER_00] And I was like, great, this is the one, it's the best founder, the best product, the best idea. [SPEAKER_00] And I was like, I want to invest. [SPEAKER_00] And it's, I partially do it because I like doing the early stage, get 10%, start to be a little bit that founder coach. [SPEAKER_00] But then I also specifically do it because it solves a problem at work or another one that we did together way back in the day. [SPEAKER_00] That is just one that solves a problem personally is we both did Eight Sleep together back in the day.
SPEAKER_03
[SPEAKER_00] And it was not because we had some deep hypothesis on mattress markets or anything like that.
SPEAKER_01
[SPEAKER_02] I'm just so hot in the middle of the night. [SPEAKER_02] I'm just so hot in the middle of the night. [SPEAKER_00] And I'm just like, I don't want this to happen anymore. [SPEAKER_00] And this is a good product. [SPEAKER_00] And I remember at the time we're like, we have no idea if this is going to be a good business.
SPEAKER_00
But it is a really good product. And typically over time, good products turn into good businesses.
SPEAKER_03
[SPEAKER_01] My memory is that I actually was crapping all over this deal. [SPEAKER_01] I was like, guys, this is so dumb. [SPEAKER_01] Why are we investing in a mattress company?
SPEAKER_01
And I think it was Keith that actually said, just try it. Yeah. And I just slept on it for one night and I was like, let's go. Let's invest in this company. But yeah, I think that's totally true. On the being a professional investor side of things, I think if you look at different vintages like 2022, you could argue that the best investors were the investors that stopped investing.
SPEAKER_03
[SPEAKER_01] How do you deal with that? [SPEAKER_01] If you've tuned your whole system for building a track record by making good deals?
SPEAKER_01
[SPEAKER_03] I think there's a couple. [SPEAKER_03] One is because I was actually just looking. [SPEAKER_03] We had a fund that I wasn't here, obviously, but there was a fund that had 2022 included in it.
SPEAKER_03
[SPEAKER_01] Let's invest in this company.
SPEAKER_01
But yeah, I think that's totally true. On the professional investor side of things, I think if you look at different vintages like 2022, you could argue that actually the best investors were the investors that stopped investing. How do you deal with that? If you've tuned your whole system for building a track record by making good deals? [SPEAKER_03] I think there's a couple. [SPEAKER_03] One is because I was actually just looking. [SPEAKER_03] So we had a fund that I wasn't here, obviously, but there was a fund that had 2022 included in it. [SPEAKER_03] I don't think it's hard to be excited about much of what happened in 2022, but it's a three year fund.
SPEAKER_01
[SPEAKER_03] And then it also has 2023 and 2024 in it. [SPEAKER_03] And so one answer to this is you're consistent through vintages. [SPEAKER_03] You have some time diversification per fund. [SPEAKER_03] And you hope that the 2022 also includes the 2023. [SPEAKER_03] And so you get through some of it that way. Yeah, this is Brian Singerman used to always say that venture is not a macro asset class. It's a micro asset class. As long as you're in the right companies, it doesn't really matter. But if you just look at the data around the 2022 vintage or the window around that, it's massively underperforming. That's right. Other vintages. I think there's some truth to that.
SPEAKER_01
And then there's also some risk. There is.
SPEAKER_03
There is risk to it.
SPEAKER_01
[SPEAKER_03] But it's also unless you're Peter Thiel, I think trying to call the market moment is also very risky. [SPEAKER_03] And you look at public market index investors, people who just buy and hold the S&P destroy people who try to time it almost every time. Right. Yeah. [SPEAKER_03] And so I think if you're not one of a small number of investors that you guys might have on your team, I think you can mess it up in a big way. [SPEAKER_03] Because I think there's a lot of people who are like, 2017, this is a bad time. [SPEAKER_03] We're at the top. [SPEAKER_03] Don't invest for the next few years. [SPEAKER_03] And then you miss some good companies or 2023, 2024.
SPEAKER_01
[SPEAKER_03] You still don't have your foot back on the gas. [SPEAKER_03] You can miss it.
SPEAKER_03
So I guess my counter to that would just be that most people can't call the macro very easily. You can't call the macro very easily. And then you miss the good vintages.
SPEAKER_01
You have to focus on the micro. [SPEAKER_03] You miss it all. [SPEAKER_03] If you can't call the macro.
SPEAKER_00
[SPEAKER_01] There's at least enough data that you should be able to remember prior cycles, which it doesn't seem we have the ability to do at all. [SPEAKER_01] Memory is so short. [SPEAKER_01] 2022 is not that long. [SPEAKER_01] Four years ago. [SPEAKER_03] And everybody's like, man, we can't do that again. [SPEAKER_03] You know, maybe if this happens in 20 years, our kids won't remember.
SPEAKER_02
[SPEAKER_03] Yeah. [SPEAKER_03] 34 months ago. [SPEAKER_03] You know, it's crazy.
SPEAKER_01
[SPEAKER_02] It's crazy. [SPEAKER_02] It's crazy. [SPEAKER_02] Most of them have been actually even vintage adjusted really good. [SPEAKER_02] And so I think to the micro versus macro point, the winner of 2021 was the worst possible time to make an investment probably in the last 15 or 20 years in venture. [SPEAKER_02] And I think if you still get the micro right, you probably would have made more money if you would have done those investments in the summer of 2022 because you still probably could have done them. [SPEAKER_02] But they're still really good investments. I mean, this is the nature of Peter is that no matter how annoyed you are with him, he's always right.
SPEAKER_01
[SPEAKER_03] On some timeline, he's always right. I can't tell you how many times I've been, oh, this is so ridiculous. He's getting so emotional about this thing that I don't understand why he's so charged about it. And then 12 months later, I'll look back and I'll be like, shit, wow. He can't believe how well he nailed that.
SPEAKER_00
[SPEAKER_03] But I think it's really dangerous to try to do this if you don't have someone like that. [SPEAKER_03] Yeah. [SPEAKER_03] If you're not Peter. [SPEAKER_01] And I couldn't do that. [SPEAKER_03] There's no way. [SPEAKER_03] I think almost nobody can do that. [SPEAKER_01] Yeah. [SPEAKER_01] And I think there's something really unique about him as well, where he understands that it is less important to be exactly true than it is to be directionally true. [SPEAKER_01] Because it's really hard to shift the Overton window. [SPEAKER_01] And so most people try to moderate their approach to something.
SPEAKER_00
[SPEAKER_01] And because of that, they're not directionally pulling hard enough to shift any strategy.
SPEAKER_01
Whereas I think Peter is just, I'm going to dig in my heels on this.
SPEAKER_00
[SPEAKER_01] Just to move the window a little bit. [SPEAKER_01] And that tiny adjustment that ends up being made is really powerful. [SPEAKER_01] I come up with this all the time with Andreessen, with our executive team, where everyone wants to be reasonable. [SPEAKER_01] And I feel constantly coming in over the top being completely unreasonable. [SPEAKER_01] And I think it's not actually wanting the outcome that you're saying. [SPEAKER_01] Right. [SPEAKER_01] It's a learned behavior from Peter.
SPEAKER_00
[SPEAKER_01] It's I'm going to say something that even if I don't believe that we should do exactly what I'm saying, I'm just trying to pull people out of their unintentional stasis that they've locked themselves into. The quote that I remember from that offsite was basically Peter saying something along the lines of, I know that you guys are going to want to deploy. There's going to be people on this team that want to make investments right now because the category is so hot. Everybody thinks everything is best.
SPEAKER_03
[SPEAKER_00] Bubble's about to pop. [SPEAKER_00] And so the rule is only go figure out what are the two, three best companies. [SPEAKER_00] We'll invest at that. [SPEAKER_00] And whatever the market clearing price is, the bubble will pop. [SPEAKER_00] But because we've invested in the truly best ones and gone hands off on everything else, the best ones will make it out through the other side. [SPEAKER_00] And so one of those investments was the $9 billion post ramp round. [SPEAKER_00] Nine months later, the company did a down round at $6 billion basically in valuation. [SPEAKER_00] Everybody thinks everything is best.
SPEAKER_00
Bubble's about to pop. [SPEAKER_00] And so the rule is only go figure out what are the two, three best companies. We'll invest at that.
SPEAKER_01
[SPEAKER_00] And whatever the market clearing price is and bubble will pop. [SPEAKER_00] But because we've invested in the truly best ones and gone hands off on everything else, the best ones will make it out through the other side. [SPEAKER_00] And so one of those investments was the $9 billion post ramp round. [SPEAKER_00] Nine months later, the company did a down round at $6 billion in valuation. [SPEAKER_00] And so in theory that late 21, early 22 investment looked bad. [SPEAKER_00] At least now obviously at a $40 billion valuation. [SPEAKER_00] And so even the IRR with the down and up still made sense.
SPEAKER_01
[SPEAKER_00] And so I think it was Peter pushing this like, you guys are going to deploy.
SPEAKER_03
[SPEAKER_00] I can't stop you.
SPEAKER_01
[SPEAKER_00] Even if I wanted to stop you guys from fully doing it, it's not going to happen. [SPEAKER_00] So therefore at least just do the very best ones and then stop. [SPEAKER_00] And then we did feel good because it was like, yeah, we made two really big investments. [SPEAKER_00] We're like, okay, we can stop now. [SPEAKER_03] Is there any rising discomfort in Founders Fund at this current moment that's like 2021 or is that not the tone? I think it's probably different across different people.
SPEAKER_02
[SPEAKER_01] I am very uncomfortable. [SPEAKER_01] I am not enjoying this moment at all. [SPEAKER_01] Maybe some other people are. [SPEAKER_03] Why aren't you enjoying it? [SPEAKER_01] I feel like we're getting back to this point where the prices are untethered from reality. [SPEAKER_01] And it reminds me a lot of 2021. [SPEAKER_03] I mean, you're also obviously involved with AI, but I know you spent a lot of your time in hard tech, which is now probably just as hot as AI, it seems like. [SPEAKER_03] Totally.
SPEAKER_00
[SPEAKER_03] Yeah. [SPEAKER_03] If not hotter in some ways. [SPEAKER_01] I feel like there's almost been a bit of a reset, particularly on vertical AI SaaS where people are like, oh crap, the labs are going to do a bunch of this stuff. [SPEAKER_01] Yeah. [SPEAKER_01] So maybe there's even been a bit of a reset, but there hasn't been any form of a reset on hard tech. [SPEAKER_01] And I think Founders Fund for over a decade has had this Founders Fund science concept of, you know, we wanted flying cars and instead we got 140 characters. [SPEAKER_01] And we've probably been more active than anyone in investing in these hard tech companies. [SPEAKER_01] And did they work out?
SPEAKER_00
[SPEAKER_01] They did not. [SPEAKER_01] For the most part, they did not work out. [SPEAKER_03] Well, but you got, I mean, you got the ones that mattered. [SPEAKER_01] Yeah, we got the ones that mattered. [SPEAKER_01] But if you think about where most of those gains came from, it was actually PayPal mafia. [SPEAKER_01] It wasn't a thesis that turned into great returns. [SPEAKER_01] It was network that turned into great returns. [SPEAKER_03] Yeah, it's funny because most people in your position would obviously say, oh, well, our thesis played out and yeah, we had some losers, but we had Androil and SpaceX. [SPEAKER_03] And so it was basically right.
SPEAKER_00
[SPEAKER_03] But you're saying that actually the thesis didn't really serve us and we would have made those investments anyway. [SPEAKER_01] And I think they were actually hard to make even with the thesis. [SPEAKER_01] You know, we're not for Luke Nosek putting his career on the line.
SPEAKER_02
[SPEAKER_01] I don't know that Founders Fund would have done the early SpaceX investments.
SPEAKER_00
[SPEAKER_01] When I pitched the Founders Fund team on Androil, they were basically like, who's running this company? [SPEAKER_01] I guess it's not you and it's not Palmer. [SPEAKER_01] So you need to come up with a better solution. [SPEAKER_01] So these things weren't even obvious, even when they were direct network. [SPEAKER_01] And so I think the thesis side of this is, we're just way more careful around it now than we were historically, where it's not sufficient to have a really strong technical founder.
SPEAKER_01
You have to have somebody that's equally good on the business side. Otherwise, it's just not going to work. And what we're seeing a lot of today, whether it's hard tech or defense tech or manufacturing, industrial automation, whatever it is, is that there's a lot of people with great ideas and interesting technology, but significantly accelerated rounds for the commercial progress. And the belief is that if the product works, the company will just obviously work. And I don't think that's actually obvious at all that the company will work.
SPEAKER_01
[SPEAKER_00] I admit, I don't mind the current moment as much, but I think a part of it is I probably do 50, 60% of the investments that I do are these sub $30 post rounds. [SPEAKER_00] And it's, sometimes some hot founder from some XYZ thing spinout comes and says, I have offers at $750 million posts. [SPEAKER_00] And I'm like, great. [SPEAKER_00] That's just not the business that I'm in. [SPEAKER_00] And you're welcome to go raise that. [SPEAKER_00] And so I think I mostly ignore it.
SPEAKER_03
[SPEAKER_00] And then I feel like the current, not to speak on behalf of the entire firm, but I feel like maybe if I were to give the closest that we have to the 2022 take. [SPEAKER_00] It's that there are a set of generational companies that we are involved in—OpenAI, Anthropic, SpaceX, Androil, et cetera—that are all now largely priced in, so late stage, all IPOing soon. [SPEAKER_00] And it's not very obvious what that next cohort of companies is that could even accept a billion dollars of investment either right now.
SPEAKER_03
[SPEAKER_00] And so I think that's probably the biggest question is we've had a pretty wild deployment rate over the last three, four years in terms of especially some of our growth checks. [SPEAKER_00] Maybe not as possible over the next three or four years if there aren't logos like that. [SPEAKER_01] We're with Dellium making these investments at under a $30 million valuation. [SPEAKER_01] He has to spend a lot of time at preschools finding young founders who are willing to accept such low valuations for their seed rounds. [SPEAKER_01] Is that why you're not allowed within 50 yards of school? [SPEAKER_02] I'm always wondering why that was the case.
SPEAKER_01
[SPEAKER_02] We'll run this segment by your PR team. [SPEAKER_03] Yeah, exactly. [SPEAKER_03] It's a little bit on the line for me. [SPEAKER_00] It's not even close to the line for me. The idea of a $30 million seed round valuation is, oh, wow, that's reasonable. It's reasonable. It's 3x what reasonable would have been 10 years ago. He has to spend a lot of time at preschools finding young founders who are willing to accept such low valuations for their seed rounds. Is that why you're not allowed within 50 yards of school?
SPEAKER_03
[SPEAKER_02] I'm always wondering why that was the case. [SPEAKER_02] We'll run this segment by your PR team. Yeah, exactly.
SPEAKER_01
[SPEAKER_03] It's a little bit on the line for me.
SPEAKER_03
[SPEAKER_00] It's not even close to the line for me. [SPEAKER_01] The idea of a $30 million seed round valuation is, wow, that's reasonable. [SPEAKER_01] It's reasonable. [SPEAKER_01] It's 3x what reasonable would have been 10 years ago. It was so recent that it was unreasonable. It's five years ago. People are like, whoa, these YC companies think they're raising at 25. Who do they think they are? [SPEAKER_00] I did a six mil post seed round two months ago. [SPEAKER_00] Six post? [SPEAKER_00] Yeah, six post.
SPEAKER_01
[SPEAKER_00] Yeah.
SPEAKER_03
[SPEAKER_00] Yeah. [SPEAKER_01] I think the thing that the founders are missing in this equation is that the economics at these different prices at the early stages shifts significantly.
SPEAKER_01
There's so much money in venture. There are all these new funds that are setting up. It's way too aspirational. There's way too much money in the system.
SPEAKER_03
When they forget them, new funds. It's really just the mega platforms are consolidating $40 billion. [SPEAKER_01] Yeah. [SPEAKER_01] Even that. [SPEAKER_01] Yeah.
SPEAKER_02
[SPEAKER_01] And because those terms are shifting, the deals that you could do 10, 15 years ago that led to these are gone. [SPEAKER_01] They're gone. [SPEAKER_01] They're totally gone. [SPEAKER_01] And then the question is, can you actually over a venture cycle, a venture fund cycle, can you actually beat the S&P 500 with this new unit economic? [SPEAKER_01] Even if you're hitting the monopoly players, I don't know. [SPEAKER_01] It seems like it's way harder than it has been.
SPEAKER_01
[SPEAKER_03] I think it is way harder than it has been.
SPEAKER_03
I mean, it seems you'd expect across the industry multiples to compress, but the power is still super strong, obviously.
SPEAKER_01
[SPEAKER_00] One thing we've noticed is in our latest venture fund that we kicked off maybe six or seven months ago, the average entry price right now, I think is something like 700 million in valuation. [SPEAKER_00] And if you compare it to the prior five, those would probably be on average because we do some mid-stage rounds in there, but it would probably be 80 to 100 million, in entry point average price probably speaks to the fact that even seed rounds that we're doing are so high that then when you add in some of the mid-stage things that are also high. [SPEAKER_00] We don't talk about this much.
SPEAKER_01
[SPEAKER_03] What's your current comfort with the temperature in venture and funding and everything like that?
SPEAKER_03
[SPEAKER_02] Yeah, I'm also deeply, deeply uncomfortable. [SPEAKER_02] I think the similarity to 2021 is that in 2021, there was this unanimous sense because investors were making a lot of money. [SPEAKER_02] There were a lot of things that were IPOing.
SPEAKER_01
[SPEAKER_02] Everyone was getting a great cohort in 2019, 2020, and 2021 of really big IPOs that gave everyone a big taste of liquidity at the same time that everyone was getting markups very, very quickly and very high markups very rapidly.
SPEAKER_03
[SPEAKER_02] And there just started to become this sense where you'd have a company that would be at say 100 million ARR and it would get priced at $10 billion. [SPEAKER_02] So you'd have this 100X multiple on it and the investor would be like, well, obviously it's going to go 100 to 300 and 300 to 700 and then 700 to 1.4.
SPEAKER_01
[SPEAKER_02] And that's going to be worth 30 billion and I make a 3X in four years or whatever. [SPEAKER_02] It was just this sense of inevitability without really digging deep into one, the immense difficulty and the base rates of how many companies that are at 100 million ARR that ever make it to 1.4 billion of ARR in that arbitrary example. [SPEAKER_02] But there were a lot of situations that looked like that where everyone was like, well, of course, it's here and the trend's good. [SPEAKER_02] So it's going to be there and it's like, well, wow, if it does get there, it's a 3X from where you're investing in.
SPEAKER_01
[SPEAKER_02] And two, in history, the amount of people that have gone from here, it's 5% of all companies. [SPEAKER_02] And so you're underwriting relative to historical norms by 20X. Not to mention all the dilution along the way. And you're not incorporating dilution in that equation. [SPEAKER_02] And so you only have these situations when people are making a lot of money. [SPEAKER_02] And I also think this is the duality that is the key to a bubble where it will also be that these last three years unquestionably is going to be the period where venture capitalists have made the most amount of money in history.
SPEAKER_01
[SPEAKER_02] And all SpaceX, OpenAI, and Anthropic, they're going to produce the most amount of returns that we've ever seen, probably by two orders of magnitude of any batch of companies. [SPEAKER_02] But then when you strip out those four companies or five or six companies, then you start one, playing with house money. [SPEAKER_02] And two, you start assuming that everything's going to be daisies and roses because of the success that has been baked in other parts of the market. [SPEAKER_02] And so it's that feeling, investors have that feeling of inevitability where it's like, yeah, I'm going to invest at 5 billion, but it's going to be 15 billion in two years.
SPEAKER_00
[SPEAKER_02] And then we're going to IPO or we're going to sell it at that price. [SPEAKER_02] And it's, we've forgotten how hard, how brutally hard it is to go from one source to another. [SPEAKER_01] Even if you go down from the 100 million ARR line, one of the things that I've noticed in my 12 years doing this is that there's this weird glass ceiling between 20 and 30 million where a reasonably managed enterprise SaaS company is going to get to 20 or 30 million in revenue. [SPEAKER_01] But then getting through that glass ceiling is super hard. [SPEAKER_03] Yeah. [SPEAKER_03] The percent that make it from 20 to 100 is a miss. [SPEAKER_01] Huge drop off.
SPEAKER_00
[SPEAKER_02] And it's we've forgotten how hard, how brutally hard it is to go from [SPEAKER_01] one source to another. [SPEAKER_01] Even if you go down from the 100 million ARR line, one of the things that I've noticed [SPEAKER_01] in my 12 years doing this is that there's this weird glass ceiling between 20 and 30 million [SPEAKER_01] where a reasonably managed enterprise SaaS company is going to get to 20 or 30 million [SPEAKER_01] in revenue. [SPEAKER_01] But then getting through that glass ceiling is super freaking hard. [SPEAKER_03] Yeah. [SPEAKER_03] The percent that make it from 20 to 100 is a miss. [SPEAKER_01] Huge drop off. [SPEAKER_01] Huge drop off.
SPEAKER_00
[SPEAKER_01] And so I think that early on in my time in venture, I would meet with these companies
SPEAKER_03
[SPEAKER_01] that are in three years, they've gone from zero to 15 million ARR.
SPEAKER_01
And it's oh, that's really good. That's a really good trajectory. We should dig in. And now I'm just like, I don't know. [SPEAKER_03] I mean, well, it's tough because the way VCs are underwriting is forcing founders at one [SPEAKER_03] to five million ARR to tell a story that we're going two to 30 to 150. [SPEAKER_03] And you see that all the time.
SPEAKER_03
And then it forces people to build companies in weird ways. [SPEAKER_00] It's all distorting. [SPEAKER_00] I think what's different about this cycle relative to 21 is that in 2021, even the best companies were not able to beat the original Google early years of [SPEAKER_00] revenue growth and then Anthropic in this cycle is literally the first company that since
SPEAKER_01
[SPEAKER_00] Google has actually shown an even steeper curve. [SPEAKER_00] And then I think that feeds into both of hey, you're playing with house [SPEAKER_00] money. [SPEAKER_00] There's so much liquidity coming. [SPEAKER_00] But then also assuming that anybody else will be able to now match that same [SPEAKER_00] revenue trajectory. [SPEAKER_00] And there's things, even in our portfolio, cognition is obviously on a wild growth rate. [SPEAKER_00] And then I think it just goes down the stack where people assume even the seed stage, one [SPEAKER_00] million ARR thing is going to be able to follow that. [SPEAKER_03] Totally.
SPEAKER_01
[SPEAKER_03] But it goofs up a lot of businesses that could raise at a quarter of the valuation [SPEAKER_03] that they're raising up. [SPEAKER_03] But because the market's where it is, it's like, well, I rather than just saying I'm going [SPEAKER_03] to go from one to four to 11, whatever, there is a way to venture finance
SPEAKER_03
that business. [SPEAKER_01] It just looks different. [SPEAKER_01] How do you guys respond to the pitch at a seed or a series A or series B where
SPEAKER_01
you're focusing, where the founder is super confident that they're going to go from one to 10 to 100 to 500 over the course of three years? [SPEAKER_02] The running joke is that it doesn't matter what market you're in or what company you're [SPEAKER_02] running. [SPEAKER_02] The running joke we've had is at the end of your plan for any company under 5 million ARR this year is 30. [SPEAKER_02] It's always 30. [SPEAKER_02] It's always 30. [SPEAKER_02] It's just like you see a deck and it's like, we're at four. [SPEAKER_02] It's like, are you going to go to 30? [SPEAKER_02] And they're like, yeah, how'd you know? [SPEAKER_02] It's crazy.
SPEAKER_01
[SPEAKER_02] We had nine of them in a row. [SPEAKER_02] There's a little bit of don't hate the player, hate the game in there as
SPEAKER_00
[SPEAKER_02] well, where it's like, you have Hamant on a podcast being like, if my [SPEAKER_02] partners bring me something that's growing three X, I tell them, don't bring it to me. [SPEAKER_02] The new bar is 10 X. [SPEAKER_02] That's not nothing against Hamant. [SPEAKER_02] That's where the market is. [SPEAKER_02] It's obviously investors are playing a game of opportunity costs, not absolutes. [SPEAKER_02] You're trying to do the best thing in any given year, not something that just meets [SPEAKER_02] some bar. [SPEAKER_02] And so there's some of that where it's like, well, part of being a good
SPEAKER_00
[SPEAKER_02] founder is being able to raise capital and play the capital raise game. [SPEAKER_02] But I think you do have to mix that with a large amount of being genuine as well.
SPEAKER_01
[SPEAKER_02] And you have to ideally have worked out the idea maze in order to show a path [SPEAKER_02] to actually doing that. [SPEAKER_02] It can't all be bluster.
SPEAKER_02
[SPEAKER_03] Yeah. [SPEAKER_03] And I think also we're going to work closely with
SPEAKER_03
them for a long time, that's just what it is. And so I think it'd be very frustrating for us to work with somebody who's like, my
SPEAKER_00
[SPEAKER_03] plan is 10 to a hundred, but I've got no plan beyond how I'm going to manage that.
[SPEAKER_03] And I don't know what team I need to hire. [SPEAKER_03] I haven't thought about what team I need to hire. [SPEAKER_03] I haven't thought about what that product service area looks like. [SPEAKER_03] I haven't thought about what if you're going to take the role of I'm going to work with this person. And then they're going to say that in order for that to be an enjoyable plan, as you work with someone that you'd want to, you want to believe that they're going to think about, okay, I know actually what's going to go into it and it's going to be really hard.
SPEAKER_00
[SPEAKER_01] This is Peter's quad chart from zero to one around indefinite optimism versus definite [SPEAKER_01] optimism. [SPEAKER_01] If you're going to be optimistic, you should at least have a plan. [SPEAKER_03] Yes. [SPEAKER_02] It's too frustrating otherwise.
SPEAKER_01
[SPEAKER_02] Yeah. [SPEAKER_02] I feel like you would probably be more allergic to any version of that. [SPEAKER_02] I just remember a company we were meeting back in the [SPEAKER_02] day and they're like, I'll be coming from a dinner with Mark Andreessen. [SPEAKER_02] And you just emailed back, you're like, don't do that. [SPEAKER_02] That's not a game that we should be playing.
SPEAKER_03
[SPEAKER_01] The competitive game of flaunting all of my connections. [SPEAKER_02] Yeah.
SPEAKER_01
[SPEAKER_02] It's like, oh, you guys better move quick because afterwards I have [SPEAKER_02] a dinner with this famous person. [SPEAKER_02] I just remember a company we were meeting back in the day and they're like, I'll be coming from a dinner with Mark Andreessen. [SPEAKER_02] And you just email back, you're like, don't do that. [SPEAKER_02] You're like, that's not a game that we should be playing. Oh, the competitive game of like, look at me. Yeah. I'm keeping all of my connections. [SPEAKER_02] Yeah. [SPEAKER_02] It's like, well, oh, you guys better move quick because afterwards I have a dinner with this famous person.
SPEAKER_01
[SPEAKER_02] And you're like, this is just founder to founder feedback. [SPEAKER_02] Don't do that.
SPEAKER_03
[SPEAKER_01] I don't remember doing that, but it sounds like something I would say. [SPEAKER_01] The thing that I feel is so triggering to me about these crazy plans is not the optimism. [SPEAKER_01] And I'll be like, I believe that they should have the ambition.
SPEAKER_00
[SPEAKER_01] It's the willful removal from all historical examples. [SPEAKER_03] And it's an easy time to be like, things are different now. [SPEAKER_03] The rules have changed. [SPEAKER_03] You know, you can have billion dollar companies with four person teams. [SPEAKER_03] And it's like, you can, I think, convince yourself that just because the rules have changed, that there's no rules at all anymore. [SPEAKER_01] Well, you can do that with software, but with hardware, it's like, you have to make real things. [SPEAKER_01] And this idea that you can 100X production in a 12 month period. [SPEAKER_01] It's just like, I'm sorry. [SPEAKER_01] You literally can't.
SPEAKER_03
[SPEAKER_01] I'm just going to say that.
SPEAKER_02
[SPEAKER_03] Like, okay, can we talk about, I want to go to a hardware topic. Before we all sat down, we were talking about chips and I've spent some time with some public market investors recently, but everybody knows that people love semis right now. [SPEAKER_03] People don't like software. [SPEAKER_03] They like semis. [SPEAKER_03] We obviously have huge compute shortages. [SPEAKER_03] We have the situation with Taiwan and China. [SPEAKER_03] We've got America sort of without its own real ability to fabricate anything.
SPEAKER_02
[SPEAKER_03] There's a lot of startups working in chips and semis in various ways, but I would just be curious to hear your lay of the land of the situation, like where we are as a tech industry, you know, maybe then we can get into country positioning and some of the broader things, maybe that connects to Android and whatever. [SPEAKER_03] But maybe just starting with chips as a point in time, like what's the lay of the land? [SPEAKER_03] What are people excited about? [SPEAKER_03] Like, what are we missing? [SPEAKER_01] I think the biggest challenge is just around fabrication.
SPEAKER_02
[SPEAKER_01] There's a lot of energy going into chip design, you know, making more efficient AI chips or making more leading edge chips or whatever it is for memory or for inference. [SPEAKER_01] There are all of these different things that people are working on and that's great. [SPEAKER_01] I'm glad that we're doing that. [SPEAKER_01] But at the end of the day, these chips are all coming from the same place. They're being made. [SPEAKER_01] And for decades, the United States was really the only player in semiconductor manufacturing. [SPEAKER_01] That was actually where Silicon Valley came from.
SPEAKER_02
[SPEAKER_01] And we've completely lost our way with this. It almost entirely happens outside of the United States to the extent that we were doing anything in the United States over the last couple of decades. [SPEAKER_01] It's not leading edge anymore. [SPEAKER_01] It's some of the more mass scale, like automotive chip fab and things like that, or low scale research and development fabs. [SPEAKER_01] And we haven't really figured out how to resurrect the leading edge fabrication. [SPEAKER_01] And obviously this is what the CHIPS Act was intended to do.
SPEAKER_01
It doesn't seem like there's a whole lot of traction coming out of the money that was spent there. The government has made this big bet on Intel, taking an equity position in the company to try to get them to the point where they can be not only a manufacturer of their own chips, but also a merchant supplier of chips to other people.
SPEAKER_02
[SPEAKER_01] Their yield rates are still really low. [SPEAKER_01] Obviously, Pat Gelsinger is doing everything he can to level that up and has the Tariff Fab project that he's working on with Elon now as well. [SPEAKER_01] So it's sort of our best bet, but not at all certain that it's going to work. [SPEAKER_01] The other companies that have leading edge processes like TSMC and Samsung have been getting attention from the government to try to get them to build domestic fabs in the United States. [SPEAKER_01] But the incentive structure for those is totally wrecked. [SPEAKER_01] It's not clear why they would build any of these fabs.
SPEAKER_02
[SPEAKER_01] It's not clear that the talent even exists to do it domestically anyway. [SPEAKER_01] So I feel like our focus has just been sort of wrong. [SPEAKER_01] It's been on the easy part: design. I'm going to say this and I actually mean it. [SPEAKER_01] We're focusing on the easy part design, which I'm not saying is easy on an absolute basis. [SPEAKER_01] I'm saying on a relative basis, we're focusing on the easy part and there's a lot of money to be made there. [SPEAKER_01] But if we don't fix the hard part, none of this is actually going to work. [SPEAKER_00] There's not even an optimistic plan right now.
SPEAKER_02
[SPEAKER_00] Like I think if you were to just look at all the chess pieces today and how they're playing for the next five years, there's nothing that would indicate it would be any different five years from now. [SPEAKER_00] Like at least when you had in 2015, we lost access to space because we shut down Space Shuttle and we were dependent on the Soyuz for taking people up to space.
SPEAKER_01
[SPEAKER_00] At least you could be like, at least Elon is trying. [SPEAKER_00] There's a path to something where those will be brought back. [SPEAKER_00] In 2020, we have it. [SPEAKER_00] If you were to analyze what everyone is doing today and say in 2030, you know, whatever, is there going to be leading edge fabs in the United States at scale? [SPEAKER_00] It's like, no, there's not even anything that anybody's working on that would lead towards that today. [SPEAKER_02] Over the next decade, and if you haven't thought about this, no need to give an answer.
SPEAKER_03
[SPEAKER_00] taking people up to space. [SPEAKER_00] At least you could be like, at least Elon is trying.
SPEAKER_01
[SPEAKER_00] There's a path to something where those will be brought back. [SPEAKER_00] 2020, we have it. [SPEAKER_00] If you were to analyze what everyone is doing today and say in 2030, whatever one, is there going to be leading edge fabs in the United States at scale? [SPEAKER_00] It's no, there's not even anything that anybody's working on that would lead towards that today. [SPEAKER_02] Over the next decade, and if you haven't thought about this, no need to give an answer. But over the next decade, what do you think the probability is that Taiwan is quarantined or otherwise? I think it's high probability that it's not what it is today. Yeah.
SPEAKER_01
If that's a Hong Kong situation or if it's some sort of the United States reaching a detente where we continue to have access to critical supply chain and we've given up something in that arrangement or a full scale invasion where we have to make a really hard decision about whether or not we want to actively support Taiwan. One of those outcomes is wildly probable, I think 90 plus percent in the next 10 years.
SPEAKER_03
I feel like your views must be something along the lines of we need to be able to have US chip fabs, right? [SPEAKER_01] We both need to create a credible deterrent threat for a full scale invasion of Taiwan. And that's the Anduril side of the problem that we're focusing on, which has led to our co-founders being sanctioned in China. So that's that. [SPEAKER_01] Yeah. [SPEAKER_01] And then on the other side of it, we need to figure out some way to reshore the manufacturing credibly.
SPEAKER_00
[SPEAKER_03] Is it basically impossible to start a new company? Are there any entrepreneurs with any amount of capital that could just start a net new chip fab? Or is that too big of a problem?
SPEAKER_00
[SPEAKER_01] I wrote this article about choosing good quests and I made some joke about how celebrities monetize their brand by selling consumer goods like tequila or popcorn or whatever it is. It's a commodity. They just slap their brand on it and they make a bunch of money. Good for them. Our version of this in Silicon Valley is starting a venture fund. You know, it's all these people that have the ability to raise gobs of cash and do really hard things. They sit on the roof, like big head from HBO Silicon Valley, and raise a venture fund and poke around with AI. And we really need them to be founders. We need them to be heroes. It's a big ask, but I'm shocked that no one has taken it more seriously because it feels like the most important thing that people could work on.
SPEAKER_00
[SPEAKER_03] What does it take? Is this Elon plus a hundred billion dollars? What actually is required for somebody to start one?
SPEAKER_00
[SPEAKER_01] I think it's Elon plus tens of billions of dollars. I don't know that it will require hundreds of billions, but definitely in the mid tens to do it. I mean, there's all sorts of levers that you have to pull. You would have to get the US government involved in pulling you to the front of the line with ASML to get the equipment. You would have to figure out the supply chain stuff. You would have to build out the process, which is literally thousands of tiny steps that you have to get high yield rates on so that you don't fail out as you make them, which is a talent problem. We don't have enough skilled labor that understands how that works. It's really hard because it's death by a thousand cuts and it will require someone that has the ability to manage that complex process as a leader.
SPEAKER_00
[SPEAKER_02] Yeah. [SPEAKER_01] As I said, I'm not a good manager, so I'm not sure I'm the right person to do it. Dylan can help. I think it's a little further along before I sign up for another one. [SPEAKER_01] But I think that there are ways that we can shortcut some of this system. We've invested in a company called Substrate that's building a new form of lithography that simplifies the process for the rest of the steps that are involved. And it's really important that things like that get pushed down the road so that we can actually pull this off. But this is civilizationally important. It's not just a technology problem. It's a geopolitical problem.
SPEAKER_00
[SPEAKER_03] I was going to say this before. I feel like the China, Taiwan thing on some level feels like we're all willfully looking the other way about it. And it's just like, if we're to believe what you said, that it is wildly probable and it's a big problem and we have no plan and we're all just like, that's all right. [SPEAKER_01] Just keep doing it. Yeah.
SPEAKER_00
[SPEAKER_01] Every time I meet with one of these chip design companies, I think of them as pinch runners. All right, check this out. I'm really good at stealing second base. And I'm like, yeah, but how did you get on first base? Like who hit the ball? It's ah, just really focused on that pinch running. I'm the greatest base runner in history. Not really, don't know how to solve the problem of getting the bat on ball. And I feel like that's what we're doing over and over again with semiconductors. It's we've solved for hundreds of pinch runners and we have nobody that can actually make contact.
SPEAKER_00
Trump also visited China for the first time basically a decade this past week. And Xi Jinping was extraordinarily clear in all of the communications of like our number one problem and issue is Taiwan, references the Thucydides trap and says you know, we're clearly the rising power. You're the decaying hegemony. The only way to avoid kinetic war is you need to accommodate our needs. And our number one need that we've made very clear throughout this entire week is that [SPEAKER_01] We've solved for hundreds of pinch runners and we have nobody that can actually make contact.
SPEAKER_00
Trump also visited China for the first time in about a decade this past week. And Xi Jinping was extraordinarily clear in all of the communications about our number one problem and issue is Taiwan. He references the Thucydides trap and says we're clearly the rising power, you're the decaying hegemony. The only way to avoid kinetic war is you need to accommodate our needs. And our number one need that we've made very clear throughout this entire week is that Taiwan reunification is something that we deeply care about. If we end up letting that happen, it's a huge betrayal of all American values where we're the world police and you're letting a westernized democracy get taken over by an adversary.
SPEAKER_03
[SPEAKER_01] And I think you have to take Xi seriously. When he says that, he's saying I am staking my reputation as an authoritarian on my ability to execute on my plan. He is held accountable by his populace for following through on the things that he said he's going to follow through on. I think no one in the West takes that seriously because in our mind it's a four year cycle. Politicians come and go. They say stuff and they very rarely follow through on it. And so we have this tendency to just not take it seriously. But he has to follow through. There's no other way for him to stay in power.
SPEAKER_03
We need some fabs. We need some fabs also in hardware. Vinod said this on the podcast that robotics will probably be the biggest thing of all time. Obviously Elon's thinking about this a lot with Tesla. Have you spent a bunch of time meeting with robotics companies? It seems like robotics would be something that would be square and your guys' interests. Are you guys looking at it a lot? All the time. Seems like it should work, right?
SPEAKER_03
[SPEAKER_00] Yeah, I think we haven't made any huge humanoid or generalist model investment yet. But we do have a whole set of portfolio companies that either use robotics a lot. Andrel has plenty of robots in Foundry. Hadrian, one of our portfolio companies, uses robotics all the time. We've made some vertical specific robotics plays. I think we're a little more bearish on humanoid as a venture category. We are comparing it to Unitree in China and thinking is there even an American ecosystem that can support something like this? I think the hope that at least I personally have is that humanoid robots play out somewhat similar to phones where it's Chinese hardware but American software. And that forces a forced détente that neither side is happy with. China would much prefer that it was Chinese software running everywhere. America would much prefer that iPhones are made in America.
SPEAKER_03
Did you like Jensen Huang's point on the Dworkesh podcast about how America should go win every market, including the Chinese market?
SPEAKER_01
[SPEAKER_00] I think my view is somewhere in between that. I don't think we should be helping them. But I do think that some of the chip sanctions actually heavily incentivize them to set up their own fab ecosystem. And so I think that sometimes winning the Chinese market is a way to weaken them. And so I agree with him in that narrow point. But I do think it requires looking at that on a market by market basis. I don't maybe agree with American venture capital funding Chinese companies because that feels like you're strictly helping the Chinese ecosystem versus Jensen selling chips to China. It feels like you're giving them the opioid addiction but in the form of chips. And it's probably good for them to be addicted to us.
SPEAKER_01
Provided that there actually is such a thing as a U.S. company owning a market in China.
SPEAKER_01
This is not how it works. I mean, I think that's probably the thesis that Tesla had as well before they realized that BYD was just going to copy all their best stuff and cut the price. And I think that's the much more likely outcome. It's the super naive ramblings of a monopoly hungry American who ignores geopolitical reality. It's well, obviously the right thing to do is just to do business with them because they're mercantilist and this is just going to work, obviously, until your IP is gone and they've taken the market that you thought existed for you and they've exported it to the rest of the world at a much lower cost.
SPEAKER_01
[SPEAKER_02] I have a hypothetical for mostly for Dalian. If there are Chinese citizens that aren't CCP members that deeply want to come to America or come to a Western country and build Western AI, build AI that enriches the Western world away from China, that they might not want to be citizens of anymore or want to leave or not want to build for that ecosystem. Do we have a responsibility or even should we invest in those very hypothetical companies or should we stay away from teams that deeply want to contribute to advanced Western AI but because of where they were born have to go through different means to do so?
SPEAKER_02
[SPEAKER_00] I think if somebody is working on national security technologies, which I argue leading AI effectively is, I don't think it's an unreasonable argument to make that you should have to roughly abide by the regulations around that, which is ITAR compliance. At VARDA, at Andrel, we would not be allowed to hire someone like that. If they renounce their Chinese citizenship, if they fully became an American citizen, if there's also strong confidence that the CCP doesn't have some of their family members under gunpoint and can leverage that fact to get them to do things on behalf of China and America. Sure.
SPEAKER_02
[SPEAKER_00] I think if somebody is working on national security technologies, which I argue leading AI effectively is, I don't think it's an unreasonable argument to make that you should have to roughly abide by the regulations around that, which is ITAR compliance. At VARDA, at Anderil, we would not be allowed to hire someone like that. If they renounce their Chinese citizenship, if they fully became an American citizen, if there's strong confidence that the CCP doesn't have some of their family members under gunpoint and can leverage that fact to get them to do things on behalf of China and America. Sure. But I think that's really, really difficult about if it's just an individual citizen that has made it over, China still controls their life. Even if they hate China, they don't want that to be the case. They've got their grandma by gunpoint and they convince that person to fly back to China and then detain them. Doesn't matter where that person's personal beliefs are. What matters is the system that you're interacting with.
SPEAKER_02
[SPEAKER_01] The alternate version of this is suicidal empathy. It's like, look, none of us want to believe that every multi-billion Chinese people in the world are bad. I don't believe that. I don't think that's crazy. It's easy to believe that there's some racist tendency and having a concern around this. But there are people in our society who have that level of suicidal empathy where they're like, well, obviously you can't say anything negative about the obvious logical fallthrough of investing in Chinese nationals with family ties back in the country and stuff.
SPEAKER_02
[SPEAKER_03] Do you think that there's a de-escalation path between America and China? It's kind of implied in a lot of this conversation that we're going to a tenser and tenser place over time. Is that just what happens when you have a rising power and you have to plan for that to be the case? Or do you think there's any de-escalation path?
SPEAKER_02
[SPEAKER_01] I'm certainly hopeful that there's a de-escalation path, that there's diplomatic solutions and hard power deterrence that will prevent us from going into war with one another. I think that's the worst possible outcome. For sure. I don't think the American people have any memory of what it's like to go into great power conflict at the scale of destruction that would result from doing that. [SPEAKER_03] Also now versus the last one, I think it would just be a lot worse.
SPEAKER_02
[SPEAKER_01] It would be devastating. We can't afford to do that. And so I think part of it is we have to hope that China has that same belief that it's unthinkable and that we should do everything we can to stay out of it. But they've spent the last 50 years with a very intentional strategy to box the West out of the entire supply chain to make their success inevitable. If you've read the book 100 Year Marathon, it talks about this in terms of Chinese fables where there's this story that gets cited a lot in Chinese fairy tales essentially, that's hide your strength, buy time. And it's this idea that in Western literature, we have this tradition of chest thumping. It's all about showing strength. And we expect that other people will do the same because we're like, show us what you can do and we'll show you what we can do. And then we'll decide how that gets litigated. Whereas the Chinese strategy is always cower. Like, oh no, we're so weak. We don't have any power. Our GDP is so low. And they're just going to keep repeating these messages until the moment where the flip is inevitable. And then we're going to look back and be like, wait, we have no leverage. We have no leverage. The Belt and Road just completely eviscerated our whole ability to control the supply chain. We don't own any of the ships that are required for global trade. We don't have any military advantages because we haven't invested in it. We have no access to semiconductor manufacturing. And then they're standing there with the entire deck of cards in their hands. And where does that leave us? And I think this is the fallacy about the moralism around this, where it's like, look at all these things that the U.S. government could do with technology. We're so concerned about how this technology is going to be abused for all of these unethical use cases. And it's like, guys, if you're concerned about a Western democracy, imagine a world in which we have no sin in how these technologies are governed. And we're walking ourselves willingly into this situation where you think it's bad now. Wait until you see what's on the other side of a dominant China, because it's not going to look like the effective altruist version that people believe it's going to look like. It's just complete chaos.
SPEAKER_02
[SPEAKER_00] Yeah. The chest thumping versus being quiet, I think was exemplified the day that we basically started striking Iran where you had Trump obviously everywhere thumping your chest effectively on that day, and in the China Post there wasn't basically a single mention in any of the headlines about anything that was happening in Iran. For them, it was just like, this is not a thing that we even pay attention to, categorize, have no opinions on. Xi Jinping effectively just said that day, I forget his exact quote, but it was something like, that's America's issue, America's challenge that they've chosen to step into. Whereas if you imagine the equivalent of that versus in the Cold War with the Soviet Union, all of the headlines within the Soviet Union would have been about here's what America's doing. Here's what we're doing to counter it. It was all this soft power through proxy wars, et cetera. China's just not, even though a lot of their oil comes from Iran, they're effectively
SPEAKER_02
[SPEAKER_00] Xi Jinping effectively just said that, I forget his exact quote that day, but it was something like, that's America's issue, America's challenge that they've chosen to step into. [SPEAKER_00] Whereas I think if you imagine the equivalent of that versus in the Cold War with the Soviet Union, all of the headlines within the Soviet Union would have been about what America's doing. Here's what we're doing to counter it. It was all this soft power through proxy wars, et cetera.
SPEAKER_02
[SPEAKER_00] China's just not, even though a lot of their oil comes from Iran, they're effectively just not engaging on this proxy war. And it's the difference between being against a great power that is another chest thumper versus the Chinese approach.
SPEAKER_02
[SPEAKER_03] Yeah, fascinating. I know you guys have to go in a minute, so I want to end with a couple light topics just to cleanse the palate. One is our boy Sam Blond. He worked with you guys at Founders Fund. And then you guys led a prior round. We did a recent one. I'm actually curious. Yeah, obviously we're both really excited about the company, but what was your experience with him as a teammate? Did that inform why you're like, I want to back him? What was the experience there for you guys?
SPEAKER_02
[SPEAKER_00] I worked with him a lot in the Miami office where he was based. And it was incredibly clear that he is a phenomenal salesperson. He is somebody that knows how to close a deal, wine and dine, et cetera.
SPEAKER_02
[SPEAKER_00] I think unfortunately, as we've talked about over the course of this podcast, the venture job is not really necessarily a sales job. Once you've come to a conclusion you want to invest, yes, there's for sure a little bit of sales that happens in terms of convincing somebody to take your capital. But the vast majority of it is you don't try and close every 10,000th investment that is out there in the world. You need to discern which is the one to five that matter a lot.
SPEAKER_02
[SPEAKER_00] And so I think that was partially why he even came to the conclusion after a year at Founders Fund. He was like, this is not the world for me. I'm glad that I learned it very quickly. I'm going to go do the world that is for me. [SPEAKER_00] And part of why we love Monaco is it literally just feels like Sam embodied in a company. It really does. I've never seen it so clearly in a company where you can smell the founder personality everywhere in a company. [SPEAKER_03] Yeah, it's usually the founder. You can kind of smell the founder everywhere in a company. This is Monaco is Sam. Sam is Monaco.
SPEAKER_02
[SPEAKER_03] I think you guys just closed a big new fund and we talked a lot about discomfort, but then there's obviously a lot that we're excited about. And I realized some of it's for early, some of it's for growth, but as you guys think ahead and this is not Peter in 2022 or whatever saying everybody take a break, I expect you guys are planning to deploy it. Is this going to be the same type of stuff you've been doing recently? Or are you thinking this cycle has actually played out and we need to find the next trillion dollar companies that we're not currently in? What's the headspace right now?
SPEAKER_02
[SPEAKER_01] We have a separation between funds. We have the venture fund on one side and growth on the other. The venture fund we raised years ago, 2021. You're still deploying out of the same fund. Well, what we did is we realized we raised it. It was too big. And the economics of these things are really tricky. So we ended up splitting the fund in half and then we backed them chronologically up against each other. So we're currently investing out of the second of those two funds that we created. And then growth is focused almost entirely on companies in the portfolio already that are seeing continued growth. I think it's only about 20% of the fund is new. 80% is doubling down.
SPEAKER_02
Was OpenAI already in the venture fund at one point? [SPEAKER_01] No, that was growth. That was first in growth. Yeah, first in growth. [SPEAKER_00] But that's probably one of the very few. Basically, OpenAI and Anthropic both originated from growth and we've doubled down through growth. Almost every other meaningful position or check across the fund, and sometimes it's in a totally different category. Like Crusoe is probably one of my favorite examples of this. Originally started off as a Bitcoin miner. And now obviously turned into a data center producer. But yeah, we've doubled down throughout.
SPEAKER_02
It's funny. We were actually talking about this with the partners here, talking about the Founders Fund growth strategy and how this doubled down within the own portfolio as 80% of the portfolio. I think it can only work at a place like Founders Fund because it's maybe the only firm that's invested in companies that have compounded at a 30 plus percent rate per year. It only works when you have SpaceX and Andrel for 30 years. So it's like, okay, well you have SpaceX, you have Stripe, you have Andrel. You're like, there's probably three or four more that I'm forgetting. [SPEAKER_01] You like Palantir, Ramp.
SPEAKER_02
Yeah. It's like, it was just as good of an incremental IRR at 30 billion as it was at 500 million, 10 years later. And it's only if you're collecting those and burning those types of companies early, it's hard because you have to be so rational to say, we're not going to just invest. For 30 years. So it's, okay, well you have SpaceX, you have Stripe, you have Andrel. You're like, there's probably three or four more that I'm forgetting.
SPEAKER_03
[SPEAKER_01] You like Palantir, Ramp. [SPEAKER_01] Yeah. [SPEAKER_02] It was just as good of an incremental IRR at 30 billion as it was at 500 million, 10 years later. [SPEAKER_02] And it's only if you're collecting those and burning those types of companies early, it's hard because you have to be so rational to say, we're not going to just invest in our three best companies. It has to meet an absolute bar, not just a bar within your own portfolio. [SPEAKER_02] Yes. And the Venn diagram of those also just happening to be the best investments at growth.
SPEAKER_03
[SPEAKER_00] But then the advantage of being involved in the early stage, it's the fact that Andrel incubation, Ramp seed, Stripe series A, Palantir incubation. [SPEAKER_00] It's not to say that we have perfect access or perfect pricing, but we almost always are able to invest the amount that we want to. [SPEAKER_00] So if you just look at the sizing, you're able to get into these companies also is part of what makes the growth. It's got to be a little hard to match the time allocation to the dollar allocation though, because how much time do you need to spend on deciding on these companies that you already work on?
SPEAKER_03
And then you're going to meet a lot of these new net new companies, but you're going to only deploy 20% of the funds. So it just has to be the case that a bunch of times going into net new stuff and you just do very little of it.
SPEAKER_01
[SPEAKER_00] Why do a net new defense tech thing? [SPEAKER_00] We can just deploy another billion dollars in Andrel. [SPEAKER_00] Yeah.
SPEAKER_02
[SPEAKER_00] It just doesn't make sense to do that. [SPEAKER_00] Yeah. [SPEAKER_00] Thank you guys for doing this with us. [SPEAKER_00] It's super fun. [SPEAKER_00] Thank you. [SPEAKER_00] Thanks for having us guys. You're like, that's, that's not a game that we should be playing.
SPEAKER_01
Oh, the competitive game of like, look at me. Yeah. I'm keep knocking all of my connections.
SPEAKER_02
Yeah. It's like, well, like, oh, you guys better move quick because like afterwards I have like a dinner with, with this famous person. And you're like, this is just founder to founder feedback. Don't do that.
SPEAKER_01
I don't remember doing that, but it sounds like something I would say. The thing that I feel is so triggering to me about these like crazy plans is, is not the like optimism. And I'll be like, I believe that they should have the ambition. It's the like willful, like, like removal from all historical examples.
SPEAKER_03
And it's an easy time to be like, things are different now. The rules are changed. You know, you can have billion dollar companies with four person teams. And it's like, you can kind of, I think, convince yourself that just because the rules have changed, that there's no rules at all anymore.
SPEAKER_01
Well, you can kind of do that with software, but with hardware, it's like, you have to like make real things. And like this idea that you can like 100 X production in a 12 month period. It's just like, I, I'm, I'm sorry. You literally can't. I'm just going to say that.
SPEAKER_03
Like, okay, can we talk about, I want to go to a hardware topic before we all sat down, we were talking about chips and, um, I've spent some time with some like public market investors recently, but you know, everybody knows that like people love semis right now. People don't like software. They like semis. We obviously have like, you know, huge compute shortages. We have the situation with, you know, Taiwan and China. We've got America sort of like without its own real ability to, you know, fabricate anything. There's a lot of startups working in chips and semis in various ways, but I would just
SPEAKER_03
be curious to like hear your sort of like lay of the land of the situation, like where we are kind of like as like a tech industry, you know, maybe then we can get into like, you know, country positioning and sort of some of the broader things, maybe that connects to Android and whatever. But maybe just starting with chips as a point in time, like what's the lay of the land? What are people excited about? Like, what are we missing?
SPEAKER_01
I think the biggest challenge is just around fabrication. It's like, there's a lot of energy going into chip design, uh, you know, making more efficient AI chips or making more leading edge chips or, you know, whatever it is for memory or for inference. Like there's all of these different things that people are working on and that's great. I'm glad that we're doing that. But at the end of the day, like these chips are all coming from the same place, like they're being made. And for decades, the United States was the really only player in semiconductor manufacturing. That was actually where Silicon Valley came from.
SPEAKER_01
And we've completely lost our way with this almost entirely happens outside of the United States to the extent that we were doing anything in the United States over the last, you know, couple of decades. It's not leading edge anymore. It's, you know, some of the more mass scale, like automotive, uh, uh, chip fab and things like that, uh, or low scale kind of research and development fabs. Um, and we haven't really figured out how to reassure, um, the leading edge, uh, fabrication. And obviously like this is what the chips act was intended to do. It doesn't seem like there's a whole lot of traction coming out of the money that was spent there.
SPEAKER_01
Um, the government has made this big bet on Intel, uh, taking an equity position in the company to try to get them to the point where they can be not only a manufacturer of their own chips, but also as a merchant supplier of, uh, chips to, to other people. Uh, their yield rates are still really low. Obviously, Lit Bu is doing everything he can to level that up and has the tariff fab project that he's working on with Elon now as well. So it's sort of our best bet, but not at all certain that it's going to work. The other companies that have, uh, leading edge processes like TSMC and Samsung have been
SPEAKER_01
like getting attention from the government to try to get them to build domestic fabs in the United States. But the incentive structure for those is totally wrecked. We're like, it's not clear why they would build any of these fabs. It's not clear that the talent even exists to do it domestically anyway. So I feel like our focus has just been sort of wrong. It's been on the ease. I'm going to, I will say this and I, I actually mean it. We're focusing on the easy part design, which I'm not saying is easy on an absolute basis. I'm saying on a relative basis, we're focusing on the easy part and there's a lot of money to be made there.
SPEAKER_01
But if we don't fix the hard part, none of this is actually going to work.
SPEAKER_00
There's not even like an optimistic plan right now. Like I think if you were to just look at all the chess pieces today and how they're playing for the next five years, there's nothing that would indicate it would be any different five years from now. Like at least when you had like in 2015, we lost, you know, sort of access to space because we shut down space shuttle and like we were dependent on like, you know, the Soyuz for taking people up to space. At least you could like be like, at least Elon is trying. Like there's a like path to something where those will be brought back. 2020, we have it.
SPEAKER_00
If you were to like analyze what everyone is doing today and say in 2030, you know, whatever one, is there going to be leading edge fabs in the United States at scale? It's like, no, there's not even like anything that anybody's working on that would lead towards that today.
SPEAKER_02
Over the next decade, and if you haven't thought about this, no need to give an answer. But over the next decade, what do you think the probability is that Taiwan is quarantined or otherwise?
SPEAKER_01
I think it's high probability that it's not what it is today. Yeah. If that's like a Hong Kong like situation or if it's some sort of, you know, the United States reaching a detente where we continue to have access to critical supply chain and we've given up something in that arrangement or like a full scale invasion where, you know, we have to make a really hard decision about whether or not we want to actively support Taiwan. One of those outcomes is wildly probable, I think 90 plus percent in the next 10 years.
SPEAKER_03
I feel like your views must be something along the lines of like, we need to be able to, you know, we need US chip fabs, right?
SPEAKER_01
We both need to like create a credible deterrent threat for a full scale invasion of Taiwan. And that's the anduril side of the problem that we're focusing on, which has led to our co-founders being sanctioned in China. So that's that. Yeah. And then on the other side of it, it's like, yeah, we need to figure out some way to reshore the manufacturing credibly.
SPEAKER_03
Is it basically impossible to start a new company? Like, is there anybody, are there any entrepreneurs with any amount of capital that could just start a net new chip fab? Or is that just, is it too big of a problem?
SPEAKER_01
I wrote this article about choosing good quests and I made some joke about how like celebrities monetize their brand by, you know, selling consumer goods like tequila or popcorn or whatever it is. Just it's a commodity. They just slap their brand on it and they make a bunch of money. Good for them. Um, our version of this in Silicon Valley is like starting a venture fund. You know, it's like all these people that have the ability to raise gobs of cash and do really hard things. They, you know, sit on the roof, like big head from HBO, Silicon Valley and raise a venture fund and, you know, pill around with AI. Um, and we really need them to be founders.
SPEAKER_01
We need them to be heroes. It's a big ask, but like, I'm shocked that no one has taken it more seriously because it feels like the most important thing that people could work on.
SPEAKER_03
Like what would it like? What does it take? Is this like Elon plus a hundred billion dollars? Like what, what actually is required for this problem for somebody to net new start one?
SPEAKER_01
I think it's Elon plus tens of billions of dollars. I don't know that it will require hundreds of billions, but, um, definitely in the mid tens to do it. I mean, there's all sorts of levers that you have to pull. Like you would have to get the U S government involved in pulling you to the front of the line with ASML to get the EV. Uh, you would have to like figure out the supply chain stuff. You would have to build out the process, which is literally like thousands of tiny steps that you have to get high yield rates on so that you don't fail out as you, as you make them, which is a talent problem. We don't have enough skilled labor that understands how that works.
SPEAKER_01
It's really hard because it's sort of death by a thousand cuts and it will require someone that has the ability to manage that complex process as a leader.
SPEAKER_02
Yeah.
SPEAKER_01
Uh, as I said, I'm not a good manager, so I'm not sure I'm the right person to do it,
SPEAKER_00
but, um, Dylan can help. I think it's a little further along before I sign up for another one.
SPEAKER_01
Um, but you know, I think that like, there are ways that we can shortcut some of this system. Um, we've invested in a company called substrate that's building a new form of lithography. That, um, simplifies the process for, um, the rest of the steps that are involved. Um, and it's like, it's really important that things like that get pushed down the road so that we can, we can actually pull this off. But this is like civilizationally important. It's not, it's not just a technology problem. It's a geopolitical problem.
SPEAKER_03
I was going to say this before. I feel like this, like the, the China, Taiwan thing on some level feels like we're all like willfully kind of looking the other way about it. And it's just like, if we're to believe what you said, that it is wildly probable and it's a big problem and we have no plan and we're all just like, that's all right.
SPEAKER_01
Just keep doing like, well, yeah. Every, every time I meet with one of these chip design companies, I think of them as like pinch runners, you know, they're like, all right, check this out. I'm like really good at stealing second base. And I'm like, yeah, but how did you, how did you get on first base? Like who hit the ball? It's like, ah, just like really focused on that pinch running. Like I'm the greatest base runner in history. Not really, don't really know how to solve the problem of getting the, the bat on ball. And I feel like that's what we're doing over and over again with semiconductors.
SPEAKER_01
It's like, we've solved for, with hundreds of pinch runners and we have nobody that can actually make contact.
SPEAKER_00
Trump also visited China for the first time, basically like a decade this past week. And like Xi Jinping was extraordinarily clear in all of the communications of like our number one problem and issue is Taiwan references the Thysidious trap and says like, you know, we're clearly the rising power. You're the decaying hegemony. The only way to avoid kinetic war is like, you need to accommodate our needs. And our number one need that we've made very clear throughout this entire week is that like Taiwan reunification is something that we deeply, deeply care about. If we end up letting that happen, it's just like a huge betrayal of all American values where
SPEAKER_00
we're the world police and you're letting them, you know, sort of westernized democracy get taken over by an adversary.
SPEAKER_01
And I think you have to take Xi seriously. Yeah. Like, you know, when he says that, that's, he's saying, I am staking my reputation as an authoritarian on my ability to execute on my plan. He is held accountable by his populace for following through on the things that he said he's going to follow through on. I think no one in the West takes that seriously because in our mind, it's like, that's a four year cycle. Like politicians come and go. They say stuff. They say stuff and they very rarely follow through on it. And so we have this tendency to just like not take it seriously. But it's like he has to follow through.
SPEAKER_01
There's like, there's no other way for him to stay in power. We need some fabs.
SPEAKER_03
We need some fabs. Also in hardware. Vinod said this on the podcast that like, you know, robotics will probably be the biggest thing of all time. Obviously, Elon's, you know, thinking about this a lot with Tesla. Have you spent a bunch of time meeting with robotics companies? It seems like robotics would be something that would be square and sort of your guys' interests. Are you guys looking at it a lot? All the time. Seems like it should work, right? Like, why wouldn't it work? On some timeline.
SPEAKER_00
Yeah, I think we haven't like yet made any like huge either like let's say like humanoid or like generalist model, you know, sort of investment yet. But like we do have a whole set of portfolio companies that either like use robotics a lot. Like Andrel has plenty of robots, you know, in, you know, Foundry. You know, Hadrian, one of our portfolio companies, uses robotics all the time. We've made some like vertical specific, you know, sort of robotics plays. I think we're a little more bearish on the like, you know, humanoid as like a venture, you know, sort of category. We are comparing it to Unitree in China and thinking like, you know, is there even an
SPEAKER_00
American ecosystem that can like support something like this? I think, you know, the hope that at least I personally have is that like, you know, humanoid robots play out somewhat similar to, you know, sort of phones where it's, you know, Chinese hardware, but American software. And that forces this like, you know, forced detente that neither side is happy with. Like China would much prefer that it was Chinese software running everywhere. America would much prefer that iPhones are made in America.
SPEAKER_03
Did you like Jensen Poong's point on the Dworkesh podcast about like... He's got to win. America should go win every market, including the Chinese market.
SPEAKER_00
I think my view is somewhere in between that. Like, I don't think we should be like helping them. But I do think that some of the chips sanctions actually heavily incentivize them to set up their own sort of fab ecosystem. And so I think that like sometimes winning the Chinese market is a way to weaken them. And so I agree with him in like that narrow point. But I do think it requires like looking at that like on a market by market basis. I don't maybe agree with the like American venture capital should be like funding Chinese companies because that feels like you're just strictly helping the Chinese ecosystem versus Yensen selling chips to China.
SPEAKER_00
It feels like you're sort of just, you know, giving them the opioid addiction, but like, you know, in the form of chips. And it's probably good for them to be, you know, addicted to us.
SPEAKER_01
Provided that there actually is such a thing as a U.S. company owning a market in China. Yeah. This is not how it works. Yeah. I mean, I think that's probably the thesis that Tesla had as well before they realized that BYD was just going to copy all their best stuff and cut the price. And I think that's the much more likely outcome. It's like the super naive ramblings of a monopoly hungry American who ignores geopolitical reality. It's like, well, obviously the right thing to do is just to do business with them because they're a mercantilist and like, this is just going to work, obviously, until your IP is
SPEAKER_01
gone and they've taken the market that you thought existed for you and they've exported it to the rest of the world at a much lower cost.
SPEAKER_02
I have a hypothetical for mostly for Dalian. So the, the, if there is Chinese citizens that aren't, you know, CCP members that deeply want to come to America or come to a Western country and build Western AI, build AI that enriches the Western world away from China that they might not want to be citizens of anymore or want to leave or not want to build for that ecosystem. Do we have a responsibility or even should we invest in those very hypothetical companies or should we stay away from, from those teams that, that actually deeply want to contribute to an advanced Western AI, but because of where they were born, um, have to go through different means to do so.
SPEAKER_00
I think if somebody is working on national security technologies, which I argue like leading AIJI effectively is, you know, I don't think it's like an unreasonable argument to make that you should have to roughly abide by the regulations around that, which is ITAR compliance at VARDA, at Anderil, we would not be allowed to, you know, hire someone like that. If they renounce their Chinese citizenship, if they fully became an American citizen, if there's also strong confidence that the CCP doesn't have some of their like family members, you know, under gunpoint and can, you know, leverage that fact to get them to do things on behalf of China and America. Sure.
SPEAKER_00
But I think that's, that's, it's really, really difficult about like, if it's just an individual citizen that has made it over, China still controls their life. Even if they like hate China, they don't want, you know, sort of that to be the case. Like they've got their grandma by a gunpoint and they convince that, you know, sort of person to be a sort of fly back to China and then detain them. Doesn't matter where that person's personal beliefs are. What matters is like the system that you're interacting with.
SPEAKER_01
The alternate version of this is suicidal empathy. It's like, look, none of us want to believe that every multi-billion Chinese people in the world are bad. Like, no one, I don't believe that. I don't think that's crazy. It's like, it's easy to believe that there's like some, some racist tendency and having a concern around this. But like, there are people in our society who have that level of suicidal empathy where they're like, well, obviously you can't say anything negative about the obvious logical, like fall through of, of doing the, you know, investing in Chinese nationals with family ties back in the country and stuff.
SPEAKER_03
Do you think that there's a, like a de-escalation path between, you know, America and China? Like, you know, it's kind of implied in a lot of this conversation is that it's just like, we're going to a tenser and tenser place over time. Is that just like what happens when you have a rising power and you just have to plan for that to be the case? Or do you think there's like any de-escalation path?
SPEAKER_01
I'm certainly hopeful that there's a de-escalation path, that there's diplomatic solutions and, you know, hard power deterrence that will prevent us from going into war with one another. I think that's like the worst possible outcome. For sure. We, I don't think the American people have any memory of what it's like to go into great power conflict, like in the scale of destruction that would result in doing that.
SPEAKER_03
Also now versus the last one, I think it would just be a lot worse.
SPEAKER_01
It would be devastating. We can't afford to do that. And so I think part of it is like, we have to hope that China has that same belief that it's unthinkable and that we should do everything we can to stay out of it. But they've also spent, you know, the last 50 years with a very intentional strategy to box the West out of the whole supply chain to make their success inevitable. If you've read the book, 100 Year Marathon, it kind of talks about this in the terms of like Chinese fables where there's this, this story that gets cited a lot in Chinese fairy tales, essentially that's hide your strength, buy time.
SPEAKER_01
And it's this idea that like in Western, in Western literature, we have this sort of tradition of chest thumping. We're like, it's all about, you know, showing strength. And we expect that other people will do the same because we're like, show us your, show us what you can do and we'll show you what we can do. And then we'll like decide how that gets litigated. Whereas like the Chinese strategy is always cower. Like, oh no, we're so weak. We don't, we don't have any power. Like our GDP is so low. And they're just going to keep repeating these messages until the moment where the flip is inevitable. And then we're going to look back and be like, wait, we have no leverage.
SPEAKER_01
Like we have no leverage. The Belt and Road just completely eviscerated our whole ability to control the supply chain. We don't own any of the, like any of the ships that are required for global trade. We don't have any military advantages because we haven't invested in it. We have no access to semiconductor manufacturing. And then they're standing there with the entire deck of cars in their hands. And where does that leave us? And I think this is kind of like the fallacy about the moralism or the moralizing around this, where it's like, look at all these things that the U.S. government could do with technology.
SPEAKER_01
We're so concerned about how this technology is going to be abused for all of these unethical use cases. And it's like, guys, if you're concerned about a Western democracy, imagine a world in which we have no sin in how these technologies are governed. And we're walking ourselves willingly into this situation where you think it's bad now. Wait until you see what's on the other side of a dominant China, because it's not going to look like the effective altruist version that people believe that it's going to look like. It's just like complete banana pants.
SPEAKER_00
Yeah. The like chest something versus, you know, sort of being quiet, I think was like exemplified the day that we basically, you know, started striking Iran where you had Trump obviously everywhere, you know, thumping your chest effectively on that day in the China Post. There wasn't basically a single mention like in any of the headlines about anything that was happening in Iran. For them, it was just like, this is not, you know, a thing that we even like, you know, pay attention to categorize, have no opinions on. Xi Jinping effectively just said that, like, I forget his exact quote that day, but it was
SPEAKER_00
something like, that's America's issue, America's sort of challenge that they've like, you know, sort of chosen to step into. Whereas I think if you imagine the equivalent of that versus like in the Cold War with the Soviet Union, all of the headlines within the Soviet Union would have been about like, here's what America's doing. Here's what we're doing to counter it. It was all this like soft power through proxy wars, et cetera. China's just not, even though like a lot of their oil comes from Iran, they're like effectively just not engaging on this like, you know, so proxy war.
SPEAKER_00
And it's the difference between being against a great power that is another chest thumper versus the Chinese approach. Yeah, fascinating.
SPEAKER_03
I know you guys have to go in a minute, so I want to end with a couple light topics just to time for the palette. One is our boy Sam Blonde. He worked with you guys at Founders Fund. And then you guys led a prior round. We did a recent one. I'm actually curious. Yeah, obviously we're both really excited about the company, but like what was your experience with him like as, you know, a teammate? Did that like inform like why you're like, I want to back him? What was the, you know, what was the experience there for you guys?
SPEAKER_00
I worked with him a lot in the Miami office where he was, you know, sort of based. And it was incredibly clear that he is just a phenomenal salesperson. Like he is somebody that like knows how to close a deal, wine and dine, et cetera. I think unfortunately, as we've talked about over the course of this podcast, the venture job is not really necessarily a sales job. Once you've, yes, you know, come to a conclusion you want to invest, there's for sure a little bit of sales that happens in terms of like, you know, convincing somebody to take your capital. But the vast majority of it is a like, don't try and close every 10,000th investment that is out there in the world.
SPEAKER_00
You need to like, you know, discern which is like the one to five that like, you know, sort of matter a lot. And so I think that was partially why he even came to the conclusion after like a year at Founders Fund. And he was like, this is not the world for me. I'm glad that I learned it very quickly. I'm going to go do the world that is for me. And like part of why we love Monaco is it literally just feels like Sam embodied in a company. It really does. Like, it's just like, I've never seen it so clearly in a company where it's just like you, people talk about, oh, the founder personality shows up, partner personality.
SPEAKER_03
But this is, yeah, it's like usually like the founder, it's like you can kind of smell the founder everywhere in a company. This is, this is, it is Monaco is Sam. Sam is Monaco. I think you guys just closed a big new fund and, you know, we talked a lot about sort of, you know, discomfort and, but then there's obviously a lot that we're excited about and everything like that. And I realized some of it's for early, some of it's for growth, but like, as you guys think ahead and we're not, you know, this is not, you know, Peter in 2022 or whatever saying everybody take a break. Like, I expect you guys are planning to deploy it.
SPEAKER_03
Is this going to the same type of stuff you've been doing recently? Or are you like, this cycle has actually played out. We need to find the next trillion dollar companies that we're not currently in. Like what's, what's the headspace right now?
SPEAKER_01
We have a separation between funds. We have the venture fund on one side and growth on the other. The venture fund actually we raised years ago. 21, 2021. You're still deploying out the same fund. Well, what we did is we realized that we raised it. It was too big. And again, the economics of these things are really tricky. And so we ended up splitting the fund in half and then we just backed them chronologically up against each other. So we're currently investing out of the second of those two funds that we created. And then growth is focused almost entirely on companies in the portfolio already that are seeing continued growth.
SPEAKER_01
I think it's only about 20% of the fund is new. 80% is doubling down.
SPEAKER_02
Was OpenAI already in the venture fund at one point?
SPEAKER_01
No, that was a growth.
SPEAKER_02
That was first in growth. Yeah. First in growth.
SPEAKER_01
Yeah.
SPEAKER_00
But that's probably one of the very few. Basically, OpenAI, Anthropic both originated from growth and we've doubled down through growth. Almost every other meaningful position or check across the fund. And sometimes it's in a totally different category. Like Crusoe is probably one of my favorite examples of this. Of like, you know, originally started off as like a Bitcoin miner. And now obviously turned into like data center, you know, as a producer. But yeah, we've sort of doubled down throughout.
SPEAKER_02
It's funny. We were actually, I was talking about this. I think, I think with, with the partners here, um, talking about the, the founders fund growth strategy and how this doubled down within the own portfolio as like 80% of the portfolio, I think can only work at a place like founders fund because it's maybe the only firm that's invested in the companies that have compounded at like a 30 plus percent rate per year. Like it only works when you have SpaceX and Andrel. For like 30 years. So it's like, oh, it's like, okay, well you have SpaceX, you have Stripe, you have Andrel. You're like, there's probably three or four more that I'm forgetting.
SPEAKER_01
You like Palantir, Ramp. Yeah.
SPEAKER_02
It's like, oh, it's like, it was just as good of an incremental IRR at 30 billion as it was at like, you know, 500 million, 10 years later. And it's like only if you're collecting those and like burning those types of companies
SPEAKER_03
early, it's hard because you have to be so rational to say, we're not going to just invest in our three best companies.
SPEAKER_02
Yes.
SPEAKER_03
Like it has to meet like an absolute bar, not just a bar within your own portfolio.
SPEAKER_02
And the Venn diagram of those also just happening to be the best investments at growth.
SPEAKER_00
But then the advantage of being involved in the early stage, it's like the fact that like Andrel incubation, Ramp seed, Stripe, like series A. Palantir incubation. Palantir incubation. It's like, it's not to say that we have like, you know, perfect access or perfect pricing, but like we almost always are able to invest the amount that we want to. So if you just look at the like sizing, you're able to get into these companies also is part of what makes the growth.
SPEAKER_03
It's got to be a little hard to like match the time allocation to the dollar allocation though, because it's like, how much time do you need to spend on deciding on these companies that you already work on? And then it's like, you're going to meet a lot of these new net new companies, but you're going to only, you know, deploy 20% of the funds. So it just has to be the case that a bunch of times going into net new stuff and you just do very little of it.
SPEAKER_00
Why do a net new defense tech thing? We can just deploy another billion dollars in Andrel. Yeah. It's like, just doesn't make sense to do that. Yeah. Thank you guys for doing this with us. It's super fun. Thank you. Thanks for having us guys. . . . . . . . . .