The Transformer Shortage, Uber's Autonomous Future, More Size Gongs, FAL Series B

Welcome to Technology Brothers, the number one live show in tech. We are live from the temple of technology, the fortress of finance, the capital of capital. Today is Thursday, February 13, 2025. One day until Valentine's Day. We did our Valentine's Day guide yesterday and we hope you've picked out some fantastic gifts for your loved ones. This show starts now. Jordy, how are you doing?

My lovely wife listened to the full episode yesterday and she was very fixated on the gift guide and was very excited about, you know, what we were sort of recommending and so expectation, expectations going into tomorrow or, you know, at a fever pitch, basically. So wish me luck, everybody. I don't want to want to disappoint.

Yeah, bad day to be a Bentley dealer if Jordy's walking in. Um, yeah, that's great. Well, we got a fantastic show for everyone. We got a bunch of fundraising news. Mercury fal, Harvey. We got stories about the transformer shortage. We can't even get enough power for these AI companies. Two iconic tech people did interviews. We're going to cover both of them. First, Uber CEO Dar Koswashari and second, Theranos former CEO Elizabeth Holmes, she did hers. And People. Dara went to Stratecherie. A little bit of different outlets, but great content. And we'll cover it here and then we'll go through the timeline. But first I wanted to open with a. A little story from none other than David Senra founders podcast, the godfather of podcasting, the Podfather. One of the greatest to ever do it. He says when James Cameron was 20, he was a truck driver. He decides he wants to be a filmmaker, but he can't afford to go to film school. This was how he solved that problem and what a high agency person look like. He'd go to the stacks, the library at usc, home of a vaunted filmmaking program Cameron couldn't afford. I'd find somebody's 300 page dissertation on optical printing, Cameron said, and I'd be going through it and I'd think, well, I got to get this. So I'd pull the staples out and I'd photocopy the entire 300 pages. And then I kept just doing the same thing week after week for about six months. And I'm driving a truck, but I had these binders, sodium process, blue screen, optical printing, film stock, emulsions, lenses, cinematography. I was going through this stuff chapter and verse and making my own notes and all of that. I basically gave myself a college education in visual effects and cinematography while I was driving a Truck cost of a couple hundred dollars in photocopying. He essentially put himself through a graduate course in visual effects at the top film school in the country without ever meeting a single professor.

Jordy. Amazing story. What an icon. My, my question becomes, you know, this was pre cell phone era. Was he learning and driving? You know, did he have his binders, did he have his binders out basically like on the steering wheel and he was kind of like reading like, imagine being slammed rear end game Cameron. And he's just like, oh, sorry. Yeah, he's reading about optic film stock emulsions. And you know, that, that was a, that was a different era. But I'm glad he, you know, he made it out and I'm glad, I'm glad he did that. But it's crazy because that, that's just like free Internet and all of that information is a hundred thousand, ten thousand times more available.

So much more accessible, for sure. Yeah, yeah, it's so much more accessible. But yeah, Autodidactism has been a driving force behind entrepreneurship for a very long time. It's kind of unclear if you can teach it, but yeah, I mean, isn't, isn't the same experiences.

The Dyson story is very similar. Right. He's just like, I'm going to make a vacuum and then just, you know, spent a decade learning how to make the best vacuums. That's awesome. He comes to go rocks wild.

But yeah, I mean, I love this and I think why this resonates with me so, so much is that you can tell that even though James Cameron is like a Hollywood guy, he's a filmmaker. It's a very, it's a very word sell industry. He is the shape rotator of the word cell industry in the sense that like, he is obsessed with the science behind film emulsion and how VFX work and the blue screen. And of course, he also understands storytelling, acting and emotion and all the different things that go into making a movie. But he, he doesn't shy away from the technical side. And I think that's. This resonates with me so much.

Yeah, the technical side. And then later in his career he gets into submarines, which is every man's dream, right? I like one of the most. One of the best ways I know to get to sleep is learning about narco submarines that they build in the jungle. It's like the most fun, fascinating content. I'm like, these guys are going to build the submarine in the jungle, take it out, drop it in the water and, you know, basically take Millions of dollars of their CPG product across the world. How fantastic is that? But you can imagine he brought that sort of like, you know, just obsessive learning approach. You can imagine he brought that just obsessive approach to building his own, you know, submarine, which of course he had, you know, teams of people work on. But sure. Impressive.

Well, let's move on to some insane fundraising news. Sequoia has been on an absolute tear. Holy Trinity firms, they just don't, they just don't. Take a break. We got two massive fundraising nouns. Fundraising rounds from Sequoia. Let's kick it off with the Mercury investment. Sequoia to lead Mercury investment at over $3 billion in value. Fintech is indeed. So back. Kate Clark got the scoop over at Bloomberg. Let's break it down. Sequoia talks. What?

This was a big mix up by the way, because you remember Kate Clark. Clark was the scoop queen over at the information for a long time.

And so Bloomberg, Bloomberg scooped the scooped queen.

Yeah, yeah, she's scooper. Bloomberg scooped. It was a super scoop. Well said, super scoop. But they had to, they had to have taken out a max contract to get, to get her because, you know, the information, you know, she was a core piece of their, you know, team.

Well, she might have broken the news that Sequoia Capital is investing in Mercury Technologies, but we're breaking the news that Kate Clark broke the news, so stay tuned. Sequoia Capital is in talks to lead an investment in digital banking startup Mercury Technologies at a valuation more than $3 billion according to a person familiar with the matter. There's one guy in Silicon Valley who leaked this. Who is it? Who could it possibly be? Well, so the other thing, is it a lawyer or is it somebody else?

Well, so the other, the other thing is the account, Arfer Rock.

Oh yeah.

Actually ended up leaking just the details directly. So it's very possible that it was whoever runs Arfur that just put this out there. No idea that.

And so fintech is surging. Their Mercury is based in San Francisco. They're raising hundreds of millions as part of the deal. The company was founded in 2017 by Ahmad Akund. Actually good follow on X, highly recommend you go check him out. They have a physical credit card, online banking tools tailored to startups. The company reached $500 million in annualized revenue. According to the information which earlier reported some of the funding details. The deal is expected to double Mercury's valuation from 1.6 billion in 2021 after it raised 120 million. Mercury's existing investors include Andreessen Horowitz, CO2 Management and CRV. What's interesting is so we, we have a Mercury account plays very nicely with Ramp, who we love. And Sequoia was actually just in the recent Ramp round as well. So even though, you know, fintech, it's all a bunch of technical mumbo jumbo, but you know, these tools do play to play well together in interesting ways.

Yeah, so one, one interesting read into here is one extremely impressive that, that Mercury was able to, you know, basically double their 2021 valuation, which was like the peak of ZIRP. Right. And they did this for a few reasons. One continued to grow and just sort of compound on their existing base. They, they have, you know, one of the best banking products in the world. Even if you look at, you know, commercial banking, consumer banking, all this stuff. One thing that's kind of interesting is on that 500 million of annualized revenue, they put up $200 million of EBITDA, which, which is notable because one is just very impressive doing, you know, multiple, you know, nine figures of, of, of actual ebitda. But they're raising it, you know, they're raising it at $3 billion valuation. They're actually not getting a lot of credit for that, that earnings. Right. Like if you had a pure play SaaS company at 500 million of revenue doing 200 million of EBITDA, that would easily be trading it at, that could easily trade at $20 billion. Right. You know, Figma, I don't think was anything had anything close to that level of EBITDA. You're getting the size gong ready.

I just heard 200 million of EBITDA and that deserves a size gong of its own. Okay, that is a good insight.

But the, but the reason they're not actually getting full credit for the, the, they're not getting priced sort of in the way that, that, you know, comparable companies might is because the vast majority of their earnings are from interest yield. So when you have money in a Mercury checking account, it's like 0% interest and you can move it to their treasury or savings products and get a little bit more interest. But the majority of startups are sort of like fairly simple in their financial operations. So they just keep all the cash in one account. And so, you know, the reason that, you know, Sequoia is clearly willing to pay, you know, you know, values a company at multiple billions of dollars based on everything that they've built. But they're putting a huge discount on, on the revenue because if rates drop over the Next few years, a lot of that, that, that actual like profit will just dry up. Right. And there's nothing, there's nothing that Mercury can necessarily do about that because it's set by.

That's a good take. That's very. Yeah, that's very interesting. I like that. And I don't know if you saw the news today, but where, where was it? Hot inflation chills, rate cuts on the COVID of the Wall street journal today.

Yes.

3% likely putting on hold any move by Fed to loosen policy. So based on your analysis, that means, hey, that EBITDA is going to stick around for a while. But there's always a risk as things progress and it's just, yeah, it's just.

So that's where the discount.

Yep.

Comes into play.

That's interesting. I remember when the ZURP bubble kind of popped and a lot of people were asking like, who's going to be the beneficiary? It feels like Mercury might have been the number one beneficiary in the sense that everyone was migrating off of Silicon Valley Bank. So there was this massive, I need a new account. And I think they onboarded a ton of people and, and they built a ton of goodwill and they didn't, you know, there was no disruption during that small local regional bank crisis. Forget exactly what they call it. And obviously then as interest rates rose, they were able to generate a lot of money, grow their business a ton. And that is a fascinating story.

Yeah, they went through different. They were always positioned as a startup, you know, Neobank, and got a very dominant position quickly despite facing pressure from Brexit. But they actually had a huge amount of their customer base and revenue early on was companies that were Amazon sellers that just needed a US bank account that they could run a bunch of cards spent through. So early on, even in 2020, a lot of their revenue would have been from debit card interchange. And then suddenly they're making five, five and a half percent on every dollar on an annualized basis. But they had billions of deposits. Right. So it's a fantastic, fantastic business model and they don't actually have to do any of the sort of really complicated sort of higher risk stuff around banking, which is lending, because they're a Neobank. And one of the things that's also worth noting here is a lot of people are like, well, why is Mercury not buying a bank charter? And the reason for that is that once you have a charter, you're getting highly, highly regulated and they will force you to diversify your customer base. Diversify your sort of business lines and lending practices because the FDIC doesn't want you to take on all this risk and then go under. Right. Because then they have to bail you out. And so Mercury was able to. They've hit a few of these different waves, the sort of E. Com wave, the general growth and startup investment and then the post SVB being there to sort of catch the companies that needed a new bank partner. And then the other thing that they did was quickly roll out increased FDIC coverage. At the time I was competing with Mercury and we offered a 4% sort of annualized yield on balances. So it was like a high yield checking product which was very interesting for companies because if you had a million dollar, every million dollars was 40k a year of relatively risk free yield. But then SVV happened and our bank partner didn't allow us to extend our FDIC coverage by working with a bank network and Mercury had enough bank that they were able to make it happen. And so that's when we ended up doing the deal with, with RO who also had, you know, increased FDIC coverage. So anyways, awesome, awesome to see for, you know, clearly Fintech is here to stay. They've had a lot of the industries, had a lot of naysayers over the year but at the end of the day the product experience is so much better for customers.

Yep.

On, on average that these companies are here to stay.

Yeah, man. There's something that's so satisfying about, I mean this is the first time I've set up a new company, the TB since I guess 2016 and everything is just like so much smoother and it wasn't bad in 2016 but even then Stripe Atlas was working.

Here's a crazy operator workflow. You're going to be able to go into operator like I guarantee you within the next year and say I want to create a new company. And it'll ask like okay, do you want a C Corp or an llc? Where do you want to incorporate? And I'll ask you for the information and it'll just do it for you. And then it'll be like, all right, I want to. Do you want a bank account? It's like sure. And it's like cool. I just set you up with Mercury. And it's like cool, I just set you up with Ramp. I just onboarded you to this payroll tool. So like a single agent will be able to drive this whole experience which typically like in 2016 this was like weeks and weeks of kind of like administrative paperwork, annoyances. Going to a bank, you know, them being like, well, like you're a startup, so like, you know it's gonna take longer.

Yeah. And that's the type of job loss that I literally think every, every single person at a startup who gets stuck with that operational role is like, I wish I could have been on strategy, I wish I could have been on product, I wish I could have been on sales. There's no one who's like, oh yeah, like, you know, at my startup, I loved being the guy that had to set up payroll. Yeah, it's like, good. They make it doable, but it could be so much better.

And so the Warp team, the payroll product, they had been working on a totally different app, a consumer mobile app. And then they had so much annoyance setting up sort of tax jurisdictions around because they had a lot of remote employees that they were like, okay, we're just going to create a payroll product that just does this stuff automatically.

Did you know that three of the top ten most valuable private Y Combinator startups are payroll providers?

Rippling Gusto and Deal. I never knew about Deal.

Yeah, all three of them. I looked at it and. So should I start a payroll provider?

Yeah, I mean, like, seems like there's.

Like free money for a while.

Yeah, both, both Mercury. You know, we talk a lot about, you know, some dominant wins from Founders Fund, of course, and then Sequoia. But both Mercury and Deal were seeded and the series A by, by Andreessen. So these are huge, huge windfalls for the firm. Andreessen did the Mercury seed round and then they did deal at, you know, mid double digits post. And that deal now is, is just this absolute.

Yeah, they just had a, they just had a monster. Like, did their quarterly financials leak?

I think they just announced that they're doing like 800 million of ARR, which is just like, you know, insane.

A lot of money. Well, the funny thing is not only are there like three or four dominant startups that are essentially scale ups at this point, like in the, in the multi billion unicorn Decacorn range in payroll, there are also like three to four public companies that are in the like tens of billions range. And then there's a couple like Power Law winners that are even bigger. It is such a big market because it's just so much. It's just all the money flowing around from everyone getting paid and you just take even the tiniest slice of that and boom, huge company. And so yeah, I'm going to look up. Why do, why do bank robbers rob banks? Because that's where the money is. And it's so hard to get money out of, out of different parts of the organization. But, but when it's like yeah, we pay our employees, our payroll cost is, is, you know, 10 million, 100 million a year. Sure. You're going to make that easier. Take 0.1%. No problem.

Yeah. So just to give you an idea of market size, so one of the biggest players in payroll is adp, which stands a great acronym. Automatic.

Looking this up.

Yeah, I'm on, of course I'm on public. It's Automatic Data Processing and they have 20 billion of TTM revenue and over almost 6 billion of EBITDA. And I don't know a single company who uses like I've got 50 plus companies in my portfolio. I don't know a single one that uses adp. And so it's just very obvious.

I know who uses adp. It's like Disney.

Yeah, sure, sure, but, but these companies are like cable in the sense that totally you have a bunch of subscribers, you know, contracts locked in that probably will never return. But then eventually the flings and the deals and things like that.

No, no, it's a fantastic industry. Fantastic. It's just, it's just a very interesting industry. We should do a market map. Yeah, maybe we should collab with, with our girl Justine. Well, let's move on to our next big funding announcement. FAL has raised 49 million Series B. I thought they were talking about the Belgian made Battle Rifle, the fal. But this is a generative media platform for developers. I was excited. 49 million. That gets you a lot of fails. Enough to arm a small militia, potentially take over Silicon Valley. But these guys are taking over Silicon Valley using AI. We love to see it the non violent way. Let's go to Todd Jackson, he says rocket ship is an overused term, but it's hard to come up with another way to describe false trajectory. Going from 1 million to 40 million in ARR in one year is more vertical line than hockey stick. Their crazy focus on performance and reliability have meant that they've built what developers and enterprises actually need to deploy. AI driven media creation at scale. Handling over 100 million inference requests daily with 99.99% uptime. That's why companies like Quora, Canva and Amazon Ads rely on their platform for image generation and why the founders are perfectly positioned for the next wave of generative video. Their recent AI video starter kit, an open source in browser editor for AI video linked below, was the first of many Cool launches they have up their sleeve this year. First round had the chance to back this team at seed and is the team that saw where the puck is going and furiously built ahead of the curve. This time next year even these numbers will look small. So a little bit of the Glazinator 3000 coming out for the Portco. But we'd love to see it.

Hey, I mean you can fair game to do a little to pull out the Glazonator if you, if you're.

When you seated a company and they raise a 50 million dollar series B, pull out the Glazenator. Let's go.

I, you know I once put, I had my first portfolio company go to 0 to 100 million of annualized revenue and I that I got in like sub 20 post.

Yeah.

And I posted, I posted that. I didn't say say the portfolio company name but I posted that it was more meaningful to me than like holding my child for the first time. Like obviously just like baiting people and like nobody got the joke. Like everybody was just like congrats man. Like that's amazing. And then like couple quote tweets that were like this technology brother says that like getting like you know, a nine figure revenue, you know, Portco is, is better than you know. So anyways, for the record, that's great. That was a joke. But yeah, anyways, fantastic, fantastic progress. So we had a debate in, in our, in our, in our group chat with, with some former brothers of the week about you know, what happens to these companies that go from 0 to potentially 100 plus million of ARR in, in this super, super, super short period of time. You see like companies like Cursor fouls on that trajectory. Lemon Labs, Mercore, all these businesses. And there's a lot of reasons that you could be short these companies. But in general I'm very like very bullish. Right. It's, it's very hard to get people. It's very much easier to raise venture capital than it is to get customers to send you payments for your product. Right. And people are clearly paying for these products. They're using them, they're integrating them into their businesses. They're getting a lot of value out of them. One thing that I did think was let me try to find pull up that.

Well, you pull that up, it just feels so. Yeah. One of our buddies said, you know, the iron law of anything that goes up quickly must come down quickly. It's very pithy. It does, it does make some sense. But all of these revenue numbers just, just really make it clear that although the valuations feel like the dot com boom, although AI feels like a potentially even bigger transformative technology than the Internet, and we are in another kind of transformation bubble, there's going to be asset bubbles when we're transforming technologies and rolling out an entirely new technology. The nar like the actual fundamentals of the business are just very, very different from the dot com boom where it was like, oh, you put up a webpage, you got 100,000 users and now you're ipoing like that was what was going on in the dot com boom. Now it's like, well, yeah, there's some private capital at risk and maybe you're overvalued, but you really did get $100 million in revenue. You know, hopefully a lot of that's sticky now. Some of it slosh around other products as people roll stuff out. But I don't, I'm not counting on, you know, if you're with cursor, are you really going to go to Salesforce? You know, no, it's like you're, you're probably going to be pretty happy with that product and stick around.

Yeah. The exact line from Jeremy Giffon, who's not entirely bearish but is interested to see how these plays out because he'll be in the position to buy the companies that maybe build good businesses but don't truly grow into their valuations. He said easy come, easy go is the iron law of the universe. And so if it's not that it's easy to experience this level of growth, but it certainly happened quickly. And so that could imply that other people will be able to achieve similar things and maybe end up being competitive. But you're totally right. In the dot com era, companies were going public with single digit millions of dollars of revenue or less, getting valued at billions of dollars. And this is certainly far from the case. And the other thing that's good is these are experienced private market investors that are risking their capital and their LPs capital. And so if these companies don't grow into those valuations, it's not necessarily retail investors that are going to be holding the back.

I mean, even, even during the SPAC boom, some of the, some of the companies that went SPAC had worse financials than a company like fal Here, let's go through this company a little bit because I didn't know that much about them, but there's a nice article here in Fortune that breaks it down. FAL stands for features and labels. You know, these guys are developers. When they name their company something like that. A machine learning term referring to input data.

It's like ADP Automatic Data Processing.

Yeah, or IBM International Business Machines. Great name, but why not? And I don't know fal. That's cool. But there's another layer. FAL is also a Turkish term for Fortune telling the startup's co founders tell me it's a good Easter egg that's there. We have a lot of Turkish employees and it's fun when they notice the founders are both originally from Turkey. They first connected in the early 2010s in San Francisco. They both worked in AI and machine learning at tech companies. One was at Amazon, the other one was at Oracle, then Coinbase and they became longtime friends. In the dead of COVID the two were in the same bubble in Palm springs talking about AI. They founded FAL in fall of 2021, looking to provide developers with a platform and acumen to more readily use generative AI models for image and video generation. We made an early bet to position ourselves as just focusing on generative media as opposed to many others who were very excited about LLMs. We basically left the labs behind and specialized in image, video and audio type models. The company has been in the midst of rapid make sure hands and feet are inside of the vehicle growth and now has 22 employees and 22 employees. That's so small for how big they are. This is fantastic. Only four months after announcing its Series A, the startup has reached a new milestone a $49 million Series B. Notable Capital led the round with Andreessen Horowitz and Ben Bessemer is in Kindred First Round Capital participated with the deal. A16Z general partner Jennifer Lee and Notable Capital managing partner Glenn Solomon will join the board. If you're new to generative AI for images and videos, the most important thing you should know is using these models can feel infinite. You can rapidly generate impossible videos and images from golden astronauts in space to penguins playing instruments. And while this sounds aesthetically cool but fundamentally abstract, we what the founders are seeing is that businesses are starting to actively want to use this tech. They currently serve north of 50 enterprises including Quora, Perplexity and Canva. And Perplexity CEO who's been on the show before. He is an FAL investor. Fortune has a business partnership with Perplexity so little one hand washes the other on this article. I like it, I like it. Yeah, pay the bills, Fortune. Get it done. The use case are both legion and specific. Good writing too. With some startups building applications on the platform where other companies are focusing on AI generated avatars for training and education. Design Super Unicorn Canva has been using FAL as it develops and integrates its AI powered editing tools. The use cases are very broad, much broader than I think initially expected, said the investor at Notable Capital, Dan Kahana. You play with these models and it's fun. You send them to your family and you blow your grandparents minds with it. But as you spend more and more time, you realize this totally changes focus. Editing, architectural design, fashion design, all sorts of creative disputes. Again, we're talking about the Centaur model, talking about the human partnering with the AI. There's a ton of ways that you can do this with generative fill. This has been baked into Photoshop, but not everyone has Photoshop in their pipeline. And oftentimes if you're just trying to generate a bunch of ads or you know, you're trying to give something to a user. In Canva, you want something that's a little bit more, a little bit more baked into your ui, a little bit more seamless, a little better for the workflow. And this is a tool that can be integrated, so very exciting.

One of the things that, one of the things that's clearly happening here is, you know, you'll oftentimes get the advice of stay small. You can move a lot faster. Right. As soon as you start bloating your organization and there's more people that need to sign off on different things, everything just slows down. And so in, in, in their situation and Cursor situation, Cursors, I think right now has like 5 million of ARR per employee. Right. So it's like pretty like best in class. Um, and so part of what's happening is all these new AI tools that every developer now has access to. They're able to use, you know, them to build faster and just hire less people, which also helps them build faster. Right. By just keeping the float down in these organizations.

Totally.

It's just fantastic to see. I think Paki actually had a great piece. We should dig it up and cover it because I think it's starting to play out, which is that he predicted that, you know, as these tools get efficient and one person can do the job of five other people, it just frees up talented people that just do more things. So before you might have had a hundred people building one company, now you can have that same hundred people building five companies. All that could be as big as the original company. Right. Just due to that sort of efficiency increase. So we're just Seeing more and more of these stories, like, I don't know, I've never been, I've never experienced a time where we had this many new companies ripping from zero to double digit, you know, millions of dollars in ARR. And so it's, it's, you know, just fantastic to see.

Yeah, yeah. And the products are clearly real. Obviously there was, you know, a similar boom during the crypto boom in 2020, 2021. But there was always a question of like, is this really a durable problem or are we just speculating with this? Sure, the stocks might be a little bit frothy, who knows where the valuations land, but you know, when I open one of these apps and I use Generative AI to edit a photo, I'm getting real value out of that and I love that. And I think that's going to stick around for sure. Anyway, let's move on to our next fundraising announcement. Harvey has raised $300 million from Sequoia in a Series D. Winston Weinberg says on X. Excited to announce our Series D led by Sequoia with participation from Conviction, Kleiner Perkins, OpenAI GV Team, Conviction, Elad Gil and LexisNexis. LexisNexis is an interesting one because they have all the data that you'd want to train on. Let's go through the announcement here. Today we are thrilled to announce our series D. In 2024, we saw 4x annual recurring revenue growth and expanded from 40 customers to 235 customers in 42 countries, the majority of the top 10 US law firms. So that means six at least of the top 10. That's pretty huge. And I'm sure they're paying a pretty penny for this. We've also seen the legal and professional services industry shift faster than ever before. Lawyers are adopting technology at an unprecedented rate. Centuries old firms are experimenting with new business models and enterprises are driving significant savings with AI enabled workflows. The pace of change will only accelerate in 2025. Very cool. Have you seen a lawyer use Harvey or has it been revealed to you? What's your take on Harvey?

I haven't yet. I. One of my neighbors and our in our counsel for TVPN is at a fairly large law firm. Wilkie and I started asking him as soon as Harvey was like on the map, you know, already. They quickly came out the gates and raised, you know, a few rounds back to back. They're already at their Series D. I think it's a 2ish year old company, maybe a little bit more. They so I Started asking him, have you heard about this? Have you seen it until like nine months ago? Hadn't. Hadn't heard about it, used it, anything like that. I actually should. I'm not going to text him this moment because he's on paternity leave, but I'm sure they're already having conversations with the firm. Even like six months ago, there was people fighting Harvey on the timeline. Oh, I don't know a single lawyer that even knows about it or like, who's using this, blah, blah, blah. Hard to fake this, right? Hard to have the majority of the 10 largest law firms in the US using your product. So they're clearly crushing it. I think that some of the best applications of generative AI are the most obvious, right? You look at the legal industry where every small thing costs hundreds of dollars, even if it's just using boilerplate contracts. And so this was just such an obvious application, but it took a ridiculously talented team and extreme focus to actually get it to this point. So I'm sure there will be. What hasn't been obvious yet is in the generative engineering coding space, there's so many heavily funded big players, everything from Cursor to Devon, which are taking different approaches to Windsurf and Poolside and all these different companies, we haven't seen the same thing play out in legal AI. There certainly are. Cool. There are a number of legal AI companies, but none that seem to have the momentum and this sort of potential power law effect of Harvey now has hundreds of millions of dollars to deploy against this problem space. And again, I don't think this is the kind of thing that law firms are going to want five or six tools. They're also not the kind of thing that engineers can more organically adopt software. I don't think this is going to be the same type of situation just because it's such a privacy oriented industry and so heavy around regulation.

So I have a theory that I want to run by you and kind of spitball and work through. There's always this question of, okay, yeah, the company's doing well. They got more than half of the top 10 U.S. law firms. But what is so capital intensive about this? And there was a big question about should they be raising a ton of money and training a new foundation model, because at a certain point, OpenAI is spending $500 billion on Stargate to train GPT6 or GPT5 is coming soon. And can you, if you're in a narrow niche, like a vertical software niche in AI, afford to train a new model. And I don't know that they are, I don't think that they need to necessarily. I think a lot of what they're doing is post training, not pre training, not the really expensive training runs, more of the fine tuning. But then the question becomes well these companies are making money, they don't have that many employees. Why are they raising so much money? And I think for these very specific niche AI companies it could be driven by a need to do deals and essentially pay for access to data that's not widely available on the open Internet. And, and there's actually a case that we can go through. But what's your take on that theory that hey, maybe you need a lot of money because you need to go the license and get the data legally and bring it into the LLM and that's the value add.

I think that that's, I'm sure a, you know, percentage of this fundraise will be used to do that. That said, I would guess that it's this, that this was more oriented around Sequoia wanted to own another 10% of Harvey and or you know, there's a mix of investors in the round but it's more around hey we're in the position where we can do another financing. We're only willing to sell 10%, you know and we just figure out what the number is. Okay, 300 on 3 billion. Right. And so I don't think at when a company raises this much money so fast, sure they have to have a plan for it but of how to deploy that capital. But oftentimes it just comes down to you know, we're willing to sell 10% of the company right now and then the market sort of sets the price. Right.

Interesting, interesting. Well I, well we should go through this Thomson Reuters vs Ross intelligence case. Ben Thompson broke this down on Stratachary yesterday and I thought it was very interesting to understand how data and fair use are being used in these AI training. So Reuters, which is funny because they're the ones in the lawsuit but they're also reporting on it. Another one hand washes the other. Situation reports A federal judge in Delaware on Tuesday said that a former competitor of Thompson Reuters was not permitted by U.S. copyright law to copy the information and technology companies content to build a competitive a competing artificial intelligence based legal platform. U.S. circuit Judge Stefanos Bebos decision against defunct legal research firm Ross Intelligence marks the first US ruling on the closely watched question of fair use in AI copyright copyrighted litigation. And so Ross Intelligence was using Thomson Reuters headnotes as AI data to create a legal research tool to compete with Westlaw. It is undisputed that Ross Ross's AI is not generative, wrote the judge. And so this isn't. This is a pretty important distinction. Ben Thompson argues that Ross Intelligence was building a legal research tool based on natural language processing to enable plain language search queries that would deliver relevant court decisions. This tool was direct competitor to Westlaw, which is owned by Thomson Reuters. Here's the key aspect of the case which does have a bearing on Generative AI. The product itself did not violate Thomson Reuters copyright. Rather, the judge ruled that training material that Ross Intelligence used to develop its natural language search functionality did. Specifically, while Thomson Reuters refused to give Ross Intelligence a license to its headnotes, which summarized a case and key number system, the numerical taxonomy it used to organize cases, Ross Intelligence did use a company called legalease to generate its training data. And Legalese is alleged to have basically copied Westlaw's headnotes. And so the reason why this is pertinent is that assuming this case holds up through a jury trial and any relevant appeals, it establishes the precedent that using copyrighted data for creating a product, even if that data is not in the final product itself, does lead to potential liability. This is also precisely why this case might not hold up. There's two other cases, and eventually it's going to go to the Supreme Court. And so it squares the circle in generative AI cases, but not if the problem was the training data. It seems to me that the entity that violated the law is Legalese, not Ross Intelligence, which, by the way, has long since gone out of business because of this lawsuit, which is funded by insurance. Regardless, I wouldn't read too much into this or any other case just yet. All of this is going to need to be resolved by the Supreme Court at some point or Congress. And so this is interesting because there's been this debate over, oh, OpenAI is scraping YouTube or they're scraping, you know, there's all these allegations scraping the New York Times scrape. And then there's the question about, is it transformative? And what is fair use? And so, you know, if you're just. If you're just a, you know, a buzzfeed reporter, even a podcaster like us, we read. I'm reading Ben Thompson's article right now. I'm like, stealing his content.

You're generating it. You're generating content from it.

Exactly. I'm reacting to it. And so in theory, this is. This is. This is fair use. Now the question is, is the output of these labs is usually transformative because it is new sentences and, and as long as they're not dumping direct quotes out, it should be fine. But there's a question about can you scrape someone's and can you use their, their, their, their content as, as training data? And this is something that's such a fascinating. Clearly there was no legal basis for.

It because you know, you look at the historical precedent of anybody just physically walking into a library, reading books, pulling out quotes, using that material to make other things.

James Cameron.

Yeah, yeah, yeah, James Cameron. And then suddenly when a computer does it, oh, whoa, whoa, whoa, whoa, whoa. Can't do that. And so we've taken the other side of this. We've said, I'm sure OpenAI is listening to Live Stream right now. I'm sure they're just actively feeding this into their models. But we encourage it. Right. We're trying to make the models have our extremist beliefs. And so it's actually influencer Shoggoth. Yeah, it's part of our strategy. But you know, it is interesting. You know, the other side of this is that for a long time companies were able to monetize their data, you know, very effectively on like a per user basis. You know, paywalls, enterprise contracts to access that data. I have a buddy who has like this fantastic media roll up company and he charges millions of dollars for big hedge funds to get access to that data and other policy makers and things like that. And so it is this really interesting challenge of like what happens when the.

Data USAID or what happened.

I pressed him on that Monday, I said, you know, how you doing, bud? Our hands are clean. But the New York Times can't say the same thing. But Politico, Politico is the one. Yeah. So anyway, it's just this interesting challenge of, you know, even startups will tell you, yeah, startups have long included not usually that compelling aspect of their pitch, which is we're going to have so much data and that is going to be valuable inherently. And what's happening now, I think is that you need to take the data that you have and of course you want to protect it because if it's part of your monetization strategy, but it's coming down to, it does seem like on a long enough time horizon, the walls on all data that's shared online are going to drop. Right. Because, and clearly that's how easily it.

Can be scraped because some, some data, I mean if you're talking about like health care financial records, like these are truly Locked down. Yeah, sure, there's hackers that break stuff open every once in a while to get a list of passwords or Home Depot receipts or Walmart stuff. But like, in general, there have not been massive leaks of, of really super proprietary data. And certainly once it leaks, it's on the dark web. Like as a company, you are not just going to be like, yeah, let's ingest that. Whereas, yeah, sure, you might write a bot that scrapes the Internet like Google does. And then there's a legal question of is that okay or not and how can that go into pre training?

So an interesting scenario that I'm sure Harvey is in is, you know, law firms themselves generate so much data, right? And some of that, some of that ends up becoming in, you know, in like public right through, you know, cases and stuff like that. But then a lot of it is highly confidential, highly private, private. And if you're a client of one of the companies that Harvey works with, you don't necessarily want your internal private legal documentation to be used to, I guess you could argue, oh, it doesn't affect you if they train on your stuff and allow other people to reproduce documents, you know, to solve, you know, similar legal issues. But at the same time, there's like a bunch of. And I'm sure, but. But that said, I'm sure Harvey does some deals where it's like, this is going to cost you $5 million a year, but if you allow us to train on the full set of your law firms, 50 years of internal communications and things like that, then we can sort of discount it or who knows, right? It could just be built into there. Don't have any inside knowledge there.

Yeah, it's fascinating to follow. We'll have to dig into Harvey more, understand how they built the business. I mean, the OpenAI startup fund is in this deal, so obviously they're working closely with OpenAI. At the same time, Sequoia is, I think, writing big checks into xai and Grok is now going to be able to leave relatively light legal opinions. I think that was announced. And so there's always a question about, like, legal aids for consumers versus, you know, an enterprise product that integrates with truly proprietary data. Harvey's clearly taken the latter strategy, but it looks like it's working out. And congrats to the team over at Harvey. Seems like you guys are crushing it. Well, let's move on to more AI news, but this time on the energy side, there's a great article in chinatalk all about the transformer shortage. And we're not talking about the transformer architecture, we're talking about literal physical transformers. And the transformer shortage is choking the US Supply chain. If Trump wants to build, he needs an industrial policy for transformers. It doesn't matter if you want to build housing, data centers, renewable energy installations, EV charging stations, semiconductor fabs, or drone factories, you need transformers for all of the above. Not even the fossil fuel industry is exempt from oil and gas drilling. Both require special transformers to supply power to rig machinery, compressors, refineries, and more. I was talking to, I mean, there are nuclear power companies that want to deliver nuclear power to oil and gas drillers so that they can get more power to run their tools. People don't realize that you need a lot of energy to get the oil out of the ground often. And so these transformers are really key. And I haven't heard of any companies building these, so I thought it'd be an interesting deep dive. So technologically speaking, transformers are relatively simple. They were first invented in the 19th century, and yet the inability to build transformers is causing US industrial policy to short circuit. In the words of the utility resource planner AJ Pandey, the transformers shortage is bad. It's like hair on fire, biting my nails, losing sleep, levels of bad. If you wait to, if you, if you build new multifamily housing, you could be looking at a two and a half year wait for a transformer to supply the building. And that's if the manufacturers are even accepting orders. I had no idea. The Trump administration has ambitious plans for AI infrastructure permitting reform and offshore drilling projects without transformers. However, the US is destined to remain a build nothing country, no matter how many billions of dollars the federal government dishing dishes out. So how did it get so bad? And that is an interesting question. COVID 19 impacted transformer supply chains, but a confluence of several demand side factors extended the shortage. First, the US grid is aging. We know this. Transformers are typically rated for 40 years of service, and much of the US grid is reaching the end of its allocated life. And so just replacing and upgrading existing transformers is driving a ton of demand. Second, overall, electrification is increasing nationally. Americans are using electricity instead of natural gas to cook their food, heat their homes, take hot showers, and this trend is effectively irreversible. And third, and most, and perhaps most obviously, scores of new renewable energy projects and EV charging stations require transformers to come online. Newly leased offshore drilling projects will have a similar effect. And so we want to do more with transformers. And yet the supply side is not keeping up. And so the niac yeah, yeah. The children, the children.

We need to get children to stop playing Minecraft and start mining coal mines. They clearly yearn for the mines. Let's make them. Let's make them productive.

Yeah. The answer is clearly a steampunk future with me on an airship, twirling my mustache, powered by coal and steam. Steam revolution. That's the end. That's the end goal for sure.

Back to blimp. Back to blimps.

Yeah, blimps for sure. Yeah. I saw a fantastic photo of the Hindenburg docked at the Chrysler Building. Incredible. Or maybe it was the Empire State. Like, it's so ridiculous. It just looks so cool and futuristic. But at the same time, I think it's more like. I think blimps are more like unicycles than anything else, where it's like novel. But then there's so many drawbacks that it just doesn't make sense. So I think I'm anti blimp, anti train, and I just want supersonic jets and rockets, really. Anyway, the NIAC identified four structural supply side challenges in a report released in June of last year. Labor shortages. The US does not have an effective pipeline to train and retain the manufacturing talent. We've seen this in so many different industries. There's historic industry cyclicality. There's been a strong correlation between transformer demand in the housing market. And so when the housing market took off in the early 2000, transformer production followed. But then when the market crashed, caused many manufacturers to exit the market. There's also a lack of standardization. It's difficult to efficiently scale up production without a with a custom product. And so utilities are very specific about their transformers. There's no standardization, really. Every utility has its own specification. If you're a small utility, you're asking for a very, very small batch of this very bespoke thing. And there's also a material shortage. Transformers are made with grain oriented electrical steel. G O E S. Never heard that term before. Glad to know it now. But there's only one domestic manufacturer who is unable to meet demand. Contributing factors include the destruction of the Azovostal steel plant in Mariupol and sanctions against Russian steel producers. Rising demand for non oriented electrical steel, a key ingredient. EVs that comes from the same manufacturing facilities will also increase supply tension. The net result is that domestic supply can only meet 20% of transformer demand. And transformer prices have risen 60 to 80% since 2020. Not good stuff. Should we go into physical attack? This is a great one. So crazy.

Crazy.

A 2014 analysis by the Federal Energy Regulatory Commission. The FERC identified critical high voltage substations in the national grid and predicted that losing just nine of these substations as the result of a coordinated attack could cause a nationwide blackout lasting for weeks or even months. And so this is your call to action. Become a prepper. Get a, get a generator, a gas, a diesel generator. Get a battery pack, get a starlink. You know, if you have a family, you should be investing in this stuff because the power grid is sadly very, very fragile. That report is 10 years old. But according to an NPR interview with Richard Moroz, former president of the New Jersey Board of Public Utilities, the situation today is not substantially different. Knocking out those high impact facilities is probably harder than everyone would think. But he did not say that the underlying grid infrastructure had become less centralized. What kind of security measures are in place to protect these high impact facilities? According to Politico, protections include armed security staff, bullet resistant fencing or video monitoring. But these measures may not be enough to protect against a major blackout. In 2022 alone, there were a total of 1600 security incidents involving the US power grid, including 60 incidents that led to outages. Notable cases include the 2013 Metcalf sniper attack and the 2022 attack on substations in Moore County, North Carolina. In both cases, the perpetrators were never caught. And so basically people just go and buy a sniper rifle or a long range assault rifle and then they just take pot shots at the substation. And if they hit any critical piece of the, in the chain, one wire, one bolt, anything, it can knock out the entire grid. It's like an extremely high leverage terrorist activity for a crazy person. And they could have any sort of motives. They could be left wing, right wing, they could be international.

It's like one person, a $300 rifle and potentially millions of dollars, you know, or you know, God forbid, billions of damage.

You think about the arson that happened in LA and the potential for that. Like, there are a lot of people that want to have like a high leverage terroristic impact. And, and these electrical substations are sadly one of the most high leverage place to have something.

Little anecdote, little anecdote. My mom was buying a condo and was in escrow and they were waiting on a transformer to be able to power the building. And it dragged on every single day, every, every single week. They'd say like, hey, we're expecting this, like in the next week. Just dragged on and dragged on and dragged on actually for months. And she eventually just bailed and bought another place because she was like, I'm not just going to keep waiting around for this thing that who knows when it's going to come basically. So actively slowing down various aspects of the economy.

Yeah. I wonder if I can find this Will Menitis tweet. I know he's talked about it. Transformer. Yeah, this is it.

He.

He tells the story of Metcalfe here. We should just read through this because it's so interesting. 26k likes it's a banger, folks. On April 16, 2013, a team of highly skilled gunmen opened fire on the Metcalf power substation in San Jose, California. In just under 10 minutes, they disabled 17 transformers and caused $15 million in damages. This is the most important terror, terror attack you've never heard of. Quick thread. The PG&E Metcalf station provides most of Santa Clara Valley with power. Facebook, Stanford, etc are all on this grid. The attackers are still unknown, they were never caught and the motive is still unknown. This is so crazy. It sounds just like complete conspiracy theory because of course when you don't have an answer, you're just going to generate theories and who knows, they're gonna be hard to verify a timeline of the attack. But all this is like, this is factual, like facts. It's just no one knows how to piece all these facts together. At 12:58am in the middle of the night, fiber optic lines were cut not far from the US Route 101 just outside the South San Jose. Just just outside of South San Jose, the substation loses Internet and phone service. At 1:07am Some customers lost service cables in its vault near the Metcalfe substation were also cut. 1:31am A surveillance camera pointed along a chain link fence around the substation recorded a streak of light that investigators from the Santa Clara County Sheriff's Office think was a signal from a waved flashlight like, I'm ready to go. It was followed by the muzzle flash of rifles. At 137am PGE received an alarm from motion sensors at the substation, possibly from bullets grazing the fence. At 1:41am Santa Clara County's Sheriff's Department received a 9911 call about gunfire sent by an engineer at a nearby power plant that still had phone service. At 1:45am the First bank of transformers riddled with bullet holes and having leaked 52,000 US gallons of oil overheated, whereupon PGE's control center about 90 miles north received an equipment failure alarm. At 150, another flashlight signal caught on film marked the end. More than 100 expended 762 by 39 millimeter cases were later found at the site. At 151, officers arrived and found everything quiet. Unable to get past the lock fence and seeing nothing suspicious, they left. In the subsequent investigation, it became incredibly clear how professional of an operation this was. Of the 100 shell casings found, all had been wiped clean of fingerprints. There were also stacks of rocks found all over the site, commonly used to gauge firing distance. So they went, they measured, they put down rocks. This rock means we're 200 meters away, 200 yards away. And so you need to adjust your, your, your dope accordingly, essentially.

Yeah.

They knew where to attack. Yeah.

Just to kind of get into who might potentially be the culprit. If you've ever. Anybody that listens to the show, that, that follows Josh Diamond Steinman. I knew you were gonna say notorious for saying, good morning. We are gonna win almost every day. And then also, anytime something like this happens, he'll, quote, tweet and say how many US or how many foreign sabotage teams are operating on. And so he was within the 2016 Trump White House, working on national security, has a military background. And so he had actually a lot of exposure. A lot of times these attacks happen and the government figures out what happens, but they don't necessarily deliver that to the press and the media because the government doesn't want the citizenry to feel like they're constantly under attack or they're sort of, sort of these, these missions being carried out. But it's very, you know, something like this, to me, screams like foreign sabotage more so than such a professional job. Who else would really have the incentive to do this other than, you know, foreign adversary that just wants to cause chaos, you know, us and test things? Right.

So, yeah, yeah, totally. I'm. Yeah, I'm staring at the tinfoil hat. It's just out of reach. But I mean, just thinking about, like, if me and a bunch of guys wanted to go do something in a foreign country, could we get there on a tourist visa, overstay that visa, start acquiring weapons? There's a million weapons all over America. You go to some gun shows, buy some stuff, figure out some back routes, buy all the gear, plan all this out? Like, this does not seem like, you know, like a moon landing level effort. This feels like a couple guys from a pretty sharp team putting some work in, some planning, and then going and executing it with, you know, a couple months of prep, and they get a pretty crazy outcome. There's been A lot of conspiracy theories about whether this was, you know, a test of the system or an attack from an adversary or maybe just political extremists who are, you know, Americans and they, and they, and they want to cause chaos for one reason or another. It's hard to say. But the important thing is, yeah, it's.

A relevant repost from Bill Ackman who reposted within the last 24 hours from his account that has 1.6 million followers.

Wow.

If you are not a conspiracy theorist by now, you are basically the R word. And so a little clean it up, remix it to be, say, yeah, if.

You'Re not, what would your mother say?

Silly. If you're not a conspiracy theorist by now you're just silly. That hits pretty hard to. So mix it up.

I have long said that conspiracy theories, like if it's a conspiracy theory and it comes true, it's just history. Like 9 11, the. The default narrative on 9 11, which is that bin Laden determined to attack. That was a conspiracy theory. Let's define it. Was it a conspiracy? Absolutely. It was a bunch of guys in far off land literally conspiring to attack America. And then the second question is, was there a theory? Absolutely. Because the CIA wrote a memo theorizing that Bin Laden was determined to attack. And so the CIA basically said, hey, we are in the business of, of crafting theories about conspiracies. We think we are onto a conspiracy. And then it came true. And so now it's just. And now it's just.

Yeah. So if you actually.

And so ignore the theory.

Ignore the theory as the definition of a conspiracy is a secret plan by a group to do something unlawful or harmful or the action of plotting. So anytime, anything, whenever something happens, it's usually because a small one or a small group of people plotted to do something. Now you don't know.

Opposite is when you're, when you're building in public or when you're invading a politician and you're on the campaign trail and you say elected, I'm going to cut taxes or I'm going to raise taxes and then you do it. That's not a conspiracy. You did it out in the open. You said you were going to do something and it wasn't unlawful. The Tesla secret plan. That is not a conspiracy. There are conspiracies that happen all over the place, but not everything is conspiracy. But sometimes there are conspiracies that happen. And if someone is onto it ahead of time and has a theory about it, it is technically a conspiracy theory. And so we almost need a different word to denote a conspiracy theory that you think is wrong versus a conspiracy theory that you think is correct. Because obviously there are two paths that these things can take.

We keep a tinfoil hat on the set. It's usually within reach of me. And you're a good counterbalance to me because I'll have some crazy theory and you'll be like, oh, you know, seems complicated. You know, could be a lot more simple and, you know, less nefarious than that.

Yeah, I usually just like to go back to like, you know, is there some sort of market pressure? Does this conspiracy theory require me to suspend the idea that people are rational economic actors? Okay, that's going to be a lot harder. But when you look at this, it's like, you know, if you're. If you're a country that's competing with America and you can send a group of five dudes over to America and just wreak some havoc for, you know, what, 100k in flights and gear.

Yeah, there was.

That's going to be great roi. And so that's. That doesn't break my world model to consider that this might be foreign interference.

A lot of the moms and wellness girlies in LA had heard that Iran had posted like a day before the fires, which they always post. They always post. They always post their posters over there. And they had posted, you know, in the coming days, the United States will experience a, you know, catastrophe. The world will experience a catastrophe the likes of which it has never seen. And then as it became obvious that there was arson happening and these fires didn't all start organically, then the conspiracy theory windmill started turning. But then, since then, we've established that, you know, it was arson, but we still don't really know what happened, who did it, what the motive was, Was it mental illness? Was it homeless people? Was it, you know, they just got away with it?

I don't know if we'll ever know. Like, this is 12 years ago at this point, and there's no evidence. There's nothing to go off of. There's no threads to pull. It's like, you know, they've already. They got the shell casings. There were no fingerprints. What are you going to do? Anyway, there are other problems with the transformer shortage. Mainly. One is that a lot of these transformers come from China. $54 billion exactly in 2022. In 2023, China was the USA's third largest supplier of transformer components by value, selling American customers 375 million worth of parts, electric parts of electrical transformers, static converters only. Mexico and Canada outranked China by value. Chinese made components components represent 15% of America's imports in this category. This might not sound like much until you remember that this calculation is by value. Since the exchange rate is kept artificially low, China likely provides a disproportionate volume of these components compared to other trade partners. The picture gets worse when you consider imports of whole completed transformers. The OEC reports that China was the USA's number one supplier of transformers and transformer components in 2022, exporting 5.47 billion worth of product to the USA. And so however, for the large power transformers that are most critical, China is the sixth largest exporter. So it's not all bad news, but it is very rough. And you could see that this could become a one of the poker chips on the bargaining table in the tariffs. We're restricting chips, but chips aren't the only thing we need to build these AI data centers. If we want dominance in artificial intelligence, we need transformers too. And if China cuts us off, that's going to be, that's going to be a significant setback. So lots of, you know, we never talk about politics, but geopolitics always finds a way in with these stories. So let's, let's wrap up the transformer discussion and, and see how they close this out. By supplementing the 2020 Transformer Executive Order with real industrial policy, the Trump administration has a huge opportunity to jumpstart the construction of housing, factories and energy infrastructure in the United States. I love the sound of that. I think that should be bipartisan. We all want to build more stuff to close. We'll leave you with a full list of policy recommendations from the National Infrastructure Advisory Council, the niac. They recommend that the federal government craft policies and designate funding targeting at increasing domestic capacity. They want to use the chips act as a model. They recommend convening all parties who drive demand to achieve greater accuracy in transformer demand capacity forecasting. So everyone who's buying transformers, let's get them all in a room and let's say how many transformers do you actually want? How many do you need? Stargate? Like how many, how many transformers do you actually need? Crusoe, let's, let's get, let's get you in here and see so that we have an accurate plan of what we need to build domestically, how important are the tariffs, etc. They recommend encouraging long term contracts and customer commitments. They recommend establishing strategic reserve of transformers with the US Government as the buyer of last resort. And they recommend that the government promote collaboration between design engineers from utilities and domestic manufacturers with the goal of standardizing transformer design and reducing complexity. And so there's a couple others here. But basically you need to grow the qualified, grow the pipeline of qualified workers in the transformer manufacturing industry and also ensure sufficient supply of electrical steel by coordinating incentives. So a lot of work to do on industrial policy there, but hopefully green shoots ahead. What you got?

I got a good transition to some actually breaking news from the Re Industrialized Summit. Aaron slowed off and Austin Bishop actually just sent us this while we were live. They just announced reindustrialized 2.0 is returning to Detroit. So if you don't know, Reindustrialize is a basically conference to get all the different policymakers, investors and founders together in a single room to figure out how we're going to re industrialize the United States. Right. This is one of the top sort of national security issues of our time. And it's going to take. My hotel is calling me to kick me out of the room. Hopefully it's not too loud. But anyways, really exciting event. They did it last year, was a huge success. They have people like Dan Gilbert who was, you know, started Rocket Mortgage and owns a cabin and as part of StockX and he's going to be hosting it. So they're going to, you know, pull out of the stops. It's going to be an amazing event. There was a lot of good stories that came out of it last year I was having my second child literally the same week that it was happening last year.

I think you were.

So we both couldn't go. But we'll have to go there this year.

One of the guys who's working on it, Mike Slay, I went to his previous conference, the Defense Tech Ventures Summit in dc. That was fantastic. Really well executed. I gave a talk on stage. The mics work great. There were tons of cameras. All my slides were up. They look great. It was a lot of fun and a really great community. And really top founders went and so highly recommend checking out Industrialize, signing up, getting on the list, massive demand. And I'm sure it'll be a huge, huge event. Hopefully we can get out there. But if not, I'm sure we'll be live streaming it and reacting to the show as it goes on. I think that'd be really cool to do. Anything else we should cover on the breaking news or should we move over to Dara Kosha Sharhi over at Uber let's do it. And so Dara did an interview with Ben Thompson over Sir Techery and I thought it was interesting because I wanted to talk about self driving cars, but he has a very interesting background. Dara's family left Iran after the 1978 Iranian Revolution.

And to be clear, so did Dara from Delphi. His family did the same thing.

Really? Yeah.

So a lot of Dara America and just dominate.

And so you were mentioning how Iran was kind of posturing that they may have started the fires in LA and that they're, you know, kind of a near peer adversary at this point to the United States, certainly not an ally. And it's interesting because the, the people like if, if a family left, what does that say? If a family left Iran in 1978, like what does that say about their politics? Well, it actually means that they're pro business capitalist, pro democracy and those are the people that got kicked out in favor of an authoritarian regime. And so I'm a huge fan of all the Iranians who have made it over here. And you know, if, if we ever do need a new leader in Iran, Dara Kosh Washahi I think would be the one to take it over.

Or our friend after Dara, you know. Yeah, you know, LBO's Google and merges it with, with Delphi, like a generational run, then go back and run Iran. That's, that's one of the things is, is same thing with, you know, Russia and China and Iran. The, our adversaries, the actual people in these countries we have so much in common with. We we all generally the same things. We want to have, you know, families and be, you know, great education and great economies. We all want the same thing. And then it's our regimes that are just like, yeah, we are mortal enemies. Like totally. And so yeah, you know, Dara, our Dara has told us, told me stories about his family coming over here with nothing, literally nothing. Like basically a plane ticket and then work going, you know, going from being, you know, successful business people in Iran, coming to America with nothing, running it back up, you know, becoming wildly successful here and just goes to show the ingenuity and creativity and drive of that people.

Yeah, it's such an interesting kind of like AB test on, you know, is there some sort of raw CEO skill or raw business leader skill? And clearly that's the case with Dara. His family ran a very big company in Iran and they thought that the children were going to join the family company when the time was right. And then they had the slight interruption of the revolution that caused them to free flee Iran. They were lucky to have an uncle that lived in the United States with his wife. And they took us into their homes and they rebuilt their lives. And so we used to go to France in the summer. So at the time, no one really knew the changes afoot in Iran. So we thought we would just leave, go to France for a while while things cooled down, calm down, so to speak. And they never did calm down. And so he goes to the United States and completely starts from scratch with basically nothing. They were lucky to come to the States and rebuild their lives. And so he had an average suburban childhood, studied engineering in college. And quickly and quickly through that, all the way to the start of a career in New York in finance. So he was like an investment banker at Allen and Company. Then he meets Barry Diller, who was a client at the investment bank. And he worked for Barry Diller on a couple of investment banking deals. And he swears to himself, Dara Khosrowa Shari says, if I ever have the chance to work with that guy, I will. And he gave me the chance to work for him, and I went to become his deal guy, so to speak. And so he's a deal guy. We love deal guys on the show. And so he moves up in his career with Barry. He goes over to IAC Travel, which then goes into its own entity, Expedia. He becomes a public company CEO. It was a trial by fire, and he the early years were pretty rough, but after a while I got the rhythm of it. Barry was the chairman and controlling shareholder, and we built that company in partnership for many, many years. And it was a really good run for me. And so I thought that was interesting. He also talks about how he became CEO of Uber a little bit more. We have some details on this just from the reporting at the time, but I thought it was good to revisit. Ben Thompson says one big story is that as I understand it, there was a tense boardroom fight to even select you. And DK says, yes, Travis Kalanick supported you, even though you're like you're not going to be part of this company. Was he just trying to get back at Benchmark, or did you sit down and talk to him and sell him on your vision? So there's this question, obviously Travis was in a rough scenario. He didn't really want to leave. Why is he backing the new CEO? You would think that there'd be crazy tension there, but DK Dara says, I still to this day don't exactly know what went down at the board. I believe that there were two other candidates. I think it was Meg Whitman and Jeffrey Immelt, at least based on the news. And I think I was the third candidate that was the least objectionable to both sides. And since one side couldn't win over the other, they kind of went with me. Go. Go figure. As far as decision making. But it certainly worked out for me and I think hopefully it'll work out for the company as well. And so he has experience. He actually took over Expedia from a founder. So he was a Wall street guy, then he was a CEO guy, and now he's sort of a manager. And I think that was interesting. He says Expedia taught him to be an operator. I went through a period where I was CEO of the holding company, but also running Expedia.com and that taught me operations and my background on Wall street, that taught me a lot about capital allocation. So I think the training really prepared me to come in onto Uber and be the on the ground technical operator that the company needed, but also understand governance, understand capital allocation, etc. And so I have a huge amount of respect for Travis and the founding team because it wasn't just him who built the company. And they had to take a very aggressive stance as it related to regulations, the taxi unions, etc. They had to bust through an enormous amount of resistance. I do think at some point the company got so big and powerful, but it was still an undertaking. Call it upstart tactics. And they weren't able to make that adjustment, which is, hey, we're no longer an upstart. We now have millions of drivers. It comes with a responsibility. We have to have different kinds of discussions with regulators. And I think I brought that maturity in hindsight. So I thought that was interesting. And I want to get to the.

Yeah, and the big. The big question always with Uber is how big would Uber be with Travis still running the company? There were some dark years where Dara had this extreme pressure on him. A lot of people didn't believe that, that he could sort of fill Travis's shoes. And there will probably forever be a debate still of how big would Uber be with. With. With TK running it. I joked before that that TK would have loved the post DEI era. He. He certainly.

He started to rear his head. He did the all in podcast. He's done little stuff here and there. He was spotting it spotted in D.C. during the inauguration.

Yeah, maybe he'll do a people Maybe he'll do a People magazine interview.

We can hope. But the reason I wanted to talk about this was because I have been kicking around in my head, is Uber a winner or loser in the AI era? And I, and I haven't fully come to a conclusion. I wanted to hear what Dara had to say and hear him kind of go back and forth on it. So we'll go to their decision to exit self driving cars and when they and where they go from there. So Ben Thompson says you're doing partnerships with different autonomous driving companies in different cities. Why don't you give me your high level pitch on how you see this market then there's a bunch of specifics that I want to drill down into. So DK says, yeah, definitely. Listen, I don't think it's an if, it's a when. And the AV is a huge opportunity for the entire marketplace. These robot drivers are going to be safer. I think they have the opportunity to at scale. And it'll take a while to get to scale to reduce the price per ride and increase the TAM of the marketplace. Trillion plus dollars. We think it's an enormous, enormous long term opportunity. Now a couple things have to happen before that opportunity actually turns into, into real financial opportunity. And so he talks about developing the advanced technology groups with ATG, which was Uber Self Driving Group. Is it the 2025 era in San Francisco? Well, it could be, it could be. Right? But I do think the market has changed and I certainly hope it has. First you need a consistently superhuman safety record. It's not good enough for a robot driver to be better than a human driver. It's got to be multiple times better than the human driver. I think the capacity for society to accept human failure is much, much more than machine failure. I completely agree with that. There was a fatality in Phoenix. Did that change Uber's mind as far as getting out of the autonomous vehicle market? Or were you sort of already on that way and that sealed the deal? I think we were leaning that way. It certainly was a very, very important factor in our determination. But there were a couple other issues that were more paramount. One was they were in the middle of COVID So all of a sudden capital was much more dear. We went from losing 2 billion a year to losing 4 billion a year, which is pretty scary. My job is to make sure the company survives. And this was a significant amount of money burning part of the operation. The other issue that was a big one was that even though we were developing ATG to some extent separately we treated them as arm's length. We did have the marketplace separate from ATG and the other players with whom we wanted to partner, like Waymo didn't believe us. So they couldn't do a deal with Waymo as long as ATG was there because they were like, hey, at some point you're just going to swap Waymo out with atg. And so they want to be asset light Hardware was not Uber's Superpower. At some point, companies have to know their superpower. There are very few companies in the world who are great at hardware and software. Tesla, Apple are probably two of the leads. It's very difficult to pull off the accident capital, how the business was shaping. You either had to make a bet on a vertical or platform. We wanted to make a bet on platform and then just Superpower were the four reasons why we didn't, why we decided to get out of it. And Ben compares it to Netflix. So on autonomous cars. There's a question here. Where does he say, how does that differ around the world? US Federalism. So there's a question about. You're obviously the ones that have variable supply. Speaking of the network possibilities, before I'm on board with that, I should have been a devil's better, devil's advocate here. But let's grant you this. You are the aggregator sitting at the top of the stack. I'm very curious to think through what do those layers, some of which you just listed, look like. So let's take a look at the actual cars. Is the software stack and the hardware made by the same company or a different company, how do you see that playing out? And Dara says, accepting Tesla, it will probably be different. So if I look at the stack, it actually kind of looks like the hotel business. I'll expand on that in a second. But let's look at hotels for a second. Right? You've got the brands and the owners. Well, you've got the demand layer, which can be Expedia, it can be booking.com, it could be Marriott. Then you have the brands themselves, whether it's Marriott or an independent. And then you have the operator. The operator. These are the teams, management teams. Sometimes Marriott is an operator of a hotel. Sometimes there's actually local management companies as well. That's an operator. Then there's the asset ownership. These are REITs, real real estate investment trusts. Marriott doesn't own almost any hotels whatsoever. These financial partners own the hotels. And then you obviously have the financier. And so he thinks that's going to happen. In, in, in autonomous vehicles, you have the network layer, that's Uber, that's Lyft. It could be Bolt, it could be Waymo too. They have the wherewithal of also going direct. Then you have the driver. To me, that's kind of like the brand, which is the Marriott driver or the Waymo driver. Then you have the operator, the management company, this could be US, or Move IO, which is a partner of ours. Actually 15% of our inventory today come from fleet operators that are on the ground in these cities. So we think we can move them over to managing AVs very easily. Ultimately, we think of OEM manufacturers. Most OEM manufacturers are going to have different software providers providing av, sometimes on an exclusive basis, sometimes a non exclusive basis. A GM Tesla are going to develop in house, but many of the other players are going to license it. And so he's talking about this, this fragmentation and he's applying the, the Expedia lens. And it's just interesting to me because we've seen this massive AI boom and my question has always been, you know, we keep hearing, oh, GPT5 is going to be superhuman or ASI is right around the corner and shouldn't those models be able to drive if they're superhuman? Like we keep hearing like they're, they're going to be like better than any PhD and it's like, well, most PhDs can drive a car and so that should be part of the eval, I would think would be. Yeah, it can also, it can write papers, but the same model should be multi modal, multimodal enough to drive a car. And so there's a question of like who wins that and then how much staying power is there in this aggregation layer? Certainly Uber has a lot of people that have installed the app, they rely on it, there's a whole system, payments, ratings, all this different stuff. But is, is Uber vulnerable or are they actually stronger than ever? What do you think?

Yeah, we, we talked about this before. I, it seemed like, you know, here hearing this interview is like completely changed my opinion on. So it's smart for Dara to go and talk with me like Ben Thompson, because it'll actually be a very intellectual con, more so than a journalist that's just trying to get a headline or potentially dunk. So I think that his point of view of comparing it to the hotel travel industry, which he obviously has a ton of experience at from his time at Expedia, that starts to make sense. I always had this lens on Uber as, okay, Waymo's is dominant force they're experiencing. You know, they have the technological lead, they have the actual traction lead. People love the product, they have their own app for bookings. And so, you know, we had talked about this on the show before. What happens to Uber? Are they a cable company that just has a lot of existing, you know, consumer demand and you know, comfort and usage and they just sort of over time, like people just still prefer human drivers for certain things and you know, maybe they just sort of end up taking a huge discount on their, on their multiple. Because hey, this business is going to be dead and you know, 30 years completely and it's not really going to be growing. Maybe you grow earnings but not revenue, you know, who knows? But now seeing this, I can imagine a scenario where there's, you know, different fleets and operators and technology providers and Uber maintains that sort of, you know, routing demand from consumers to these fleets and sort of being that marketplace layer. So I can totally see a world where they thrive around this new trend. Right. They're stripping out potentially. There's a bunch of costs being stripped out. When I ride, I'm about to get an Uber over to the PMF or Dai cage and it's going to cost me like $60. The majority of that is going to go towards the driver who just pulling up, I open the door, I get in, say a few words and he drops me off in 10 minutes. Right. I can see Uber really benefiting overall. And I think this is the right narrative for them to take when they don't have this sort of internal technological lead or even on the ground traction that AWAYMO does.

Yeah, I do wonder if maybe Uber is particularly well positioned for this slower transition towards AV fleet rollouts. Because even if the next training run of the AV AI system is just flawless and superhuman in every way, it's still going to take a long time to just build that many Waymos like Jaguars going out of business. Like, where are they getting these cars from? They need to make so many of them. And then even once they do that, it's hard to maintain that fleet that can flex up or down for, hey, it's New Year's midnight, everyone wants to be in an Uber or it's Monday morning and everyone's commuting. Are people commuting in, in Waymos now or Ubers? Because we're in this like post car ownership society that's possible. And Uber has this ability to, with the, with the demand based pricing, the surge based pricing, they can say, hey, it's New Year's Eve, surge pricing is going to be crazy. 200 bucks to get to just hop in your car and go pick up someone. Even if there's a lot of AVs driving around, 100% of the AVs could be in use. And then you're going to want human flex up to actually meet the full demand. And these are going to be people that just commute and they're just going to say, hey, I want to make some extra money. And the prices are so good, I'll jump into the market right now and have a little bit more flexibility there. So I could imagine that there won't just be, oh yeah, one month. Like all the cars are self driving immediately just because of how long it takes.

But at the same time, the counterpoint is that Waymo is now venture backed. They did a round where they raised from Google is majority owner, but they did a venture round. And so that tells me one. I was surprised that Google didn't just try to own the entire company, but that tells me that their ambitions are to be the next Uber. So they may play ball with Uber at some point. Maybe there's partnerships that they can do, but they're still competing for the same pie. John, I'm gonna get kicked out of my hotel room. Okay, and.

We'Re going to wrap up the show then.

Well, I was going to say, if you want to run through a bit of timeline to give the people what they want, you're welcome to. Or we can just pick it up. Fortunately, I'm going to the airport this afternoon. I'm flying home. We're going to be back in the studio.

Back in the studio. Yeah, I think that's a good place to stop it. We're done with the Dara story. Tomorrow we'll take you through Elizabeth Holmes prison interview. So we'll take you through a ton of timeline. We're going to have a million posts built up. We got a whole stack here, folks. So set your alarm clocks for sometime between 8am and 10 because we're not really on a full schedule yet. But we appreciate you dealing with all the kinks of live streaming. We're still figuring this out. I think we've had a fantastic couple weeks with it and we're really enjoying it. We appreciate you listening to the show wherever you listen. So don't forget to leave us five stars on Apple Podcasts and Spotify. Leave an ad in your review, send us DMs, tag us in posts you want us to react to. We will get it on the show and next week. We'll have some updates on PMF or dai.

And I got a quick line before they, you know, put me in cuffs and walk me out. But sign up for ramp buy, you know, move your portfolio over to public, get an eight sleep, run an out of home campaign with ad quick and get a bezel watch and then take it to your wander. I think those are great.

That's just a simple recipe for a good Thursday.

There you go. All in a day.

Noon on the east coast. It's still 10am on the west coast. You got plenty of time to get all that done today.

Go do it. Thank you brothers. We will see you tomorrow.

We'll see you tomorrow.

Talk soon.

Talk soon. Bye.