¶ Key Mental Models
We do live in a world where information is really cut up, but we also live in a world where you can have access to more information than you ever
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What are the key mental models that you keep coming back to that sort of explain how the world works to you?
I'm a big believer in systems thinking. There's a there's a book called Thinking and Systems that I read.
What does that mean to think in systems?
I'm on the board of the Santa Fe Institute. The Santa Fe Institute studies complexity theory. I would describe complex systems as multivariable nonlinear systems. And multivariable nonlinear systems are very hard to predict. They can behave one way for a long time and then one variable can switch and they can behave another way. The weather, stock markets, all these
there's consequences that can be first, second, third derivative. And, you know, you you can't just think with a linear model or just think one variable because i things can can go way off the path. Being aware that if you make a change here, it could change something here, which could change something there. And it has to be the whole system.
How does that help you when you're solving problems or thinking about stuff?
I think it keeps you out of trouble because you can avoid uh consequences that you might find out later. You know, I was t I was talking to a a guy that worked at one of the large dating sites. They had this this idea making the profile longer would lead to more engagement. simple, you know, heuristic and they tested it and it was true. And so they rolled it out. They found out many, many months later that it le it it was negative for conversion. Like when people knew more at that level. Oh
Interesting.
And so but but it you find that out way later. There's my point about like a second derivative effect. And so you just gotta you gotta be really conscious of the consequence and not get Too d deterministic about a single metric or a single variable. And know what's important and what's on top.
¶ Investing Journey and Key Players
what was the process you took to go about learning the craft of investing and who are the mentors and peers that played a role in that?
So because I started on Wall Street, you know, and not in venture directly, I got caught up in all the people you would expect, you know, around Wall Street and stocks. And so, you know, that starts with Peter Lynch, one up on Wall Street. You know, best selling book. Probably the first book I read about investing. A random walk down Wall Street, Burton McHale, all the buffet led.
you know, uh Ben Graham. Once you read Buffett you have to read Ben Graham. And so and then Howard Marks, uh, who's just incredible. And you were talking about the purpose of your podcast. Those those people have spent their whole career uh assembling their thoughts and publishing'em, you know, along the way. So so that th those were the ones that I read everything. I I think I had a very strong kind of bedrock of financial understanding.
It's it's interesting because as you're saying that I'm thinking like value investing and then you went into non value investing in a way, right? Like how did that translate? How did what Buffett said translate into seed investing and sort of venture investing?
think having a firm understanding of the bedrock is super valuable. And then when you recognize the need to innovate on top of it. It's just really good to have that foundation. I have an incredible peer in this guy, Mike Mobison. I don't know if you've heard of him, but he's a writer of financial books. We started
at first Boston, he had probably been there a year or two year or two ahead of me. So it w it's, you know, just super fortunate that I landed in the same place as him and we've been lifelong friends since then. He introduced me to a gentleman named Bill Miller. Who ran Leg Mason and had this like fifteen year run of beating the S P, one of the most famous investors of all time. And he claimed to be a value investor and he was the largest shareholder of Amazon for a very long period.
And what he would say, I'm getting back to your question, he would say that, you know, value just means that the asset is underpriced relative to what you think it will be worth in the future. I spent a lot of time talking with Bill about network effects and if you believe in that, then Amazon might be able to grow at a unreasonable growth rate for a very long period of time, which he believed. And so that
That's how you get there. But yeah, I I I've often thought that many of the VCs in Silicon Valley would benefit from having a better understanding of finance. And and one other answer to your question about how it becomes valuable, you know I've always thought of Wall Street as the buyer of the product that venture capitalists create.'Cause of the eventual liquidity is either an M and A or an IPO and now
the prices being set by that group and that institution. So if I know what they value, Even if we're starting at a very early place, two people in a PowerPoint, you're still thinking about when this thing grows up, is it gonna be something they're excited about?
Yeah, the trajectory moder is more than the starting place. I think.
Yeah, th that's where you're gonna end. That's the out that's the output at the end.
¶ Knowing the Bedrock of the Industry
But what does it mean w to know the bedrock of the industry? We live in a world where people skim, they want the gist of things, they want give me the summary, give me the executive summary.
I'm gonna tell you a story. So um my partner uh at benchmark Alex Bolkansky would go to this charity auction that I think Andre Agassi would run in in Vegas and one year he bought a dinner with John Lasseter, the creative genius behind Pixar. Mm-hmm. And we go to John's house and he serves us in his m movie studio, he serves us in his viewing room, a ten course meal, and each piece of the meal is tied to a classic cartoon that he believed was was super important to understanding animation.
and he would show it and he would talk through it and explain it. And you see that and you're like, Holy crap like he knows more about the history. You know, and and then here's another data point that I just love. There's a you know, world chess tournament and they take a break and run a trivia contest and Magnus Carlson wins the trivia contest. And it's all about the history of chess.
We do live in a world where information is really cut up, but we also live in a world where you can have access to more information than you ever could. And that's even more true now with LLMs. I mean you could just sit there you have a hour drive and you could sit there and talk to open AI and learn about anything you want to. And I think more people would benefit by
studying the history of whatever field they're in. Th there's another one that we mentioned is uh Picasso was a wildly successful realist painter by the time he was fourteen. If you go to the Barcelona Museum you can see that. And I don't think anyone that looks at his cubist paintings would in intuit that that was true. And then one last thing I would just say about this, and I think this is broadly applicable to almost anyone in any career. Imagine
Let's just pick a field. I'm gonna pick marketing. All right. Imagine you're interviewing for a job at PG or Pepsi out of college. And there's 20 people there. And you're the one that understands the masters of marketing more than the others. And you're able to bring that up in the interview. Isn't that wildly differentiating?
Yeah, totally.
I can't I can't imagine how it would land on me. if I that I met that person. And and yet, other than fields like I think in like literature you probably everyone studies the greats. But in these other fields it's not a practice. And I I just think it would be like remarkably differentiating for people to walk around with the history of their field.
I had a friend who actually recommended to people that their college essays do that when the their admissions essays talk about like if they want to go into physics, talk about the forefathers of like physics and and show them and like you'll instantly create tons of contrast with everybody else.
And you'll show a passion. Like it it it infers passion to want to know that. Um and then the other part I get into, if that sounds tedious It's probably not the right like like if it's tedious to learn that, this isn't a passion. Like you're not in the right I don't think you're in the right lane.
So you've spent your life working with outliers, all these founders. Are there
¶ Obsessive Learning in Founders
Is that a common trait? And I mean not just the the history of the field, but the details as well.
I don't know if the history is a common trait. I would say that that a more common trait that's related in the entrepreneurial world is obsessive learning, like constant learning, because The disruptions that allow for the technology waves that allow for companies to be disruptive and take market share from an incumbent are all tied to something dynamic that's happening on the edge.
And every entrepreneur that's exploiting that, it's AI right now, they're they're going home at night and reading everything they possibly can'cause the edge is moving and they need to be right there and they need to be a top one percentile person that understands this new thing that's happening And today it's AI, but that was true of the mobile wave. Like like when the mobile phone came out, there were no engineers that had written apps for mobile phones.
And a few people got on that edge and figured out what that meant. And that requires obsessive learning on the edge.
¶ The Silent Edge
The way that I'm thinking about that, and maybe I'm coming at this wrong, is, you know, if I'm young and upcoming, I'm on that edge and I'm gonna dive into it. But if I'm an incumbent, it's much harder to dive into that because it might mean it's the innovator's dilemma in a way, but it might mean giving up a previous decision I've made or saying that I've been wrong and going backwards. How do you think about that in terms of competition?
I mean I think that anybody in any field should want to be on like curious about the bleeding edge and what happens. And you know, as a venture capitalist You know, we're always deftly afraid that some new app's gonna pop in the app store that we haven't seen or and so everything that comes up I play with, I roll around. Right now I have like five premium AI accounts because I just don't want to miss
something and you get trained that way. I think everyone should operate that way. I mean it's kind of an interesting contrast. I'm suggesting you should understand the really old stuff, the history, because it's differentiating and shows a passion and it gives you a great frame of mind. But you also want to really understand the new ed
If you do both of those things, like you're a I think you're a power player in your field, you know? And the the second one is a great way for young people. That's another thing that could really differentiate you in an interview, if you're applying for that marketing job and you understand all the legends and the history, but you also really get TikTok, like that's super h like that's gonna be a very differentiated skill going into
those companies and it matters. Like it really matters. Gives you a chance to shine.
¶ Surprising AI Use
If I was to observe you use AI for a week, what would surprise me about the ways that you're using it?
You often underestimate how much it can do. So you might ask it um to f identify the top ten of something. And then you're gonna take those ten and go study'em. But you can say, identify the top ten, list their pros and cons, and then rank order'em based on this dimension and then rank order'em again based on another like stuff you would have done later, you can just build into the prompt.
And it can it can do more of the work earlier for you. Early on I would often ask it for numbers and then I would go add them up and I'm like, oh shit, you can just tell it to do that part too.
Do you find chat GPT is the best one?
I I like the project structure and I'm being sucked into the memory element in that it knows who I am and it knows things about me. For for restaurants and stuff I've I've been using Gemini just because it has all the Google review data and you can
You know, you you don't just ask it which restaurants are good, you can say what are three plates people rave about and what are people warn against. Like you can go deep into the menu, which I've I do all the time. You know, the coding people swear by. uh Claude. Yeah. And I met a guy this morning who says for finance he prefers perplexity, but if he's doing deep research on companies or like companies and countries he doesn't know he find Claude does better. So I think it's still a mix.
Do you think we're gonna end up with like one model that just sort of like dominates? Or do you think we're gonna end up with niche models and they're effectively gonna be commodities and stuff?
¶ The Future of AI Models
I think it's highly dependent on how things play out. There are certain examples in the verticals, especially in the coding one, which is probably the largest vertical right now where people have swapped out models. You know, cursor even lets the the user pick the model that they're using.
And as we move towards optimization and price optimization, which isn't really the objective function right now, but it will be in a few years, um, you may see more people try and do those swaps. I think the thing You know, they could cut against that. If the regulation gets extremely difficult and mundane and expensive, that could actually lead to more oligopoly. And I think some of the players know that and are begging for regulation.
Oh,'cause they want that'cause it's a protective mode.
Pulls up the bar against especially against the Chinese open source market.
How do you think about regulation in the global sense? Just zooming out a little bit here, if if one country is regulated on AI and it slows them down effectively and another country is not regulated on AI and it speeds them up, like how do you think about
¶ Global AI Regulation
This has come up especially around copyright, you know, and if if if if our models all have to adhere to some special rule and there's already been settlements and whatnot and the Chinese open source models don't. It it could have it could have an effect. You know, it's very unclear. un I'm very uncertain how the EU might rule in that type of situation. So I don't know, you know what I'm saying? I don't know how they might view it.
How do you think about it from a systems point of view? Just from like China seems they have four open source models now that are really good. Is that
Anyway, this is a great a great question just to talk more about system thinking. So um They have like ten open source models. And so you have a situation where the competitive dynamic in China is more intense. Because it's more intense, everyone's chosen to go open source. And that creates a system that in my mind is capable of innovating far faster than the competitive system we have here. All the models learn from one another. You can actually have a model train enough.
Or test another model. I'll use a simple metaphor, but imagine you have two societies and both agricultural societies and one of'em when er all the farmers come to market they just sell each other goods and then they go back. In the other society, when the farmers come to market they're forced to share best practices with all the other Uh which which one of those is gonna uh gonna evolve fast?
And open source allows me to see what they're doing, how they're doing it. Are they open sourcing weights too or just the
Yes, and a lot of'em are publishing how they figured it out, like new techniques and and things like that. So it's more it's way more dynamic.
And does that help Western nations then?
Well there's a irony that a lot of the startups are forking those models and this would be a question of how regulation plays out and whether you know someone tries to stomp those out or not. I would say it's kind of a quiet secret just because I haven't read it on the front page of of the journal that, you know, especially from a breadth standpoint, like a volume, th the companies are using these models all over Silicon Valley.
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¶ Impacts of AI on Investing
If AI is really gonna change everything or you know have such a big impact, how does it change how you invest when you look at a company? Are you looking like this is a wrapper on AI? You're effectively like a calculator app on the iPhone, or like how do you think?
I I I I think that question is up for grabs and it's a hot discussion between everyone. So you know if If you believe that these models become near sentient, then th there will be no need for a vertical model, because this one model will just do everything. I probably come down on the other side of that. I think that there are workflows and data motes.
that if you get and and also just understanding like there's three or four legal startups in the AI space. They're just spending so much more time making sure they ingest all the case law and and really understand you know, the processes and principles there. And and then you implement with them and they're writing stuff on your behalf and you're building new databases out of there. I just don't know that you then switch that to
Chat GPT as they climb up the stack. But and I'll take I'll flip back to the other side. You know, they have talked about in their product groups, you know, going after vertical. So it's I think it's a T B D. People point to Microsoft, you know, starting with the OS and then, you know, there were there was Lotus one, two, three and there was I forget I can't even rem oh, there was uh Word Perfect. Like I can't remember the the specific apps, but
You know, they eventually moved up the stack. That could happen. We're gonna see how it goes.
¶ Are There Limitations on Training AI Models?
Do you think there's limitations to how we're training the models now, which is sort of they're trained on all the data from the internet, including like, you know, Elon has the opposite approach where he's like, We're gonna take all the data and then we're gonna filter out clear untruths. We're gonna use that as the starting point versus the other.
I do think that there is a valid argument that we might be running out of data. Right now, one of the most powerful um solutions to improving the models is hiring experts, literally hiring experts for thousands of dollars an hour to to sit in and fine tune and and you know, ask very sp hard questions and then tune'em to to be able to solve those.
I there's gotta be a limit to that. Like where's the edge of of human knowledge? So it's a big question, like d do do we run into asymptotes or not? And part of it goes back to do you believe these things can become super intelligent at which point they start Solving things that we've never imagined.
I guess the theory, correct me if I'm wrong, is like the minute that they are super intelligent, they can effectively make themselves a little bit better. And at that point you just you enter a nonlinear curve.
That that's an argument that some people have made. I I don't know that I believe it.
Give me the other side of it.
Rather than me stand on that hill like Jan you know, Jan Lacum, you know, makes that point. Like he says that that the next version of AI is not L it's not L L Ms, it's it's outside of LLM. broader than L L Ms and that that we're gonna run into. a uh asymptote with these because they're language based and there's just a limit to what language what you can There are b much better people to talk about this than me, but there's a d people point to this famous
game that Google AlphaGo where Google implemented and the bot eventually came up with a move that was shocking to all humans. And that i I forget the number. It's like a famous move number, whatever. and that is proof that they can innovate, you know, beyond what they're taught. The people that take the other side say that's a very constrained game and environment and The computers can search a field of possibilities that's impossible for a human to search because there's just too many.
Right. And that that gives it the ability to find that move that that we didn't know about before. But in the real world, it's not constrained enough where you can tell it to walk all the possible paths. There's an infinite number of paths in a complex in a big complex system. And by the way, those AI models aren't LLM-based. Like AlphaGo's not LLM-based. It's a AI model trained to a very specific constraint.
And that was trained just by playing, is that true?
Yeah, yeah, yeah. Exactly. But and even FSD is, you know, at Tesla is a constrained environment. Like there's the inputs are the brake and the steering wheel and the gas pedal.
¶ Would You Sit in the Back Seat While Your Tesla Drives?
Mm.
It's scary good. I I mean I was telling someone the other day, I was like I would be comfortable sitting in the back seat at this point with full self driving. Like I don't I don't feel a need to drive anymore.
Yeah.
What what's your take on that? Would you sit in the backseat with your Tesla driving?
The the corner cases are impossible to fathom at this you know, right now. Yeah, maybe at some point. I mean I certainly think if it were in a world that didn't have the randomness of the real world. So if you were in a a ge uh geographic area where all of the cars were that, it'd be easier to to to go into that mindset. Is there we got humans that think it's fun to test people jumping in front of these cars?
I was talking to Rory Sutherland, he's like, You can just have fun with this. They're gonna stop. You know they're gonna stop. And so like you don't even have to look both ways now. What are the consequences of that?
Yeah. Yeah, that's not good.
¶ Non-Consensus Opinions
What do you what opinions do you have today that are sort of non consensus that you're you think are correct?
Having spent ton of time in China over the past twenty years, it's hard for me to adopt this mindset of vilification that's heavy. amongst many in Washington and now many in Silicon Valley. The US is like three, four, five percent of the global population. Yeah. American exceptionalism. When people utter that word, I always wonder like, imagine the other ninety five percent of the planet thinks when they hear some That's probably a non consensus viewpoint.
Are there do you think we're overfunding this buildo? How do you think about it?
¶ Are We Overfunding this Buildout?
I only saw that smile on your face.
I mean it's such a hard question to note. If you told me five years ago that the m that these uh Mag Seven would become worth three trillion dollars and then Turn around and take their free cash flow from fifty to a hundred billion a year down near zero because they were gonna spend it all on CapEx, I'd have been like, no way. Like I wouldn't have believed it. So from a certain standpoint, I'm shocked.
that the money's this big. I will tell you that the venture capital community, you know, I mean we talked earlier about increasing returns and and that concept and other people call it power laws, like when have become important in an ecosystem and then they've been able to prove that they can grow and that that growth might be a function of their size already or their footprint or their users.
And that would include everyone from Google to Amazon to Meta, that they end up being worth way more than anyone thought. And I think the investor community writ large has slowly become aware of and believes it strongly in increasing returns and power loss. And so over time, if they all believe that, they're going to be more willing to invest on the cum and take risks. Right. That m that makes sense. That follows. And so
You know.
Someone forwarded me a a chart this morning of the losses of the leading company in the field prior to going cash flow positive. And you look at, you know, what for for For Amazon it was like two or three billion. For Uber it was like, you know, fifteen billion. And now for these companies it's gonna be way bigger than that. And so the Venture capital community as a whole is is getting more risk seeking and taking on more risk because of their knowledge of how things have played out in the past.
think our uh assuming we are overfunding, we haven't had a correction.
Not not really.
Not like a mini one, kind of like and usually that that weeds out sort of the weak competitors and the strong ones survive and
It depends yes. It d but it but it can be you know, if you look at what happened with the dot com crash, you know, there was a four year, three or four year lull before the Amazons of the world started climbing out again. You know, it was it was like a nuclear winner. Like right now there's so much optimism and belief in AI do you get to the place where there's very little, you know.
Some of the the these quote circular deals that people are talking about um enhance the probability that we'll have a correction, but Also extend the time before we have a little bit of a little bit of a little Yesterday at at the deal book conference, Dario s th was asked about circular deals and he goes, Well, th maybe people just don't understand. Let me explain how this works. Um, you know, imagine you're a cloud service I'm I'm
Echoing what he said. Imagine you're a cloud service provider and you notice that this company, Anthropic, wants to develop this model. It's going to cost
maybe five billion dollars, but they don't have that money. So you give them that money so that they can spend it. And I'm like, well, if you didn't give it to'em, they wouldn't spend it. And so like the growth of everything is enhanced by the fact that you're giving money to companies to spend back on your service they wouldn't have otherwise.
And so i if you were in a more constrained environment where you didn't do that, things wouldn't be growing as fast. You inflate. You inflate what's happening.
So you push farther ahead faster. Yes. But there's still is likely to be sort of a culling of the the weaker competitors.
First of all, if if a company is successful, someone will knock on your door and try and give you more money. So like Almost every round is preemptive for successful companies. And when you take that much money, three hundred million dollars, the only way to spend it is to take your burn rate up. And I always thought of burn rate as a measure of risk.
ten years ago, like it was super risky to burn a million a month. You know, today these companies are burning five billion a year like like you know You're you're burning a hundred million a month or more. Like it's really hard and this may go back to financial bedrock and whatnot. It's really hard to know what your unit economics are when you're being that aggressive financially.
Do you think things will change? Like I I wonder about the role of retail investors in this. Like if you tokenize some of these assets, like they might be competing with VCs in some way to fund some of these startups. How how do you think about all of that playing out?
¶ The Role of Retail Investors and Tokenization
Well first of all, there is zero lack of fund availability right now.
That's not the bottleneck.
Yeah.
But the pricing would change, right?
There's no constraints. It's kinda played out in the public markets. I mean I think you look at uh obviously like Stocks like GameStock, but I I think most people believe Palantir is a stock that retail investors really love and take it to evaluation that it's very hard for institutional investors to get their head around. So some some of that has played out. Yeah. regulation around financial disclosures that you get a ton of speculation and even worse manipulation.
Do you think that that would affect private companies? If there was like if somebody figured out a way legally to tokenize Stripe, for example, and the price of the the Stripe share that's tokenized effectively. Fluctuates wildly. Yeah. Do you think that has an impact on Stripe or its employees?
Well they would one of the reasons they're staying private is so you don't have that dynamic.
Because they have more control over sort of like the market cap pricing.
When they do liquidity events for their employees, they sit down with a handful of investors they trust and they negotiate a price. And so it's done on a one off basis. And I think we're going back to the financial bedrock. The underlying asset probably does move around a lot. It's just it never it never gets recorded, so you don't see it. Right. And
That's uh
I think from the operator standpoint that's a benefit. Like you if you've heard any public company CEO, if their stock moves around a lot, it creates a lot of chaos for the employees who are owners who are wondering what it means. This has already started to play out, right? Robin Hood announced they were gonna do what you just said and and the companies, you know, threw up uh
So
We'll see how that plays out. Yeah.
It's fascinating how all that plays out. Or you tokenize real estate and what effect that would have on
I I I think that i and I've been outspoken on this, particularly around the IPO process, I think it is insanely unfair to the companies the way they're forced to go through this process where the bankers pick the price and pick the shareholders. There's just no need to do that. If you took a freshman computer science student and a freshman finance student and said, you know, imagine how a company should go public.
Th they would match supply and demand anonymously like you would in any auction and exactly the way a a ICO works with tokenization. No one would invent this thing where you you cherry pick your best customers and give them this sweetheart price. No one would do that. So I do think that Wall Street because they just can't get out of their they can't let go of this greedy power grab they have around the IPO. You know, we we push direct listings for a while.
which which uses this auction mechanism and they could have embraced that but they didn't. They've gone back to this kind of controlled oligopoly. I I think that is an area where where tokenization like just merely getting to the first base of how the share should be allocated. Um could be very disruptive. Stable coins could be very disruptive too to credit cards.
Well go deeper on that.
Most of the rest of the developed world, the governments um established uh uh an ability to do instant transfer from bank account to bank account and from bank account to A partner or retailer, whatever. UK Faster Payments did this 20 years ago. Recently, Argentina did it with PIC. In the past six years, and it quickly became sixty-seventy percent of transactions. And precisely because of regulatory capture, the bank
have kept our government from doing that. They've the government wanted to. They have something called Fed now, but there's massive pushback in the finance committee in Washington, so it never happened.
And as a result, you know, we have credit cards that charge two, two and a half percent and the whole ecosystem of companies that live underneath that umbrella. If you have a Coinbase account, you can put your money in a USDC stablecoin and earn four percent and within seconds immediately transfer money to someone else for pennies.
¶ What is a Stablecoin?
Like I'm totally naive here.
It's a cryptocurrency that if the company's following the regulation, I believe that USDC is is in fact doing that. Um where they have They have created a dollar for dollar holding in treasuries, US Treasuries. Okay.
For each other
E each stable coin that's represented.
So that's kinda like the gold standard back to the dollar almost. Yeah.
Yes, but because it's on the crypto rails, which are now quite proven and quite fast and global and immediate, it gives you the ability. for me to to give you or for a company to give a company or anyone um a dollar, you know, immediately.
Who holds the dollars in this case? Like If if a bank transfers a dollar to another bank, I I just in my head I'm like, you know, it's it's an electronic transfer. But in reality, it's probably like there's a dollar actually transferring at some point.
Well, no one's taking a physical cash dollar, right? Like that's all it's all digital anyway, right? In America, if I wanna send you fifty bucks digitally, I've gotta go through ACH which is three day settlement, which is part of this regulatory capture bullshit. In in in Argentina now it's immediate because of picks.
We don't actually need the three days. We do uh like the regulatory makes that happen. No
I can wire to you same day, but it cost me twenty-five dollars and I have to fill out a page of forms and I might have to do a verbal commit with my bank.
So the way around that is stable coins'cause you're really just working around the regulation.
Same, same. Yes. Oh. And credit cards which cost two and a half percent. But this there's no reason that it should. And once again these other countries which include UK, Australia, India, China, Argentina, they've all done this d but we never did it. And probably won't like I at this point I think stable coins will get there faster than than the government would will be able to do it.
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¶ Competitive Mode: Visa and Mastercard
I think they will be heavily threatened by this. And historically what they've done in and by the way, those two companies have two of the highest operating margins in the history of business. They have like sixty percent operating margin. And their their duopolies and and they were created by the banks. So and the banks have a stake in it. So it's like
the the whole industry is is kind of stuck in this world where they make a lot of money because it is this way. But there's zero reason why it should cost two or three percent. Just zero. and it will change. In China, because they had this digital immediate transfer, um Alibaba and Tencent were able to very quickly build digital wallets that people carry around. And so if you walk around China if you want to buy a hat from a street vendor or a or a car
you know, in a Huawei store, you c you use w we we WeChat Pay and Ali Pay for everything. You scan a QR code like at a you check out of a restaurant. Like you can just pay at your table. There's a QR code on the table. You just take your We check pay or alley pay and scan it and you're done. So they've they've innovated their entire payment system f way further than we have because because of this the decision by the government to make money transfer easy.
And that means like no three day settlement. And it doesn't necessarily mean stable coin. It just means
That's true. I just think because they waited so long in the U
Uh
you know, this FedNow project's been just out there forever, that that the threat becomes this new thing. And especially with the momentum, the crypto momentum in Washington. That could change with a new administration.
¶ AI and Debt Analysis
As you were talking about that I was also thinking about Moody's and AI and I was like, Oh Moody's You know, basically they sold analysis on debt. Yeah. How do you think AI changes their competitive position? Because like in theory, AI would be able to do that better than or equal to Moody's, which also makes great margins.
Yeah, I think Moody's power comes from the fact that um that it's a standard and everybody trusted.
Right. So even if they used AI on the back end, they're still the
The yeah, the the the watermark. Yeah, I someone could pop up. I mean there's been a lot of talk about these c companies like ISS that that that tell shareholders how to vote. That came up yesterday. um at at the deal book conference and whether or not AI could solve that problem as well. It's possible. Yeah. I mean I think everything's up for grab.
What do you think about independent sort of like services like that that that all proffer advice on how to vote your shares?
Oh I think in the US it's gotten to a really bad place because of the rise of the index funds. Um the index funds and this is why they're asking Larry Fink about it at BlackRock, like they don't The index funds don't have the time to truly evaluate the what the vote should be in these situations. And so the they rely on these services. But these services have been built They play this game that that that
it's not particularly um settling, but they they score you, but they score you with a black box. They don't tell you how they score you. Right. You and guess how you can learn more. You you hire'em. Yes. So they get paid on both sides and it's just it's more of a heist, I think, than anything else. And I'm I've I've spent some time talking to'em. I don't know that they They they they got focused on issues that weren't.
shareholders interest. Like what what's like the what should they really care about is is um what what's best for shareholders. Right. And and they got away from that. Um the the the Tesla case is a great example that that package, that type of package that they did for Elon. I've said this Publicly, I would agree to that type of package for every company I've ever worked with. And most CEOs wouldn't take
Uh it basically says you don't make money unless the stock goes way up. And if you stock goes way up, you make an obscene amount. And I would do that deal over and over and over and over again. None of these ISS like evaluators agree with that. They just the in fact they take the opposite. They say, Oh no, that's a negative. We should vote again.
Is it just because they're looking at the headline number and they're like that's egregious? Not what's required to make that happen.
Yeah, and it started from a place of corporate governance where they were looking out for fraud.
And
So so risk mitigation rather than shareholder interest. And so when you come at it from that perspective, you're like, there should be rules and people should adhere to the rules and when people get outside of the rules, that's bad. I think that's their leg.
What do you think of sort of the second order effects of the rise of passive like we've been uh indexing, which is mostly post the GFC? How do you think it plays?
This is one of those things. Like this this wouldn't be a problem were it not for'cause it's the large number of shares held by the uh the passive i one one thing that would be really great is if they just wouldn't vote um because then the people that are active shareholders would have more of a say in what happens with these companies. But there's they own such a large percentage.
There's also an argument that they should have to vote in the same proportion that direct holders vote.
Yeah, well if they didn't vote that would happen just by natural because the the vote would just be but it'd be more like how unfortunately how voting works in America where you only have like a twenty percent turnout.
The second order of fact with that like I could have control of the company with a very small share of
Yeah. At first I think the public investors got really scared because they were marked to the index and they ended up doing what people call closet indexing to make sure that they didn't
um lose out. And like when the Mag Seven took off, um if you didn't own those, like you had a bad year as an example. And so you're forced to kind of closet index. But They were they kinda reached a point where they think the number of active investors is so few that the ability to get a edge has maybe increased as a result of the of the
relate that.
I don't know. I mean it's it it's a b the buy side is it's a very hard job like to to beat the the S P. Some people have even highlighted the fact that, you know, QQQ has probably outperformed eighty or ninety percent of venture funds.
One of the surprising things that I learned about you through reading your book was that you love the craft of storytelling and writing. Yeah.
¶ The Craft of Storytelling and Writing
Talk to me about what you've learned about storytelling over the years. And because that's really important to founders. It's really important to anybody trying to get a message out in today's world.
Someone asked me like the top three traits of founders that are successful and I put storytelling in the Th the there's another thing that happened, you know
Prior to going to business school I didn't read much, but some bit flipped when I was in business school I started reading and I I started with business books that most people know. Um I got into personal development books, which I find a lot of successful people have this moment in their life where they roll through, you know, Dale Carnegie. Like seven habits and stuff like that. Um and then and then biographies.
Um but but after that I I've I've kind of fell in love with with long form nonfiction journalism that reads in an exciting
And
Part of it was the wave that was Malcolm Gladwell and Michael Lewis and John Krokaur and those books that read like fiction, you know, even though they're nonfiction. And there's actually multiple books written on that art. It's called The New Journalism and The New New Journalism. And I've read those books about that. writing. And I just find it super powerful that someone can maybe put together twenty pages that like really impacts you in a certain way.
And so I started studying the craft, studying Buffett and Howard Marks and seeing these investors that were successful like putting their stuff out there. If I was thinking through a problem about a new Most of my most successful investments fall in this category people call marketplaces. And before there was a first marketplace, like th there wasn't a knowledge base. And, you know, we crafted that along the way and codified it and wrote it down. And that in addition to
m helping you think through all the corner cases and this is exactly why Bezos has his six page letter concept at Amazon. He he believes that if you have to write it out and make it standalone and be cogent that you'll think through more of the the problems and you'll it'll be more cohesive and it'll it'll um you you'll figure out the loose ends and you'll tie'em up. Um and s but in addition to that in the venture world.
For the founder that doesn't know you, when they see your knowledge on a subject or they see what you're talking about in their own business, they reach out to you. So it becomes a calling. Yes, yeah. And I I'm not the only one that's done it. A lot of people have done and some people don't use that technique. There's other ways to to get deal flow, but it's powerful if if you do
¶ Founder Advantage: Product Instinct
Uh, you mentioned storytelling. What are the other uh you know, chosen unfair advantages that founders have? You said there's three.
All right.
Storytelling.
I hope I can remember it. I think product instincts is another one that that that comes partially from understanding the new edge, which we already talked about. But like it probably took my whole career for me to fully understand how hard it is to hire someone who's not a product first individual and then get them to be good at it. I'm sure there there are examples, but it's gotta be five percent or less of the use case.
For her to come.
Um Uh storytelling is so important because in the founder case, you're recruiting employees, you're you're you're recruiting executives, you're raising money, you're closing customers, you're closing partnerships, you're selling all the damn time. Yeah. And the best ones are just super
Um and you can see it with Bezos, you can see it with like Toby at Shopify. I mean, God, like listen to any Toby podcast you possibly can. Like of course the world's gonna follow this guy. Daniel Eck, like they're just so gifted at describing what they're trying to do, you know. And that's that's just Just, you know, super, super valuable. I once asked Jeff Bezos, how have you had such a successful angel portfolio? You don't have any free time.
And he says, oh, when I meet an entrepreneur, there's only one thing I ask myself, is this person gonna do this no matter what? Come hell or high water, they're doing this. Like they're just already convinced. that this is so important, they're not gonna stop. And I think that level of determination is present in all the great founders. Like they're just going at it, you know, full black.
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¶ Real World Lessons from Working With Uber
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What are the what are some of the real world lessons you learned while working with Uber that you wouldn't find in like an HBS case study?
Well that w that's e that's an easy answer to get to quickly, although now n uh 'Cause I had a I had a moment in my brain th where where that exact phrase you just said popped into my brain. We were, you know, in a situation where I think most people that were investing in the category knew it had winner take all dynamics and network effects. And as a result, there was this Determination that they were just going to have to fund it kind of ad nauseum. And you had a situation where the burn rate
You know, where okay, well someone hands lift a billion dollars. Well then we we get handed three billion and so and and and once again the only way to compete in that world is to spend that money and so you have these burn rates that are bigger than any pro public company would ever
spin going after a new category and and so aggressive. And I thought to myself at the moment, um, there is no HBA case study. You could take the board members from Walmart and Costco and GM and and General Electric or whatever you consider the top ten best companies and they would have never been in this situation before. So there was no there was no one to call. There was no there was no mentor to go find.
¶ Inside Benchmark's Success
Which was uh Horrowing a bit to recognize you're in that situation. But now all the AI companies are in that situation. So I uh I feel for'em.
Cooper was kinda the first in the in the
In the mega burn. Yeah. I mean, well Amazon was, you know, they they had a big burn rate, but then Uber took it to a new level. Um, but now it's at an they've added a zero.
I'm curious from the like how benchmark was structured on the inside and how that structure contributed to its success.
I've talked about this a lot. I I was very fortunate to get invited into benchmark. I was I I joined I on the third fund, so I wasn't there early. Um they had left The founders of Benchmark had been at hierarchical firms where they felt like the senior Patriarchs were maybe taking too much of the money and too much of the credit and not doing the work that was imperative for the firm's success.
Partnerships, you know, you think law partnerships or accounting firm partnerships work in a way where the the senior people have more power and take more of the economics and the junior people have to work their way up over a long period of time. The founders decided at Benchmark that they were just gonna make it equal, an equal partnership. And there's no there's no lead partner, there's no king, there's no president, there's just Five equal parts.
So what are the second and third order consequences of that?
Bunch of'em. And I think most of'em are positive. The first thing is it makes it very easy to recruit exceptional talent from other firms'cause they're not in that situation and you immediately and I was at a firm that was hierarchical and You know, even if you went back and said, Well, I'm gonna leave to go to this equal partnership and they said, Oh, we'll make you equal, well you did it because I was leaving, not because it works that way. Right. That's one. The second one is it
really encourages development of the new people that come in because I'm gonna take an equal part of their success when they start delivering. And so I'm not I want them to be super successful. And I'm gonna spend time and and I boy on my way in I felt that. Like I just felt like, you know, and the type of support it if you're in a upper out firm
I bet it feels kind of lonely. I bet you know you're competing against that person over there. Are you gonna share ideas with them? Maybe, maybe not. Like and in this equal partnership. You know, if one of my companies needs a v new CFO and they know of one, they'll probably just give it to me right away. My company succeeding is no different than their company's succeeding. So you just create a a different dynamic. And you don't spend any time annually on
Comp review and recutting the pie. You don't y like it's all it's always equal, it's always gonna be equal. It there is there's one huge negative. So I I don't want to just say it's all um the it's almost impossible to have uh because you don't have a CEO, it's hard to scale out and it's hard to have new initiatives.
Like because there's no th oh, maybe we should, you know the website was always a funny one. Like who's gonna own the website? Well, are are we gonna hire, you know, someone to do that? And well who owns that responsibility? Yeah. And When Matt Kohler came in, he had he's like, Oh man, I'll take it on. I love like I know exactly what we need. He created this super complicated website and it had all the founders on it and now they're connected to all the partners.
And people started complaining'cause stuff wasn't right. And one day Mac came in and uh he said, You know what? I'm taking it all down and I'm putting up a splash page And he did that he did that like I don't know, fifteen years ago? And still today Benchmark has a single page. And that's a result of this issue that I'm describing.
Well, you know, uh it's interesting you say that'cause I find a lot of websites have such a high cognitive load to use. A splash page with like you know, four or five thousand is on Berkshire Hathaway's website. I totally get it. I don't there's not a lot of cognitive time. Like if I uh you know, I heard this example um from a a guy a couple of weeks ago. He's like, if I'm going to buy a sweater I don't wanna know your mission statement. I don't wanna like I just wanna buy a sweater.
A little bit of bespoke confidence in in just having a splash page. I would just add that there are plenty of highly successful venture firms that aren't structured that way. And so I don't it's not I'm not s saying it's the only way to do it. It's clearly there are clearly many ways to do it.
To wash with capital. a founder choose benchmark or somebody else? Like what goes into that
First of all at a high level, if you're successful as a venture capitalist, people want to work with you. You know, when I came in you know, the Mike Moritz, you know, John Doerr. Like they've had so much success that that not only, you know, is it likely that they are are great at what they do and know people that will help your company succeed, but their stamp of approval of you will carry weight in and of itself.
And so there some people have said it's the only investing category where there are network effects because once you have a reputation. it it it you have an unfair advantage in deal flow. Underneath that, I would f I would say founders are particularly um motivated to be around people who understand what they're doing and are excited by. And excited about it. And one of the reasons young people can break into venture and be wildly successful is they're
much more likely to be the age of the founder. They're much more likely to feel someone that understands what they're doing. It with with many of these technologies that are new, they're much more likely to understand them. And, you know I I've used examples describing this in the past, but let's say you're uh really into Esports or something.
You it would be very easy to know more than the successful generalist venture capitalist in that category. Yeah. Like you could very quickly know more. And that could be true of of YouTube video creations. Like it'd be very easy for a young venture capitalist to know more about what it takes to be successful on YouTube than John Dore or Mike Moritz or me or whoever. Like,'cause you could just go Spend a hundred percent of your time on
So so in that way, is it sort of like athletics where you you age out in a way and you're competing against younger people who know or understand a niche better? Or how
I I I think the the whole industry bends towards youth for that reason and because it's a hustle business. Like there's there's there's always a rock you haven't looked on.
¶ What is Success for You?
And you know, age brings children and homes and and and other re requirements you get tied to and responsibilities and you're just not able to go spend eighty hours a week studying YouTube. Like you just can't. Um so I think it bends towards you. Um which is great. Like like it's a it's a highly competitive industry. It's hard to get a job, but if you get one, there are reasons why y you can break in
We always end with the same question, Bill, which is what is success for you?
I'm I think I think it's changed over time. I would say when I look back on my venture capital career, I made a decision, a very specific decision to say, okay, I'm done. And and I I don't think I would have done that if I felt there was work left to do. I think I reached a point where I felt there wasn't any work left to do. So in that case, you know, that was my dream job.
I was thrilled to do it. I loved every minute of it. I often said that I would if we lived in a socialist society and I everyone had to work for free, I would still take that job um or the same fee salary or whatever.
You might not be eating, but...
You'd be like, but that's now done. And so as I look forward You know, I was very moved by this book Arthur Books wrote called Strength to Strength to Strength, where he talks about this next chapter in your life. I would like to take some of the
Techniques.
that I used to be successful as a venture capitalist, mostly around the blog and understanding problems and synthesizing and see if I can apply those techniques to bigger, broader problems in society and see if I can dent the universe a little bit that way.
I love it. I wish you luck.
Yeah, me too.
Thank you so much for the same.
Thanks for doing this. It's great.
🎵 Music