The AI Slowdown Debate | Nico Wittenborn, Scott Keogh, Mitchell Green, David Rosenthal & Ben Gilbert, Faraj Aalaei

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That's right. We're back. Did anything happen over the weekend in tech or was it kind of mellow?

It was a crazy weekend. There was a lot of news, a lot of back and forth about pacing the AI debate. I was in the hospital because I got rhabdo. It's brutal, but I am recovering.

Explain rhabdo because it sounds really scary and it is bad.

It can be very bad. Fortunately, I did okay. I got an IV, got some medicine, broke a fever, got through it, and I'm healing up. But it happens and it's the dumbest, dumbest illness you can possibly get. It comes from working out too much and not being hydrated. Very avoidable. Hopefully, AI can find a cure, if there's even a 1% chance that AI can find a prevention for rhabdo, I think it's worth any amount of risk.

Pushing forward.

Yeah, we must push forward.

No, lots of debate over how fast we should push forward. We have never missed an episode for being sick.

Yeah.

And I realized that because someone's asking me the other day, what do you guys do when you're sick? We just keep going.

I mean, I did talk to the doctor. They said, do you want to— doctor's note for work. And I was like, no. I kind of laughed. But I do think that like this job can be done while sick because you're just sitting in a chair having a conversation.

Yeah.

But I might be a little bit slow today, so bear with me if I'm not the sharpest on any of the questions. I will be sharp on the ad reads though. I'll tell you about Shopify. Shopify is the commerce platform that grows your business, lets you sell in seconds online, in-store, on mobile, on social, and on marketplaces, and now with AI agents.

We got a great show today.

Yeah, take us through it.

We have Nico Wettenborn from Adjacent.

Legend.

Really incredible episode of Invest Like the Best. I believe it was last year or the year before. One of the first investors in Aura and a bunch of other great companies. We got Scott, the CEO of Scout Motors, which we're very excited to talk to. Mitchell Green, our dear friend from LeadEdge, coming in. For some hot takes, we got we got it. And then we have our friends David and Ben from Acquired rounding it out with Faraj from Cognitip.

Yeah, we're excited for this.

So great show.

Before we get into the pacing AI debate, what happened with the U.S. Open? Give me a little tennis update. What happened? It's on the COVID of the Wall Street Journal, so you know it's important news. Tennis's U.S. Open climaxes in back and forth duel, but there was something interesting.

So twist. Ben Shelton. The American lost.

OK.

And what was notable is— hopefully, I'm pronouncing his name right.

Alexander? It's just pronounced Alexander, I think.

Zevrev? Zevrev?

Yes.

But anyways, the most notable thing was that when he actually hit the winning shot and won, he went back and was getting ready for the next point. And he starts looking around, and everyone is standing— you can see people in the crowd are standing up and cheering. And he slowly realizes that he won by checking the scoreboard. And yeah, it just became very obvious that he was so focused on the next point, he was actually not looking at the scoreboard at all. It was just like flow state, just playing.

That's awesome.

And I'm sure a lot of venture capitalists out there We're seeing that. And they're like, yeah, all that matters is your next investment. You shouldn't even know when one of your companies, your seed companies, are going to IPO. You should be so focused on the next one.

I think a lot of people that don't like VC Victory Labs would appreciate that too. It's like, we get it. There was an acquisition. Let's focus on what you're doing right now. I also like the cameraman work. I saw a clip of the scoreboard was counting down. There was zero. 0.07 seconds left.

What—

who do they cut to? Pierce Brosnan, 007 himself. I thought that was nice camera work. Shows you that there's levels to the game of live production.

Yeah.

You know, you gotta— those little touches, clearly that was just spur of the moment. That's not something that's scripted. That's just someone being creative in the moment with the tools that they have, the switcher basically. Anyway, the pacing AI debate. I wanted to start with some history here and then we can go through the timeline of what actually happened since we got off stream Friday. Then all the news breaks, of course. But the Pacing the Frontier goes back to July 28th of this year. So there was a Pacing the Frontier statement, an open letter. It was signed by employees and leaders from OpenAI, Anthropic, DeepMind, Meta, and a bunch of other places talking about this idea of pacing the frontier. Then the same day, Sam Altman publicly said we may have to pace the rate of AI development. 2 days later, OpenAI tells Axios that OpenAI helped shape the petition's language, and Altman had discussions— had discussed pacing with White House officials. So stuff was happening in DC. This was back in basically the very beginning of August, very end of July. Then August 18th, OpenAI publishes something called Pacing Model Development in an Era of Cybercritical Capabilities. OpenAI said it actually slowed scaling and paused a major RL run. There was that 2-week training pause that happened. On August 31st, Anthropic— official Anthropic post explicitly discusses pacing the frontier. So, the idea is spreading and calls for coordinating pacing mechanisms. And then on September 12th, which was a— it was actually Saturday morning that Dario dropped the essay, We Must Pace the Frontier, turning the concept into a much bigger public Anthropic campaign that everyone's talking about today. So the rollout of this was pretty quick. And there's a few key things from Dario's essay. It hit the timeline at 7:00 AM Pacific. He was up early posting. Perfect time to get a lot of likes on a banger. You got to feel something. No, everyone else, there's no fundraising news happening. Drop your essay early Saturday morning. Let people digest it with their morning coffee. Elon was clearly engaging. By 8:00 AM, Elon endorses it. 9:30 AM, Sam endorses it. Saturday, 4:00 PM, Demis generally agrees with Dario's point and argues that it needs some work. Remember, Dario put out something pretty similar talking about pacing and AI development and the need for oversight generally. months ago before transitioning out of his role as CEO of DeepMind and stepping up to, I think, chairman. Then later, David Sacks on Saturday, but at 8:15, has had time to process everything. He asks some questions about Dario's post, goes back and forth. Sunday morning, the Financial Times reports that Donald Trump has rejected calls from tech bosses for an AI slowdown. Later that day, Sunday morning, Gavin Baker rounds up the weekend. So we can kind of go through some of this and go through those posts. But what actually happened in Dario's essay, We Must Pace the Frontier, he has the 3-step plan on how he proposes to pace the frontier.

Number 3 will shock you.

Basically. Number 1, give independent third-party evaluators access to AI companies so they can verify safety practices. He calls out METER, which drew a lot of attention because people were debating how independent METER is. There's some METER employees who have worked at OpenAI, have worked at Anthropic. There's people that work at Anthropic who worked at METER. It's all very much a revolving door with these AI safety groups and then the AI labs. You go back and forth depending on what you're interested in. So, not as independent as like, oh yeah, we're going with an accounting firm who doesn't really have an opinion about The AI future. These are all people who are deeply embedded in the discourse, which could be a huge benefit because they take this stuff really seriously. Could also lead to some— what people flagged as conflicts potentially. But still some optimism from the community around what that would look like. 2 is frontier labs and democratic companies should work together with the government's help to establish AI safety standards. And this was the one that people were going back and forth on. Do the labs actually need government approval from this? Dean Ball was talking a little bit about the Sherman Antitrust Act. There are very clear rules about companies agreeing to do really anything in concert with each other. This is the number one reason that you don't want monopolies and cartels forming.

Uh-huh.

Is that if all of a sudden, you know, oh, uh, you know, American Airlines and Delta and United all say, yeah, we, you know, for safety reasons, we should have fewer flights. It's like, okay, well, what would that do to the market? Probably drive up their margins because there's less flights, charge more for them. They have fixed costs. So, you could very clearly see that collusion in that market would lead to more profits for them. and more harm for the consumer. That's where the Sherman Antitrust Act came from. We flagged this a week or two ago that this might, like, even though it seems like, oh, well, if Demis and Dario and Sam and Elon all agree, like, this should just happen, that's not a problem. There are actual legal and federal regulatory rules that might need to be adjusted or waived for something like this to happen. So, that's, I think that's why he's, He's calling for that specifically. He's saying, we need an exception to the rules so that we can actually do this because it's great to all write blog posts that we loosely agree on, but to have anything formal, we need government approval. And then third, this is the one that will shock you apparently, the US and other democratic countries should try and coordinate with authoritarian governments. So, he wants the US and China to coordinate on AI pacing. Of course, China still wants to catch up and there's some tricks there is like, what is the— what will happen in equilibrium if both countries have the exact same capabilities? Is that the best outcome or do you always want to be in the lead? If you always want to be in the lead, it's very hard to negotiate with someone and say, oh, well, you know, we'll— why don't you just have half as many nuclear weapons as we have and like that'll be great, like we'll pace you. And so, you go back to nuclear nonproliferation and all the difficult debates there. we obviously wound up with a multipolar world with everyone wanting at least some capabilities there. So, Elon chimed in agreeing with Dario, then Sam and Demis also agreed. The Timeline, on the other hand, had some questions and concerns about Dario's post. Who will these third-party evaluators be? Why wait for Washington to regulate the frontier? If Anthropic believes AI is advancing too quickly, why not simply slow down on its own? David Sacks raised some questions on X. And we can go to David Sachs's post, which I believe here is in the timeline. He said, Dario has written that we need to, quote, pace the frontier, and Sam has agreed. People may be surprised by my response. Go ahead. You guys are the frontier by any reasonable metric— market share, revenue growth, model capability. The 2 of you have a duopoly on frontier intelligence. You've also claimed the lead is widening because of recursive self-improvement. I don't think what you see I don't see what you see in the lab. If the unreleased models are scary enough that you think you should slow down, I support your decision to be responsible. But stop pretending you need anyone else's permission. Stop pretending antitrust law has to be suspended so you can form a cartel. Stop pretending you need a regulatory approval process that supersedes product liability. Stop pretending METER is independent when it is intertwined with Anthropic's investors and staff. Stop pretending that you need those same evaluators to police competitors who aren't even at the frontier. And so, yeah, maybe that's, a little bit of an issue, although, yeah, I mean, the regulatory capture angle is always like, if the safety rules become super cumbersome such that you can't start an Instinct-like product, right? It's like Instinct is a small team. They're not building a frontier model. They're not training their own models, at least not yet, but they're like, doing stuff with AI if all of a sudden they have to spend a year negotiating with a bunch of third-party evaluators, have a bunch of people embedded, and then go through some sort of review process and the government's not getting back to them. Like, you can't have a breakout consumer product.

And that—

Yeah, it doesn't feel like there's been any type of effort from anywhere to try to control or regulate, like, application layer companies and creators. Greg was on Odd Lots.

Yeah.

This episode came out this morning talking about not trying to— doesn't believe there should be any sort of limits to—

Application layer stuff?

Yeah. Basically, like, if you just want to train a model at home for your own use cases, there shouldn't be limits on that.

Yeah.

Trump came out yesterday. He was pretty active over the weekend. He said the only control or guardrails that AI needs is a strong and smart, high-IQ president. And the USA has that in spades.

The Trump— wild post.

The Trump administration has stopped AI people from doing bad or potentially bad things like Dario. What are these comments? Who is now pretending to be a perfect little angel. And we will continue to do so. We already have tremendous criminal and regulatory power over these companies. There is a sick conspiracy going on against AI and data centers, and the only one that is happy about it is China. Whoever wins AI wins. We are leading China and all others and will continue to do so. Conspiracy theorists, treasonists, traitors, and leakers beware. Thank you for your attention to this matter. It is funny to accuse, to accuse like the labs of being in a conspiracy against AI.

Yeah, that really, really doesn't follow. I don't.

Yeah, it does not make sense. But he also followed up just 40 minutes ago, said, concerning AI, when in the history of business, capital H, capital B, history of business, did anyone see the leaders of an industry call for regulation that if strongly implemented would drive them into oblivion and bankruptcy? AI is taking over the world, destroying humanity, and all other things bad is a hoax, no different from Russia, Russia, Russia, Ukraine, Ukraine, Ukraine, impeachment hoax 1, impeachment hoax 2. And all the other hoaxes and scams that America was forced to endure. President Xi of China just announced that China will be doing absolutely nothing to stand in the way of AI or its future. Google has recently stated that they want to build a massive plant in Finland, all because they are finding permitting too difficult in the United States. I'm not happy about this and want them to change their thinking. AI and data centers will be the greatest economic development engine in history. Bigger than oil, gold, diamonds, or even the internet.

Bigger than diamonds. Like, of all the technology, internet, the internet, the transistor, electricity, fire, the wheel, diamonds. These are equivalent things.

Oil, the internet.

It will not be stopped by brilliantly run destructive forces during the term of President Donald Trump.

OK. Well—

Anyways, I'm wondering what the— so a bunch of hedge funds are paying— they paid to get access to this, let's assume, like a minute early, something like that. How did they trade this? Because it's very—

Long tobaccos.

Yeah.

You're long diamonds.

Yeah, maybe diamonds are underappreciated.

I think diamonds are actually in a really rough spot. I think people are moving to lab-grown stuff really aggressively. So it's actually a tough, tough period of time for the diamonds. And I'm sure the diamond industry is calling for regulation, for sure. For sure. OK.

Where were we?

Interesting. I don't know. We were talking about David Sacks.

We were talking— Oh, we gotta keep going 'cause the president was on a roll this weekend. Let's pull up this video.

Okay. Oh yeah, they asked him how he used AI. While we pull up the video, let me tell you about the New York Stock Exchange. Wanna change the world? Raise capital at the New York Stock Exchange. The IPO window's still wide open. AI market a little bit down, but overall handling things pretty well.

We take it a lot of their cars. Car tariffs.

This week again, there's been so much concern about AI.

Have you heard directly from any of these AI tech leaders?

And you seem to downplay some of the concerns that we've heard. But it's, you know, it's going to be more good than bad, but by a lot. And I've said it from the beginning, whoever wins AI— and we're leading by a lot— whoever wins AI wins. Have you ever used it yourself, or have you been How do you use AI? But I would say, you know, for the most part, you can use AI for a lot of things right away.

Speaking of AI, the funny thing is that, is that like there's AI-generated slop on his social, Truth Social account, like constantly. Like the slop videos are obviously AI. Like both sides of that debate or that discussion should have known that, I guess. But I guess it's like people on his team are creating like the AI slop videos. Because like there will be like a new vibe-coded, like, you know, some sort of simulator that they put up on White House stuff all the time. So, but I guess that's not him. It's probably people on his team that are like, I made this AI video.

Yeah.

But I don't know. Gavin Baker had a roundup of what happened. Let's go through what's going on. And lots of people, it's just sort of like processing this, going back and forth. People were expecting Elon to be sort of against this, maybe anti-Dario. He, of course, came out in favor and has been talking about how he was working with Nick Bostrom in 2014 on AI safety, has been very concerned about this the whole time. Although at various points in time, Elon has been less of a doomer and more like, we gotta build, we gotta go, we gotta actually compete here, working both alongside labs, co-founding OpenAI, founding xAI, growing the model capabilities there. But he's firmly in favor of this. So let's see what Gavin Baker had to say. He said, wow, 24 hours for AI and lots of different proposals have been made. TL;DR, the only tangible new fact is that OpenAI and Anthropic are going to have embedded third-party evaluators from unknown organizations with Dario floating meter as a possibility. Having third-party evaluators is smart as there's no Section 230-style liability shield for model outputs and showing a duty of care will be important in future litigation. Several internet companies might have gone bankrupt without Section 230, so limiting liability really matters. I think there are minimal investment implications from this single new fact, but I do think that anyone who wants, quote, a smoother for a longer cycle than most constraints are good. Wafers, watts, real rates, and spreads. I was thinking about how A lot of the safety folks are worried about just the capability build-out from the semiconductor supply chain. Like, they would like to restrict the amount of chips that are created. And I'm wondering if— should we not be pacing electricity generation? Does everyone agree that we should be building more solar, thermal, wind power right now? Is that uncontroversial?

Yeah.

Is there anyone who says, like, no, we shouldn't be doing that. Because if we wind up in a world where you're pacing frontier AI development, current models are sort of diffusing, and there's some economic impact there, but you're not blitzscaling the data centers and the frontier intelligence, can you apply some of that capital, some of that human talent to just getting nuclear power online, getting solar power online, reindustrializing the American energy supply chain, battery, relieving grid tension? Because Everyone who complains about higher energy prices would be happy with that. I don't think the AI safety folks would be upset about that because you could use it for a lot of things. Worst case, it's like, okay, you wound up with like, okay, we can never build AGI or ASI because it's too dangerous. At least we have a lot of cheap energy. Is there any reason why you wouldn't— why you would want to pace the build-out of the American electrical grid? I can't see why. What do you think?

I mean, at some level, like, yeah, it makes sense because it is like an input, but it seems like way too diffuse.

Yeah.

So because like, yeah, it's like if you build a lot of chips, like sure, you can like, you know, make more data centers that run YouTube or whatever, but like there's kind of a narrow use case for chips. Yeah. Where power, you can kind of do whatever.

I wonder if you Yeah, yeah. At what point is there some sort of like AI safety valve that's like, we need to regulate that company in South Korea that makes toilets that also makes films for semiconductors? Because if we can restrict them, then we can slow down the pace of AI progress going really, really deep in the supply chain for safety reasons potentially. To summarize the events, Gavin Baker says, Dario made the most maximalist proposal of the weekend, embedded third-party evaluators, national regulatory regime for models beyond a certain capability ingredient threshold. A broad international regulatory pact between democracies, stricter limits on compute distillation for China, and then a different international regulatory regime that encompasses China. Before there's ever a national regulatory regime, he wants a Sherman Act waiver so that Anthropic can safely coordinate with OpenAI and other frontier labs without antitrust fears. To be frank, this latest proposal is much less maximalist than some of his prior proposals. Like policy on the AI exponential, where he advocated for an FAA for AI. Now people are talking about FINRA for AI, which is more non-governmental regulation but industry-focused. I believe he is sincere in his beliefs, and despite all the protestations, all of this would also probably be good for his business over the long term. Yeah, there's a lot of tricks here where people Where something, if there are multiple quadrants of actions you can take and it's either good or bad for your business or it's good or bad for safety, you can land in the good for your business and good for safety quadrant and everyone will accuse you of being cynical and doing it only because it's good for your business. And so—

Yeah.

It gets really difficult to say, okay, yes, the thing that I'm advocating for is good for my business. Now, Rune had another, take, which is like, no, if you're pacing the frontier, that's going to compress margins because everyone else is just going to catch up and it's going to become more oligopolistic. So if you hold, you know, like, yeah, there's this duopoly right now for the true frontier amongst OpenAI and Anthropic. But if you hold that constant, like Watermelon from MSL is going to catch up, DeepMind is going to catch up, like you're going to have 3 or 4, Grok is going to train to that level. And so you're going to have 4, 5, 6, 7 really capable competitors. What was interesting is like Ara Karazian was saying that AI spend declined a little bit in August, and that was mostly because of price cutting. It wasn't actually people using less AI. So it's not like people are pulling back on their use of AI, but there's more price competition. So OpenAI is discounting and people are being— we saw like the Fable adoption was a little weak and a lot of it's like, hey, are we sure we want to use the million-dollar model for checking the weather. Like, let's be a little bit more judicious about this. And so, if you wind up with a world where there's much more price competition, that could compress the frontier's margins, which is not good for business. So, it doesn't really put you in that top quadrant that you have to be so cynical about. The interesting thing is that he said that he doesn't think that it's open-source Chinese models that are actually putting pricing pressure on the frontier. It's more of the duopoly dynamic. And I think that's because, and I think he sort of alluded to this, that there's just a lot of companies that are like, I am comfortable doing business with an OpenAI, an Anthropic, a Google, of course, something that's on AWS, something that's on Azure. Yes, I could just download the weights for DeepSeek, but I'm not really comfortable with that. I don't really want to deal with that. I don't want to deal with the scaling and uptime of that. And so, yes, there are APIs out there that are reasonable, but none of them are as mature as the frontier labs, not in terms of the intelligence, but in terms of the actual—

Yeah.

If I implement this in my business, will it reliably give me the right results? Is there a high-quality SLA? Will the service stay up? Will uptime be good, et cetera? So, there is a world where you could get to a place where This is bad for the frontier companies business-wise. And Sam has talked about that in an interview with Fortune saying like, if it's bad for our business, like we have said to our investors at every step for like a decade that like this is kind of a nonprofit. This is a, you know, there are a whole bunch of different ways in which this is not purely aligned to shareholder interests. Like other companies, I forget the actual term for the structure that both Anthropic and OpenAI use.

PBC.

PBCs, yeah, public benefit corporations. So I think both Sam and Dario feel very confident about being able to go to their investors and say, hey, we're doing something that's going to slow down revenue growth or tank margins or just reduce the market cap of the company, but we think it's the right thing to do, so deal with it. And you can't really sue us because you invested in the PBC. But no one's really giving them credit for that. Everyone thinks like, no, this is cynically what gets them to $10 trillion. This is what gets them to $10 trillion. And I don't know, maybe it is, but it definitely seems like if we're on the mid-curve, bell curve meme, like the dumb guy thing is like, Slowing down is bad for business, right? Like the mid-curve is like slowing down is actually good for business in the 4D chess and like you don't want to be the best and have 100% market share. You want 20% market share because you let everyone catch up to you. Like I'm not super convinced of that, but there's plenty of people that are making that case online. Anyway, let me tell you about Cisco and then we'll bring in our next guest. Cisco critical infrastructure for the AI era. Unlock seamless real-time experiences and new value with Cisco. Nico, welcome to the show. Thank you so much for taking the time. Come on down to the TBN UltraDome. Hello. Hello.

What's happening? I thought that it almost looked like some merch we would make.

I know, I was trying to match the colors.

Yeah, kind of went right in the background.

Yeah. Introduce yourself. Give us a— let's Let's begin at the beginning. I want to hear the story of how you wound up in your current role, your mission. And then there's a million things we can talk about— the market and your strategy. But take us back to the beginning. Where'd you grow up?

The beginning? My beginning?

Yeah.

I grew up in Germany.

OK.

Yeah, south of Germany, small town, Tübingen. Beautiful. It was not destroyed in the war.

And Germany is in Europe, right?

It is, yeah, just a bit east of the US.

Yeah. OK, got it. My geography outside of the United States I can help you. Thank you. When did you come to the US?

So I ended up doing an exchange here in upstate New York. So my junior year of high school, I ended up in a super small town 3 and a half hours north of New York. And so that's when I first got to New York, and I was like, I want to live here. And so I started looking for ways to get back.

That's got to be—

going from small town in Germany, passing through New York City, and then going 3 hours north has got to be like It's such a trip.

It's true.

Because they're obviously entirely— you're like, I'm going to New York. And then you have this idea of New York in your mind, and then you end up again back in a tiny town.

So I opened the letter from the organization that places you, and it's like, you're going to New York. Candor, New York. Like, where's Candor, New York? And you look it up.

Never heard of that borough.

It's small.

But it was a great experience. And so the interesting part to that, though, is that So I was in the middle of nowhere in the US. And then I also got to go to the middle of everything in the US. And so I had a really good exposure to both sides of the US, the kind of elitist coastal urban life, and also the small-town living. So that was the first time I came here. Then I went back. I did an internship here after school in New York. Studied in Germany, Singapore. And during my studies, I started selling refurbished iPhones. So the iPhones first came out in like 2007, '08, and they were locked into a contract in Germany. It was super expensive. So I bought a refurbished one, and I started reselling them.

Was that like jailbreaking them or unlocking them?

Yeah, there was a tool called redsn0w.

OK, yeah. And they could use on any carrier?

Yes.

Got it.

Because it was locked in in the beginning, and locked into like a 2-year contract. It was very expensive. So that's my first—

I remember all the names of software like that, like RedSnow. It sounds so sketchy. But it was like the names of all that kind of unlocking, jailbreaking, all those names were—

Yeah, there was a Pineapple one.

Yeah, yeah.

Yeah, so that was my first foray into business. But yeah, small internet entrepreneurship. And then I read about a group in Berlin. That was really the pioneers of the German internet scene at the time. So everything happened a bit later in Europe, right? And so in like 2010, came across this firm in Berlin. I just reached out to them cold. It was an incubator. So back in the day, they were building companies. And then they had a small €6 million fund on the side. And so they were like, why don't you come during your studies and work with us on this small investment fund?

Must have been a good cold email.

I mean, it was— I don't even remember. It was actually— it was important, though, because I had an offer from a consulting firm that would have paid twice as much.

Yeah.

But I opted for the opportunity to go into startups, because that's where my interest was. And that led to this. So it was really an important decision back then. And they gave me a shot. I learned about venture. I then finished my studies. And when I came back from Singapore, which was also kind of an exchange, I ended up doing a— again, sending an email to the same group, this guy Pavel, who was working there. And he offered me to come back because they decided to spin out the fund. And it became Point Nine, which was the first institutional venture fund in Germany.

Wow.

Not in Germany, in Berlin. There was another one in Munich. And so I started working there straight out of school. So I just got lucky that at the time, venture was not what it was. It was just the start of the European venture ecosystem. system. And so I kind of fell into that. And then it was a super small firm. It's also historically the best performing early-stage firm in Europe. So they did super well early on. And I got a lot of responsibility. I was there for 5 years. And they were originally focused on enterprise software, so SaaS tools. They were early in Zendesk and Loom later on here in the US.

Really? So it wasn't just limited to Europe? You were investing all over.

So we called it Remote VC. So it was kind of— we were based there, but we were trying to look for the best things across the globe that were fitting our thesis. And then I was recruited by Insight Partners in 2016. I left to join Insight, and that's when I moved to New York. That's a grind, right? 10 years ago. It was very different than the small, humble—

It's like a hardcore culture, right, for venture.

You've got to be working a lot. Well, it is. It's just the way it works is that they built— they innovated this. So the founder of Insight, Jeff Horring, started the firm when he was 26. A $20 million fund. It's now $100 billion, and he's still running it, right?

Founder.

No, he's a legend. And he ended up innovating on this outbound sourcing model. So they have analysts that are just cold calling. It was literally the phone in the beginning. Now it's emails and everything.

Sort of a price for every company in mind.

Yeah, and discover every company.

Yeah, they want to know everything.

Exactly. Discover every company.

Very interesting model.

Yeah. It makes sense, and it still works.

Yeah, really.

So they scaled that, and they bet on the same and on the right trend. So I was there. And so I had learned that at PointNine. I had done some SaaS, and I did that too. But I was always, because of this iPhone story, interested in consumer software. I was there when the App Store launched. And so some of my investments at both PointNine and at Insight were consumer mobile investments. And so I decided to leave Inside. I signed the separation. It was 2018 that we agreed on everything. Early 2019, I left. And then I started working on Adjacent. And I guess what's somewhat unique at the time is that back then, it was not normal to do it by yourself. Solo GP was not a thing. And I didn't opt in to be—

2 years later, it was the main thing that people were talking about.

Yeah. And today, I think last year, the majority of new funds were solo GP funds.

Yeah.

So it became a real thing. And in fact, that's also one of the things that I try to support now by— I have invested in a lot of those funds, like 2,000 or so, and also anchored a first solo GP fund now with Adjacent. So I kind of accidentally fell into this, started Adjacent, but then also trying to build this Kind of Rebel Alliance.

What was the infrastructure like when you started as a solo GP in 2018, 2019?

'19.

Because there were some people that were using AngelList for certain SPVs, and they were rolling funds, and there was like, there were some tools that you could use, but did fractional back offices exist, or did you sort of have to roll your own solutions to certain things? Like, uh, yeah, what was actually required?

So it just started at AngelList were offering services.

Sure.

Carta was starting as well.

Yeah.

The big difference there was that I was actually looking at what makes sense for the structure. I knew I wanted to be in New York, but I also was looking at European structures. And the infrastructure in Europe was way behind the US. So I opted of doing it in the US. And I didn't go for the services. And the reason for that was mostly that I didn't feel like they were institutional grade yet, because I wanted to have institutional investors. And there was limited flexibility. I think that all changed now, which makes it much easier to start. But at the time, it just started. Yeah.

So basically just hiring law firms and accounting firms, like your bigger firms.

You have a fund admin, which is easy. Then you have audit as a firm, separate firm. And then you— now, I mean, now really what supercharges is AI now, because you can do so much more. You can automate things. You have agents, but also research, like diligence, sourcing, everything.

Yeah, I was going to ask, at what At what point does Insight's initial strategy just become fully democratized, where there's out-of-the-box— obviously, if you're doing this yourself, you're always going to be able to find different edges and things like that. But it feels like you might have access to a comparable level of understanding of the market with one person versus—

Yeah. I'm not sure. I think that certainly it gets easier. What they're really good at is discovering things when it's still relatively unknown, right? So from the outside, you don't know what a stealth or a new company is doing. Once there's signal and press and more data, then the AI picks it up.

Yeah.

But I think this broad sourcing still makes sense. And then the other important aspect to it, which actually works for me too, is that the analysts are not just sourcing. They're also relationship building, right?

Yeah.

So they're reaching out to someone, and you still want the human-to-human interaction with a founder, because they don't want to work with a computer. Not yet, at least. And so you have this relationship, and you stay in touch with them over 2, 3 years, and then you invest. And I think that will still work for them.

What was the LP strategy for actually raising the initial fund? Straight shot to endowments, other funds, high net worth individuals? What were you thinking? What worked?

So the first close was hard. The whole fundraise was hard. It was 18 months. to get the first fund off. And what made it harder was COVID started at the same time.

Yeah.

And my now wife got pregnant with our first kid. So it was just like— it was an intense 18 months. But what I did is essentially, the first close, I started going back to the founders that I had invested in that had already proven and made money. So the founder of Revolut, Nick was one of my first LPs. The founders of Calm, which we had invested in with Insight. And then a bunch of GPs that— the founders of PointNine, where I started working. Jeff Horring later invested as well. And then I had friendly funds like Thrive and Founders Fund that actually helped me with the first fund.

That's great.

And so that was the first close. And then the first family office came in, which was SES, to give them credit. They were also very early in both Thrive and Founders Fund. That's how the relationship started. And then based on the first $10 million first close, I just started investing. And the second investment I did was Speechify, which ended up doing very well.

I love Speechify.

Derek Cliff is a character.

He's amazing.

And so with some proof that I could also function by myself, I then went to the institutions and then was able to get a $40 million first fund together. And then since then, I've been— Pretty consistently increasing it. So I just started investing out of Fund 4 now, this year. But I've been kind of pacing it in some ways before it was cool, in the growth from 1, 2, 3, 4, adding roughly 1 LP per fund.

Sure. Nice.

And that has gotten somewhat easier because there's more proof. We just had Banning Spoons go public. Yeah, yeah, yeah.

It was the first— Talk about that. How did that initial— investment come together? And did that always feel like on— you're more thesis-driven than most VCs, I would say, in general.

Yes, I try to be.

Like, VCs will say they're thesis-driven, but they have like 8 active theses running.

Another thesis was buy low, sell high.

That one always works. Old reliable.

Well, I don't know. If you're in San Francisco today, that's not what they do.

Buy high, sell—

Bending spoons buys for 10% of the peak market cap, right? Who knows where we'll end up here?

That's true. But yeah, how did that initially come together, and what did you see?

Yeah, so when I started Adjacent— and the thesis has also evolved since then. We can talk about that more, what led to other investments. But initially, I— so in 2019, 2020, then the COVID time, if you remember, there was this crazy SaaS explosion, right? Multiples went up. Everybody went crazy.

Never going back to the office.

No, it's all cloud, right? And crypto, actually. So those were the two things. So all the new funds were doing the same.

Yep.

And because I had success in consumer, I ended up deciding to start a fund initially focused on consumer, and especially consumer subscription companies. And that was just essentially a transfer from the SaaS, and then seeing the App Store and subscription launch on the App Store, and being close to some of the first investments that did well there. So I was quite differentiated in that. So the first fund and the second fund, to the most degree, We're very focused on consumer subscription. There's one problem, though, with these consumer subscription companies. I mean, there's advantages, disadvantages. But one of the problems, as opposed to SaaS, is that they're much more churny, right? So at one point, depending on how deep the market is, you'll hit a ceiling, right? And this can be at millions, tens of millions, hundreds of millions. But if you still want to— if you want to go for big outcomes, you still need to grow at a really high clip at hundreds of billions of revenue, right?

True.

And ChatGPT, to some extent, has done that, right? In the beginning, 75% of their revenue was prosumer, consumer.

Yeah, yeah.

So the thesis was good, but I'm not in OpenAI, which sucks. But it was just a different game. And I ended up picking the right trend, but also wanting to have a little bit of a hedge against it in some ways, because you could see that these companies kind of get to revenue relatively quickly, pretty cash efficient. They need much less people and OpEx and distribution costs than a SaaS company. in terms of headcount. So they were like tens of millions or hundreds of millions, but very profitable. So we already had this thesis of there's actually a really big play here to aggregate companies, because if you can— And spending synergies. Yeah. And I was actually— I had an investment in a company called Blinkist, which back in the day, I don't know if you remember it.

Oh, yeah. Short book series.

Yes, exactly. Which was very innovative at the time.

And subscription-based.

Subscription-based. This was one of our inside investments. And I knew these guys from Berlin since Point Nine Times. And so one of the founders, Niklas, actually came as an entrepreneur in residence to Jason for a while. And we were thinking about incubating a company that did this. And then I was on a webinar with Luca in 2020.

No way.

And I was like, I think we should just do that. He's amazing. And he was already doing it. And this was pre-ChatGPT. And then I think AI also helped them a lot in actually building the synergies and the transformation engine that actually then Well, it also helps them by knocking 90% off of the market caps of some of these other companies. So there's always some luck involved in that. Yeah. So that led to Bending Spoons.

And then when did you actually— when did you do Oura?

So I heard you say this in the beginning, and I just want to make sure that I did invest in Oura, but this was around the time of the first close. So I didn't have a fund yet. And it was a round that was like, I don't know if I should Even do that with a first $10 million first close. And so I ended up investing personally with a group of friends in an SPV. And the friends of mine that I did this with was the team that I was leading at Insight. And they left, also started a fund called Left Lane.

Oh, yeah.

This guy, Harley Miller. So we did it together back then.

Cool.

Smart.

What was the initial portfolio construction thesis for that $10 million fund?

Well, one last thing on Oura. It's just interesting, I think, also that— so the reason we understood Oura back then, even though it was a hardware device then with no subscription, was that we had done Calm, and Calm had inflicted by launching sleep stories. So a lot of the growth actually came from people not wanting to meditate, but needing to calm down before sleeping.

Oh, yeah.

Because sleeping was such a big problem. It still is to a large extent, right, in the Western world. It's like the foundation of your health. psyche, and everything. And so we did Aura, and then we were pitching also the move to subscription. And hardware and subscription worked, and that led then also to this hardware subscription thesis, which led to Board, Backbone, Tractive, a company we sold also this year. So that was that.

What is that company? Tractive?

Yeah, Tractive was probably the biggest exit in Austria ever. So it's a small town in Austria, and they built a— A tracking device for pets. Oh, okay. So you put it on the collar. Yeah. So aura for pets in some ways, but plus location. So if you're in a remote area, you know where your dog is. You can like call them back and you see them on the map. You see how they move, how they sleep, and things like that. Yeah, it's cool. And actually, who bought it? Benning spoons. No way. Yeah. Wow. It's like fun one, fun one. Yeah. Nice. Yeah. But you were asking.

It's great you're monetizing both sides. Yeah. Yeah. This was like a stretch.

Yeah. Because. Your pet doesn't come to you and say, hey, I want a churn from this dog food. Exactly. But this is literally— Blue Apron. Blue Apron was like a subscription food company, and eventually people would just be like, I want to try something different. I'm just sick of this.

That's why Farmer's Dog works.

Yeah, yeah, yeah, exactly.

And Tractive, the same, because actually the average subscription was years by purchasing it.

Whereas people might even take off a Fitbit or something and be like, I'm out of this fad, I'm onto the Whoop, I'm onto the—

and move around a little bit more. So it's hard to get sticky. The thesis has expanded, but I want to get your updated kind of point of view on consumer right now. I feel like a year ago, people were really pounding the table being like, now is the time for consumer AI. And yet if you look at the iPhone charts, It's been still like the time of language models, right? So like most of the new apps that maybe weren't in there 5 years ago are various chat apps. And then the other sort of popular apps that you're seeing are like short AI drama slop stories, which is—

Consumer.

Which is, yeah, which is consumer, but maybe not the explosion of different types of applications that I think a lot of people expected. Yes. And I think part of that— my point of view is, like, the chat apps can just do so much. Like, there's so much you can— maybe the example I use that's not super relatable for most people is, like, checking the surf. Like, if I want to get an update on understanding of, like, swell and tide and all these things, like, I actually don't need a net new app for that. I don't need the AI for checking the surf app. I just need ChatGPT or whatever someone's preferred LLM. So how are you thinking about the overall landscape, especially right now, because you have a new horse race with Instinct and Muse? And so it feels like we didn't have the end of history with consumer yet.

Yeah, I mean, it is— It's definitely true that the world changed after ChatGPT, right? So like 21 Launch and then the coding help. It's actually— so one interesting trend is that the number of new apps— one of the other proxy investments I did with Fund 1 is a company called RevenueCat, which is powering 60% of the new launched apps with their subscriptions today. And through that, we can see it's just like an immense increase in new apps that are being launched.

Yeah.

So for venture, for me, I actually had to move on somewhat from consumer at the time. I think there will be new applications in consumer plus AI. And I'll talk to that. But it definitely decreased the barrier for new things significantly, right? So the ceiling, if you think of it just theoretically, the competition increases significantly because so many more new apps. So getting to a venture-scale outcome is even harder, right?

Yeah.

So even though we have more niches served, the venture outcomes are more difficult, right? So I think that if it's very simple, it doesn't make sense. There is consumer things like— I invested in Popcorn, which is a next-gen telco. So they're building their own core infrastructure for telco. They have an eSIM. You download an app, you get the international number. But also they have AI features integrated. So you can use a call assistant and stuff like that. So I think if the technology goes deeper, more differentiated—

Never put a phone call through to me ever.

No.

That's basically what I want.

I have an assistant, Jenny, that calls. Instead of voicemail, she picks up and says, what is this about?

What is this about?

Yeah. And then if it makes sense, I—

You better have a good reason, because I'm not putting you through. I get so many spam calls.

My phone's always on do not disturb. All the time. Yeah. I don't have—

So, the most annoying thing to me is someone calls you, but they don't leave a voicemail. Like, I don't really want a voicemail, but if I get a call that I'm not expecting and then there's nothing, I'm just kind of wondering there. But I don't want to pick up the phone. I don't want to take a random call.

Do you remember those spam calls that you'd get where it would play the Chinese music in the background and then you'd hear Chinese It was like a pitch for something. It was like a scam call. But they specifically put Chinese music in the background. You ever got those?

No.

No. Where did you sign up? My phone number goes everywhere because I've started businesses, and my phone number's leaked all the time through customer service and stuff. So I always have gotten the weirdest spam calls ever. But that was a fun one.

Yeah, so I have now one number that's my spam number. That I use on the internet for authentication. And then I have my popcorn number, which nobody has except real people.

That's good. You need that for sure.

Anyways, I do think there's a new era coming, which instinct— I mean, there's just a lot of instinctual here. There's companies that are now doing things that are prosumer, consumer, that are personal agents. And I do expect that there will be a lot of things that work there. But also, it's very difficult today to— to understand what of that will be eaten by the labs, right? So how vertical can it be? And then also you have Meta playing for it, right? Like, the problem— so essentially, it's just— it's so crowded, and so many big companies are playing for that, that for me that wants to go in early and not at $500 million or $1 billion valuation, it's very difficult for me to play there right now, you know?

And there's also, like, plenty of scaled unicorn, decacorn companies with founders who are live players, maybe re-engaged, and They are monitoring the model releases on a daily basis and saying, I'm going to implement this on day 1, have a team that's sprinting to implement this feature so that there's not an opportunity for my SaaS company plus AI getting funded because I'm doing it on day 1.

Yeah. And I think Muse is a great example of that, right? I think the speed at which Meta moved on this personal agent trend and launched Muse is really impressive.

It's still unclear to me When they actually started working on Muse. Because it feels like— I mean, I'm sure they tried to buy Instinct, but that doesn't necessarily mean they weren't working on something before. I think they've been working on it for 6 months.

Like, Nat Friedman's been there for almost a year, maybe more.

But the level to which Alex has just been taking direct shots at Instinct all the time on the timeline—

Does he have a nickname for it? What does he have?

Oh yeah, insect. Oh really? He called him. Yeah, yeah. I wasn't sure if that was a typo or intentional. Yeah, but it— but it's rare to see a trillion-dollar company like heckling. Yeah. And while cloning a like a startup that's 11 months old.

Yeah, they didn't really do that with TikTok or Snapchat. They were pretty quiet. They were just like, we're excited to launch Stories. We're not going to say anything about—

Well, yeah, no, no. In that case, it was like Evan would be kind of like taking little shots. Yeah, yeah. And that's what you'd expect, right? You're like the— Totally. The underdog takes the shots. the shot, but this time you have a trillion-dollar company punching down at them. Yeah.

I don't know. Yeah. But that's the reason why the stock market has been driven by a lot of these companies that are just still compounding. The same with Alphabet. It's been hard for VC to actually benchmark themselves, because the market's done so great, because all of these companies are just doing amazing things.

How are you thinking of investing in Europe, considering that— There was some proposal I just saw that was saying, like, Europe basically needs to spend hundreds of billions of euros to try to sort of, quote unquote, catch up in AI.

Yeah.

I have a buddy from Austria, and I was— he's working for an American company right now, but I was like, what are you doing not just, like, starting, like, a NeoCloud right now?

Right.

I was like, I know people in the US that are dumb as rocks, and they're gonna be billionaires because, like, they just, like, Picked a hard problem with an exceptional amount of demand, and have just been working on it for years. And I feel like Europe's lagging a little bit. If you just roll up your sleeves—

Like, you're dumb as rocks, you could do this too?

No, no, the point was, like, you seem, like, very, very smart and capable. And, like, if you just focus on figuring out how to get, you know, a powered shell and some chips, you're probably going to be able to figure out some demand. How are you thinking about it?

Well, look, in my career, Europe has been super important. Revolut, Bending Spoons, Aura, right? Those are companies that are really important. But also, they oftentimes were in the category that was not yet very hot in the US.

Sure.

So it's not easy. I mean, it is true that Europe, we have not done enough to support innovation. And this is everything from regulation to bureaucracy and labor laws. There's a lot of problems that startups are tied into the same regimes as big established companies, so that doesn't allow us to move as fast, right? And that's a problem, and I hope that changes. But I do think Europe has amazing talent, and Europe has also the ability to build new things. AI completely missed it, probably as a consequence of having already not done as well in software and the infrastructure build-out that's required to actually do this well.

I mean, just pattern matching on the last cycle, it seems important that Europe never got European Facebook, but Europe did get Spotify, which was built on top of Facebook and benefited from the Facebook network and algorithm, but it wasn't a direct clone because—

Yes, exactly.

And when I see these things where it's like Europe needs its own LLM, I'm not entirely sure about that. I'm not entirely sure. Like if you're gonna do China and you're gonna do firewall, then you get the Chinese Google, the Chinese Facebook. Europe hasn't gone far enough to actually, truly create an area where you could have a European Google and make it so hard for Google that they get kicked out, and then European Google wins. But you can go and do a Spotify, which is an actually new idea, wins, and is not directly competitive. Actually very compatible with Facebook. They were obviously a lot of investors in common and stuff.

Yeah, I think it's very hard to catch up in AI. Hopefully we will to some extent. But there's also energy and defense. We had dependencies for too long.

Yeah, for some of those like Helsing and stuff, you can see that being a clear line. But when it comes to just global innovation, running your own race seems to make a ton of sense.

It should be differentiated into their own strengths. Yes, exactly. And I think that will keep going. And we started later, right? We have Spotify soon. We have Revolut. But those companies, it takes some time to trickle down. And so it's important that like Benningspoon says, we're an Italian company. We're listed in the US because that's where the markets are, right? Acquire companies in the U.S., but like we're an Italian company, right? And like I think those like that that ecosystem the same with Daniel Ek is doing a lot now with Humanitarian to like support companies Helsing and Nico and stuff in Europe. And I think that is just like hopefully with time that also works.

And I spend any time in Estonia, birthplace of Skype.

I well he yeah so I I don't. I have one company that is actually a Ukrainian defense company. They're based there. Yeah. become a bit of a defense hub in Estonia for that. But I think the original founder of Kasa has built up— he was one of the first investors in Anthropic back then and stuff. So there's a lot going on there. It's just not one of my core geographies so far.

Sure, sure. What do you think about the disconnect between what Bending Spoons will currently pay for a software business and what VCs will pay to invest in a— Potentially future Bending Spoons portfolio company?

I mean, I would not be surprised if Bending Spoons buys a lot of the hype AI companies.

Yeah, yeah, yeah. No, and I've just been—

For the same price.

Yeah, yeah. No, I feel very, very strongly that that will happen. Even though the companies have great teams, they're growing revenue super quickly, but It's just extremely notable that when you look at some of these software businesses and you look at— I see in some of these acquisitions, you can imagine that Bending Spoons was the real only serious bidder for some of these companies.

Yeah.

And so they get to set their price. And so 2 things need to happen. One, Bending Spoons thesis plays out, and people globally realize, hey, we should have been more comfortable with the risk associated with this. Buying a software company at 3 times revenue is could be stealing it. So if their thesis plays out, there becomes more buyers like Bending Spoons, right? Because there's plenty of capital.

Yeah.

That could help prices come up. But it feels like the most likely scenario is we get these companies today where I look at them, and you'll have a company, $100 million of revenue trading in the billions, and you just see this company is How many more of these hype—

Yeah. Since VC works in a way that it's very FOMO-driven, consensus-driven, everybody thinks everything is going to be very big. And then we have these hype cycles where— I'm not saying AI is a hype. Obviously, the technology is super powerful and it will change the world, is changing the world. But with that always comes a lot of money chasing things that do not turn out. Most of the venture bets do not turn out. And they are orphaned at one point, right? The founders move on. The VC moves on. People just want to have some money back to invest into the next hot thing, right? And that's what the core insight is that's driving the success of a company like Bending Spoons.

Yeah. It'll be interesting.

Yes.

But it's notable that it's not like there were the wave of Bending Spoons big high-profile acquisitions was like 5 years ago, and now we're doing it again. It's like all these things are getting priced now while we're doing it all again in the same present moment. And it's like—

It repeats. The cycles repeat.

It's repeating in real time.

Yeah.

What brought you to LA?

Well, OK, last question here. No, I'm happy to keep on.

No, I wish we had more time.

No, I know. I am here— so one of the first, like, breaking away from the thesis was a company called Inversion Space that is here in LA. They're doing hypersonic delivery from space. So they partnered with Unreal on the Golden Dome. They just did a contract with NASA also. So I'm here to see them.

Amazing.

And then one of the funds that I like a lot in San Francisco, Cantos. Ian, you had Ian on. Yeah, yeah. So I'm a small LP there, and he's hosting an event on Wednesday. So I'm there for that.

Great. Awesome. Well, thank you so much for coming by.

Thanks so much for coming on. We'll talk to you soon. Let me tell you about Railway. Railway is the all-in-one intelligent cloud provider. Use your favorite agents to deploy web apps, servers, databases, and more, while Railway automatically takes care of scaling, monitoring, and security. Scott, thank you so much for taking the time to come on down to the TBN UltraDome. Uh, I would love to start with an introduction on yourself, but also Just the story of Scout Motors. It's a fascinating company, goes back decades if I'm not misinformed.

The '60s.

Tell me the story of both the company and how you got involved and where you're going next.

Wonderful. I mean, I'll start with myself.

Please.

I think where it starts with me, of course, is New York, the automotive business. Obviously, with my last name, I have an Irish background. My family is a classic American tale. They came here with a suitcase. They came to Ellis Island. And my dad was in Brooklyn. My mom was in Rockaway, and they wanted to make their way in the world.

That's amazing.

And of course, it brings me here to today. I think if you look at Scout Motors, how it all came about, I think first and foremost, as you know, it's an iconic American brand. It basically invented the SUV segment, invented a lot of these things back in the 1960s. I think what happened to Scout is exactly what happened to America in the 1970s— high inflation, stopped making things, outsourced a lot of things, had troublesome labor relations, high inflation on that. And this American dream, this American icon went away. And how it came back to life, I think it's sort of 3 things came together. I think first and foremost was, let's say, the business necessity. The Volkswagen Group at the time said, how can we get more successful in America? And the way to be successful in America is to go after these profit pools where the trucks and rugged SUVs are. And of course, they had purchased a company called Navistar. Yep. Navistar had the heavy truck business of International. Of course, they had the rights to Scout. And there came the genesis of this idea. Could we bring back this magical icon with the backing of a company that knows exactly how to make things and get good cost and bring it back to life with a clean sheet? And that was the premise. And that was 4 years ago. We had 1 employee and a couple of PowerPoint slides. And now fast forward, we have We have 1,600 employees. We're industrializing a factory in Blythewood, South Carolina. We're going to show you a pretty cool prototype car behind me in a little bit.

Yeah, sure.

And here we are. I think the other thing that's important to look at is sort of the softer side of the thing. And for me personally, I think a lot of us during COVID I drove across the country with my family. And you drive across the country, right? You go to Ohio, you go through Pennsylvania, you go through Indiana, you see some of these manufacturing towns, and you do have to ask yourself, what happened?

Yeah.

Why is this? I think at the same time, we saw a lot of the geopolitical environment with TAVRS and the resurgency of saying, let's build things again, let's do things again. And then the other final sort of piece of the puzzle is Scout was a super cool, glorious icon. It's like, why do we let these things go out of business? Why do we let these things fade away? Why don't we do it right? And you put it all together, and we're here at this magical moment doing something difficult for sure, but doing something really cool. So that's the background in a nutshell.

Yeah, yeah. I mean, the idea of reindustrialization, making cars in America, today feels like there's a ton of tailwinds, but 2022 is a different era. Is that a lot of luck, just being in the right place in the right— because when I think about all the tariffs and everything, I'm just like, Oh, this is a win for Scout. This is another win for Scout. And then, I mean, we were watching the president talk about AI. Literally, the question right before was about making cars in America.

Yeah.

And so there's a lot of positive economic forces that are working. Was the plan that this was coming and that there would be more reindustrialization movement in the future regardless of who is in the Oval Office? Or Was this just like a lucky break that happened down the road? There was a luck.

We're profound geniuses. We looked into the crystal ball and we knew absolutely everything was going to happen. No, I think there was a, let's say, movement, sort of gentle drumbeat. If you're listening, you saw the transition, let's say, from NAFTA to USMCA. And clearly, you can see where that was heading. That was, of course, back in 2016. Sure, sure. You also knew from COVID that supply chains were becoming, let's say, tenuous, for lack of a better term. It was difficult. And then you knew in this segment, if you look at this segment, majority of the segment says, I want to buy things that are American. I want to buy things that are made in America. So Scout's whole premise was always going to be that. But based on that, of course, a lot of other things came their way, from tariffs to geopolitics to everything. So, I think it was a good core idea. It's a phenomenal core idea that's It's gotten more tailwinds as it's come, which has been great.

Yeah. I recently heard that the life of a new car has basically doubled since, I believe, the '70s, and new cars will often last until 250,000 miles, whereas it used to be 100,000 miles, it's time to get a new car. Is that a secular pressure that you think will Will be overcomeable with new technology, or do you think that's something that we're going to settle into? Or maybe there's a world where people wind up with more cars. Just, I'm thinking of like, what are the general pressures that you're worried about around new car purchasing?

Yeah. Look, I think you raised a key point. I think a lot of what's driving that, of course, is a high-cost environment where people want their cars to stay with them a long time. I think that's particularly true of this segment. This is a segment that's not what I'd call a flip and purchase for a vehicle that's just going to get you down mainstream. It needs to do real work, real play, take you somewhere, do something. So we've fundamentally engineered the car to be super robust.

Yeah.

The second thing we've engineered the car for is to bring a lot of do-it-yourself type of business back into it. I think a lot of people where they've engineered these cars, they're complete spaceships. Just look at them. Don't touch them. Don't touch them. And I think we've intentionally brought a lot of mechanical, physical characteristics back so you can do the actual work. I think the other thing that's breaking down, and I remember this back in my Mercedes-Benz days, was electronics. Can't update them. 100,000 miles, it's going to be gone.

Sure.

Or batteries. That was the one on batteries, right? They're going to last. And I think that myth is being broken all the time. But these batteries are holding their power. They're holding their charge. And they're holding their robustness. I think the right way to look at it—

I saw someone put like 300,000 miles on a Model S recently.

Yeah, exactly.

People thought that was impossible. And the depreciation curves are still really rough for electric vehicles. We can go into that. But I mean, it does feel like the fear of like this battery will be impossible to repair and the car will be totaled because of the battery, that has been pretty—

How much does your segment care about autonomous driving? And how much— and do you think they'll care more about it in a couple years?

I don't think it's core to the segment. I think we've engineered the vehicle where this is a vehicle that you want to have control of the narrative and control of the vehicle. So we've intentionally made a vehicle where, yeah, I want to put a real door handle on the thing. When I get into the vehicle, I want to use real switches and get that mechanical connectivity, if you will. And driving, I think it's the same exact thing. This is a vehicle I to work, wants to play, they want control of the vehicle. Now, to that end, the Scout will have Level 2+ because I think where you can offer that highway convenience, if you will, where driving is more tedious—

Yeah.

100%. But I think this segment and what it stands for in terms of, let's say, freedom and control has much more to do. And honestly, if I look at autonomous, you wouldn't build this type of vehicle. You'd build a much more A-to-B type of vehicle. Take me from here, take me there. You wouldn't have solid body on frame, you wouldn't have solid rear axle, you wouldn't have 1,000 pound-feet of torque, 800 horsepower, all of these capabilities. I think you'd build a much more, let's say, CyberCab, not to give sort of a simplistic vehicle.

Sure.

So I don't think it drives this segment. I think Level 2+ for sure is where we'll be and what we see they want. But we want to be a little bit more, let's say, old school, where we can put the driver and the customer back in charge. That we see as a megatrend. Like I want to be in charge. Screens aren't taking over.

Yeah. So you said, what was it, 2021, 2022, there's one employee. Yeah. There's hundreds now, thousands now. What is the scale of the operation?

1,600 employees.

With first customer deliveries in 2028? In '28, exactly. '28. So when do you actually start building out the plan to hire all those people? What will the company look like in 2028 when you're doing deliveries?

Tough. So, the plan is a ramp-up. When we look at '28, at the factory itself, we'll be roughly 3,000 employees. If I look across the total workforce, we'll be roughly in the zone of 3,800 to 4,000, somewhere in there. The preponderance of the workforce is going to be basically being doing 2 things. You're either making a car, or you're selling a car. I think one of the things we've done very smart is get all of the overheads out, SG&A extremely tight. extremely tight because we want people doing active things, which is buying a car and, of course, manufacturing a car. At the plant itself, if I look at the 1,600, more than half of that are down in the factory right now as we speak.

Yeah.

And that's because we're building the very first early prototypes. And I think this is a pretty cool thing that we're doing. What most companies would do would outsource that to a third party. They would then hand you the car. And you'd integrate into your plant. Since it's a new factory, we're training new workers, they've never made cars before, we want to get that muscle memory now. So we're building these prototypes. It'll make us much more stable for ramp-up, which, as you know, is critical.

What is the state of dealerships in the automotive world? How is it changing? Tesla's taking a different approach, but there's still shops where you can go see a Tesla. What will your strategy be? How has it evolved over the last couple of years?

Our approach is clear. We are going to go direct to consumer. We will be selling the vehicles directly to the consumer. And in my mind, I look upon it as 3 fronts. One, there's no debate that we can handle the transaction far smoother and far straight with a lot more transparency. We're going to build the ecosystem to do that. I think if you look at a brand such as Carvana, they've, with Without a doubt, proven there is a good digital path to sell a car and make it happen. I think the second thing today, I think there's no world where if you don't control the relationship to the customer, have all the data that comes of that relationship, you can't be successful. And the third one, without a doubt, is we are going to do a lot of work to build the infrastructure. I think where a lot of the brands you mentioned fell short a little bit is you have to have the service infrastructure built.

Ahead of the wave, not behind the wave.

And those are the big things we're focused on. We're executing that. And it's critical.

So what does that actually look like? I mean, it seems like one of the biggest challenges because you need to have service. Are you going to have a central service hub? Or I imagine that that's tough if you're having to ship cars around all over the US. Is there specific key regions that you need to be set up in? Like, I'm just curious.

You got it exactly right. I mean, the good news is it all starts at the factory. From the factory, we've laid out 9 distribution networks that we will have. We can put these in very smart locations where you can have lots of space, relatively inexpensive, and let's say line up the cars there. Then from there, they'll move into the retail stores. We will build 100 stores over time.

Okay.

What this allows us to do, we can be way smarter on inventory, way smarter on cost front, and then what you have now is a lot of these dealerships, you have extremely expensive inventory, extremely expensive parking, and we can put this in much less expensive real estate.

Yeah.

I think the other thing, speaking of real estate, where we see the action being is we can build in sort of Class A fronts where we can get off of Main Street, get off of the expensive stuff, and build it in smart locations. 85% of the investment will go into service since that's where the most critical function is.

Yeah.

And that's what we're building pretty much As we speak. But again, if we have the data from the customer, the data into our factory, and the data into our suppliers, we can sort of get out of this world of let's build a couple of thousand cars and send them across America and hope they sell.

Yeah.

Then they sit in a parking lot, they sit there for 120 days, you throw incentives on them, the RVs collapse. We can avoid that. We can be way smarter using data, using intelligence, using AI to get the right car into the And basically hold pricing power.

How important is the test drive to conversion in a direct-to-consumer relationship? Is it unnecessarily high? Should more consumers be buying cars without ever test driving them? I feel like—

I'm a psycho. I've bought probably 6 cars without ever test driving them.

Test driving them. That feels uncommon. We like that. But is that the future, or is Jordi actually Look, I think—

but I— but yeah, part of that is like I grew up buying things online. Yeah, very comfortable looking at a picture and a video and maybe a review and saying, cool, looks good.

And there's so many trusted car reviewers— Doug DeMuro, Forrest Auto Reviews— that if there's a consensus across 3 or 4 people that I trust, I'm probably just going to be happy buying the car. But, but what does it look like now? What do you think the future looks like?

Look, I think what we're planning for, we're planning for We're a startup brand that people don't know that well. And in order to get to know well, you're going to have to establish trust.

Yeah.

It's the number one word. I think we'll have phenomenal reviews. We'll have phenomenal reservations, which we have already. But when you come to these service centers, we want to have an environment where you can take a test drive. Beyond that, we're going to set up test drives, obviously, in the big markets and get this done. I think there will be a huge group that's going to say, I love this car, send it to my driveway, done. We'll take care of that. On the flip side, there will be a group that wants verification. So I think at this early phase, I would say 85% is going to want to get in this vehicle, drive it, test it out. We have new technology with the e-Rev. We have a new vehicle. And I think the more we establish trust, the more units in operation, the more all of that happens, then that's going to be fine.

It looks— it just looks— I can't wait to see it outside, but it just looks incredible.

It's awesome.

This is exactly what consumers want. I mean, you look You look at some of the new Toyota and Lexus models are solid and have been—

Yeah. A lot of these longer, newer projects, by the time they make it to market, they look outdated because, oh, clearly, the designs were from 5 years ago. This feels perfectly where the consumer is.

What happens with— it feels like the legacy manufacturers and brands They get very stuck on certain interior styles and materials, and the updates go from— everything I've seen from the interior with the Scout, it feels like you guys really considered materials and patterns and the touch and feel and all these things.

Yeah.

And have thought about it from the ground up. You would think that other manufacturers would just say, hey, why don't we just redo Why don't we— when we refresh this car, why don't we fully redo the interior? And what I typically see is these more like, hey, it's like 5% different, but fundamentally it still looks exactly the same. Why is it so hard to do a full, basically cosmetic interior refresh for these brands?

Look, you nailed it. One of the things we loved is the power of a clean sheet is one you have to take maximum advantage out of it. Yeah. What unfortunately happens in giant OEMs and giant companies is to make any change, there's a big giant machine, there's an existing factory, you don't want to alter tooling, you don't want to have new supply bases, so every little thing gets so expensive and so challenging and so difficult, which is why you see a world of, yeah, these slight tweaks. And they say all new and all this, and basically it's a tweaked fabric or whatever it is. I think what you see here, and I'm glad you appreciated this, is a grueling labor of love, love, love. We have fought every last thread on this vehicle. And I think it started with, boy, we're bringing back this icon. We do it wrong, we're gonna get mocked. And we couldn't just throw a Scout label on a vehicle and say, hey, here's this.

Good motivation.

Because the OGs will honestly reject you. Yeah, we knew if they rejected us, We're dead. It's over. Once we got them on board, then away we go. And that's why we're off to the races. But the reason it's so hard is you just get stuck in this big company world.

Yeah. The way that the car market moves, it oftentimes feels like manufacturers don't listen to customers. But I have to imagine they do look at social media comments and they are well aware of the feedback. But is it because of the planning cycle? So I'll pick an example. The Ferrari— there's a Ferrari community, Ferrari community, I'll say.

Nice mainstream example. I like it.

And when I say Ferrari community, I mean the group of people that care about the brand, and then the group of people that care about the brand and are actual buyers. But both of the groups are oftentimes confused with a lot of the actions of the brand. And I just have to imagine it's like, Is it the kind of thing where the actual response from the manufacturer is somewhat delayed, where it's more like this sort of like, yeah, we've been aware of this issue for 5 to 6 years, and now these sort of newer iterations, they'll be responding to that? Is that just because of the supply chain, or are they—

Look, the simplest thing is, look, at the end of the day, let's say you want to make a change.

Yeah.

So, the 2 big drivers of that change is, okay, what's going to cost CapEx-wise to make that change? Because you're going to have to retool at the supplier, depending on how big it is, and that's a few million dollars just for one slight little change. Then you may have a material cost change on the bottom of the bill of the car. And then you multiply that by 10, 20, 30, 100 changes, and all of a sudden, you're talking $100 million of CapEx and, I don't know, a couple hundred dollars of material cost on the vehicle. So, every change is just brutal.

Yeah.

I think the other thing is they work in big cycles, right?

Yeah.

You have your classic launch of the car, then your product improvement 3, 4 years later, and then the thing. I think the other holy grail for us, and certainly Tesla has done this quite well, is can you get changes that don't impact the physical hardware of the vehicle, which is all of the OTAs and all the things that we'll have capable on this vehicle as well. But why you don't see that is cost and cycle tooling and things. It's not like these people are asleep at the switch and aren't aware of it. They're certainly aware of it, but it's the cost, the time to go get that done, period.

Yeah.

Which is why you want to get it done first. We know this is a problem. We know this is a problem, but fixing it now would cost $1 billion and if we just wait another cycle, we'll be able to address it but in a much more cost-efficient way.

Exactly. And then potentially, you can find 50 of them or 40 of them or 20 and do it all at once, cycle it up and get Yeah. Because, of course, depending on how extensive the change, retooling the factory on top of whatever the supplier did, potentially change training within the factory, the knock-on effects are massive. Retraining dealers to sell it, depending on how big it is.

Does Scout have any history in, like, off-road racing that you're aware of?

You want to do Scout Challenge?

I do want to do—

Scout-only version of the—

No, no, I want to do, like, the Scout Baja Scout Expedition. The car?

The Paris-Dakar?

Or do it here.

Car is another way to go. No, 100%, it does.

Scout raced back in the big off-road races back in the day. We've been doing something. There's a cool guy up in Ventura here named Sean Barb. I don't know if you know him. And we sponsor him. And he's taken a couple of the vintage Scouts. And he's done some racing. And then we can't wait to get the real deal and go kick some serious—

No, it feels like you should try to put 100 of them together and even get a pool of buyers that just is buying them even to For, for just racing.

Yeah, mod. Yeah, exactly.

No, we'll have to show you some stuff, but Sean's done some cool things.

Well, let's go check out the car outside.

Let's do it. I'll let Jordi throw on that lav and we'll— That's cool. Thank you, Jordi. We'll walk outside. Uh, I think we have our cameras ready to rock. Let's go take a look at this vehicle outside. Uh, here, come this way. Excuse me, an UltraDome. We are outside here and we have our new sign up. Here it is, the Scout. Oh, look at this, looks so good. So this is it, I love it.

One of the first things you'll notice, we made this one the more urban version, if you will, right? Yeah, so it doesn't have the, uh, you know, the spare wheel on the back, it doesn't have the off-road packages. We made this one more urban cool I think you'll still notice, you know, 35-inch wheels.

Is that like a cork composite?

It's walnut, but it's, uh, you know, just super recycled stuff.

Amazing.

And then, Jordi, you can see kind of what I was talking about here. Just like get some real switches back.

There we go.

These are all for the, uh, accessories.

Nice.

These are all for the lockers that you can control.

This is a lot of hardware mechanical functionality.

That kind of, you know, people let go a little bit on this front. I think the other thing—

That works for both of us.

There we go. I love, I love the two-tone.

Yeah, yeah, it's super, super well done.

This is great.

Yeah, it'll hang on the thing.

And then what we didn't talk about is, you know, the magic of this vehicle is what's underneath. So it's body-on-frame, which means you have a frame, you put the hat on top of the vehicle. It's got a solid rear axle, which is super old-school. school technology. Yeah, we integrated the e-motor inside the axle. First time that's ever been done. Just to give you a sense of it, this is 1,000 pound-feet of torque, 800 horsepower. This vehicle's 0 to 60 in 4 seconds. So it's gonna be like a serious, serious machine.

And will you make a, like, a non-performance version as well? Less power and torque?

No, what we want to do is offer one platform, one foundation.

We'll let your right foot— your right foot can control the The pedals are amazing too.

Go check those out.

Yeah, you see the, uh, one of the other cool things of course is super short front overhang. Very hard to do with this type of vehicle. So you know, you get really crashy, all that. But this gives you all of the approach angle on this, which is awesome. Uh, another nice little touch the designers came up with. I think most brands, as you know, centers everything front and center.

We want to make them Much more like a piece of art.

So right here you see Scout on the right-hand side, like the signature side. And this is another nice design element. This is the range extender. So this is where the gas goes in. Obviously on the other side is where the battery charge will go in. This is what we call Earth's Plaid. So it takes us back to, you know, the original International Harvester. And super slick, super slick.

How does the range extender work?

The texture on the fabric on the inside.

So how the range extender works, which we think this is a piece of technology America is basically looking for, both of the axles are driven like a battery car. There's an e-engine right here, e-engine right there. And then that is driving the car. It gives you the torque. It gives you the instant pop, instant response. And then there's a generator in the back, which is basically a gas engine.

One of the smallest gas engines we've ever seen.

4-cylinder engine. And that, of course, is what gives you upwards of 500 miles of total range.

So it generates electricity that charges the battery that then powers the car the same way.

Exactly.

Yeah, so the reverse hybrid. You're flipping the hybrid system effectively, which is amazing.

Exactly.

Because there's no range anxiety. You can do the cross-country trip, 2-minute stops for gas, and you'll be totally fine. Yeah, I've seen, I've seen this pitched as the future before, and, uh, when I saw it, I was like, America needs that immediately. This is so logical and will satisfy the last remaining hurdle for so many EV buyers.

The view from on the back here is just incredible.

Yeah, really good.

It really makes you think like we perfected the car in the, you know, '60s and '70s, and then everything since then has just been like, you know, we tried to do too Too much to change it, and then, and then we're just going back, back to the future.

Exactly. And what we wanted to do is, you know, obviously there's cool technology now, but put it behind the curtain. Yeah. As opposed to like a good one, right? I just spent some time with door handles and things like that.

It's like, there's no need to make a flush electronic door handle, right?

Americans know how to open it. Just make it mechanical, pull the thing away, you go.

And everyone claims that like, oh, the range will double if you make them flush. And I'm like, I don't believe that. Maybe you're taking 2 miles off by giving me a normal door handle, but the security of actually being able to grab something and just open it like any other door is pretty hard to beat. Hard to beat.

And for a work vehicle that's going to be out in bad weather, you're going to have gloves on and everything else. You don't want to be mucking around with that type of thing.

Yeah, and I feel like the Suburban configuration, I mean, this is— I can't exactly think of— it looks bigger than the images, but at the same time, this feels easy to park and And parallel park in a city. I don't know.

2 vehicles that you mentioned, right? You mentioned the Defenders, you mentioned the Toyota Land Cruiser and things like that. So lengthwise, it's in that zone. It's a little bit wider than those vehicles.

Yeah.

One of the things you don't see here—

Yeah, it's that wide body that really gives it its— It's so attractive. Yeah, the stance. It's so— the stance is incredible.

Yeah.

And what you don't see here, of course, is we're making a pickup truck as well.

Yeah.

And I think the phenomenal thing about the pickup truck is basically the vehicle stays the same to here. So we can get almost 75% carryover, speaking to your question of scale and that. And then bed comes back, 5.5-foot bed, separate cab. And yeah, no, I think we've got the— we've got exactly what the market's looking for. It's fun.

I assume no plans for 2-door version?

Not yet.

I've heard that 2-door SUVs, none of them have ever been large, like widely successful for the long term. They've all faced hurdles among customer adoption. People say they want them, they get in there, they think about their family and they want 4 doors.

Exactly right. Exactly. I mean, I think what we can execute far easier—

It seems like the right decision. Would be a 3rd row, right? Yeah, 3rd row.

You can easily extend the, extend the frame and go out and put a third one there, which, which is something, uh, something you can do.

And even if it's heavier and you lose a little bit of electricity on the range, you can make up for it with the range extender. Like, you're still in very functional territory, which is great.

Yeah, and, and, and you mentioned a smart thing. I mean, the ability to upgrade the range extender is super easy, right? You can either add more power to the engine, you can tweak the chemistry, you can add a bigger gas tank if you really want to get super range on the thing. And so it's flexible. The other thing is in the factory, right? You don't have to completely retool and change the factory. This can be fully electric.

Yeah, pull back here.

Mix can hold.

Very cool. Congratulations. Yeah, thank you. We're doing something cool. You guys have to come down if you get a chance. Come down to Masonwood. Yeah, we'd love to.

I think everyone talks about industrializing America.

This is happening in the real world. Remarkable.

Yeah, the presence is insane for this. this size vehicle, it feels like you have like the, like the presence of like a Range Rover or Defender, but in this, in this form factor that's like just perfectly sized.

Yeah, yeah. Obviously we didn't talk pricing, but the vehicle is going to start in the high 50s.

And so a vehicle that is like this capable is a phenomenal price.

And I think that was one of the things, you know, that makes this work is the struggle that startups has if the suppliers can never give them good costs, right? And so they get murdered on BOM cost. I think we can count on the Volkswagen Group to get good parts pricing, get good material costs, make a good margin on the car right off the start, which is huge.

Yeah, this, this in the, in the high 50s compared to when, when I feel like people go chasing this style and silhouette, it's almost always in the high 70s that it's starts, uh, Trans Am, '88, '86. Yeah, yeah, exactly. And then, and then you end up with a car that doesn't feel as special from an interior standpoint or any of these things. That's great. I'm thinking of, uh, what's the, what's the chem— that chemical company that brought back the Legacy Defender?

Oh yeah, INEOS.

I know, I know a lot of people that are going that, that'll buy— I, I think the The project's incredible, the cars look great and everything, but, but people buying the Grenadier, they want it for that sort of silhouette and that sort of feeling and that lifestyle. But again, you're coming in much higher, and it doesn't feel like it's necessarily as designed for everyday life, which is why they're buying it as a daily driver, right?

Yep.

So you want the silhouette but in a daily driver package.

Yep.

And, and at this price point, there's going to be I'm not blaming you. Extremely competitive.

No, you hit it exactly right because a lot of people jump into this segment, but then it becomes a 4th car in the drive or it becomes a beach car or something like that. No, no, we want this thing to be an everyday, you know, everyday killer.

That's great. Well, thank you so much for showing it to us. Yeah, that's my choice. Thanks for joining us.

Excited to drive it.

Watch you guys all the time.

Thank you. Appreciate it. Come back, come back on as you get closer to launch.

100%. Thank you.

Yeah. Cheers.

Cheers. We're going back in the studio. And we will be joined by Mitchell Green from the guys just back on the show. Talk to him about the latest with the SaaSpocalypse. Short everything. Short everything. Who knows? Who knows? We'll get Mitchell's take. We'll get his take on everything. But first, let me tell you—

Price point. Yeah. Really, really competitive.

Let me tell you about Figma agents meet the canvas. Your AI agents can now create and modify your Figma files with design system context. And while we're bringing in our next guest, I'll also tell you about CrowdStrike. Your business is AI, their business is securing it. CrowdStrike secures AI and stops breaches. And CrowdStrike founder and CEO George Kurtz, uh, had a very detailed thread on X today. I don't know if we have time to read through it all, but we should get to it. You should go read it. Because he talks a lot about what pacing the frontier means for cybersecurity. And all of the cybersecurity companies are up and to the right today in the stock market as people take the threat of botnets and AI malfeasance more seriously. People are more optimistic around cybersecurity companies than ever.

Yeah, and CrowdStrike was You know, up around 100% year to date. So nice to see them up another—

Another 13% or something.

Yeah.

Yeah. Great stuff. Yeah. Scout Motors. Very, very fun. I'm really happy that Scout was able to come by and break that down for us. What a fun vehicle. And I think the thing that sticks out to me the most is the gas extender. I saw Forrest Auto Reviews demo a Chinese SUV that had that technology and I was I was like, I don't want them to be ahead of us. We need this technology in America.

I don't want them to be ahead of us in anything to do with gasoline. That would just be very un-American.

Yeah, yeah, yeah. And so you fill it up, and then you get extra range. And so there's just no, oh, I can't drive to San Francisco in this EV. I'll have to stop for an hour and charge, or whatever. That idea just melts away when you're just like, oh yeah, I can just put some gas in it, and I'm good to go. I believe we have Mitchell Green in the waiting room. Let's bring in the founder and managing partner of Lead Edge Capital back on the show. Great to see him as always.

Mitchell, whoa, how you doing? Here he is. What's going on? Nada, how are you? I'm a little tired. John had a rough weekend. I had a little too much time on my new simulator.

Oh yeah.

Late, late nights.

By the way, be careful going on it like an hour or 2 hours before you go to bed because you'll like when you'll be like, oh, one more lap.

No, that's it. That's it. Every single Friday. Friday. Yeah. Friday and Saturday, kids go to bed. I'm like, great, I'll get on the sim. I look at that eventually. I'm, you know, driving for a while. I look at the clock, it's like, you know, 10. I'm like, oh, great. I can, I can do it. Go another 30 minutes and go to sleep. Get a good night's sleep. Next thing I know, it's past midnight. My wife's texting me being like, you're really like waking up basically in the middle of a night's sleep being like, are you seriously still on the simulator? But it's the most, it's the most addictive. One more lap. No, it's one more lap.

I can do it. I got this. I get one more lap. Then you get like the second to last turn. You're like, ah, god darn it. Screwed it up. Gotta do like another lap. Yeah.

I'm, I'm well aware.

And then by the way, you're probably like pouring sweat. So you then get into bed, take a shower, and you're just like, then your brain has been fried with light. So yeah.

Yeah. Yeah. It's really bad.

People say don't I look at the small iPhone screen before bed. You're looking at a wraparound triple monitor setup. You're—

But John, so John, John, John built a track that, that we'll all be on.

Yeah. So we have a true evaluation for these AI models. We've debated a lot how capable are they? Are they actually useful? I had GPT-6 Astra go and find satellite footage of thermal and try and create a track in Assetto Corsa.

We should try to drive with them.

Yes, I took it for a spin yesterday. I don't have a full simulator, so I was driving with the keyboard. Not the best experience, but I'm sending it to Jordi. He's going to demo it tonight. 2:00 AM, he's going to be putting up hot laps and we'll see how good it is.

I'll send it to you too. I joke that there needs to be like an AI racing— there needs to be like an AI racing league. So I've debated like some of the best GT3 drivers in the world, like pro drivers. I'd be like, oh, you realize that like AI could build like a better car that could go around the racetrack. And you guys are like, no, no, impossible. I'm like, you do realize Elon Musk can land like a— can like take a missile and like land a rocket on a, you know, the same thing the size of my book— my like desk. Trust me, we could build one. And then I'm like, you know, the way we do it is each of the model companies can then sponsor a team.

Yeah, yeah, yeah, yeah. I mean, Gemini's a big F1 sponsor. You got CrowdStrike sponsoring. I say get the big labs on there.

You can get like Kimi. You can have like a global— Mistral could have one. You could have a global AI racing Racing league where all the, all the companies have to like fund their own AI racing team.

I think real life racing, there might be—

no, the real, the real test is, can you, can you, uh, put a humanoid in a simulator and actually get a competitive—

Or in a real car.

Lap time. Yeah, real car, simulator first.

A humanoid, that's pretty good. Yeah, look, I think AI— I've talked about it with a bunch of like guys that are principals at F1 teams. Yeah. You could get— like, it would be the— it's theoretically possible to get a— not a perfect lap, but you could— yes, an AI, an AI could drive a lap. But like, I will tell you, actually, on the simulator, the AI, um, in iRacing, like, for practice is actually pretty darn good. Like, the AI cars.

Yeah.

Like, I do believe in real life you could build it with enough money. Some billionaire, some company, if they wanted to build an AI car That would drive around the racetrack, I think it would be faster than any pro.

Yeah, yeah.

It's my guess. Because you could understand—

Yeah, but it's like, but it's going to be like chess where like even once the AI is, is like superhuman, you still want to watch, you know, Mitchell tearing it up.

Yeah, that's true. I know, maybe not me, but—

Other people. Yeah, yeah. Um, well, I mean, the, the AI story is growing a ton online, all debates over pacing the frontier, but I feel like at every moment, you've been very solidly grounded on what's happening in the real business world, what's happening in these real companies. So what have you seen since we last talked over the last couple of months on the development of just software companies, the real economy, overall health of the investing philosophy that you've had since you started LeadEdge? Like, what has changed? What has stuck out to you as particularly notable in the last couple of months?

Yeah, that's a good question. I think software continues, like the big enterprise, like sticky software. I'll just— I'll talk software and then I'll talk everything and everything AI. And frankly, I think there's people that you have that would know a lot more about the AI stuff than I would. Um, we have— but the best way to understand what's happening in software companies globally is watch public company software earnings. Yeah. Public companies' software earnings have been pretty strong. You know, Workday, I think, had said— I think they said like $400, $600 million or something of revenue was coming from AI. Now, it was some number and it was pretty large, was coming from AI. I think big companies, you know, big enterprise companies want their vendors ideally to like create solutions for them and work with them versus trying to rip people out and use new vendors and things like that. I do think, though, that the pace of innovation, you know, because of, of how AI and agents and all this stuff is only going to increase. And so like every company has a risk of being disrupted. I don't know if you're, if you're Stellantis and you got a ton of debt and Ford has no debt. Well, if you believe like robotics and humanoids and AI are going to dramatically change manufacturing, then Ford can invest and like Stellantis probably can't because they're paying their debt load down. I think you can take that to every sector of the economy. And so the people that are not innovating are going to get left behind. And it's— yes, it's easier to start companies now, but it's also easier for incumbents to be able to develop new products as well.

Yeah. So when I look at public company SaaS, I am typically keying in on something that's much more founder and— or even just management team driven. Like, if I see that there's a founder or CEO who seems extremely locked in, aware of what's going on, they're early, but they're not exactly aping talking points, they're thinking about the capabilities in a rational way. That makes me more optimistic. Is, is the actual capital structure and debt load of these companies maybe underdiscussed as, as a—

I think it just depends on the— I think, I think private equity gets— unfortunately, people bucket all private equity assets have to, you know, people bucket them as, oh, they have tons of leverage. They're all in trouble. Yeah. I don't think that's— by the way, it's like, oh, private equity-owned software assets have tons of leverage and are in trouble. But again, if you're a private equity-owned automotive company and you have lots of debt, or if you are a non-private equity-owned asset and you have lots of debt, you can't innovate. I think the debate needs to be more on like companies that are very, very highly levered will find it harder to try to disrupt themselves. And continue to innovate. And just because you're spending more and more money on interest income. And by the way, rates are only going probably one way because, I mean, I think one thing that's not appreciated— I don't think people are talking about it enough. And I'll actually talk about it from the car world. And you could talk about it like the collector cars, collector cards, like memorabilia is like real estate in San Francisco, real estate in Aspen, real estate in Jackson Hole, Santa Barbara, LA. like how strong parts of the US economy are right now compared to like a lot of parts of Europe. And you can just look at like, if you look at like the Ferrari world, the same car in Europe for like an SP—

Yeah, they're half the price.

Just, you know, sold in Pebble Beach for like $17.8 million, right? Yeah. Um, that car in Europe had never sold for more than like €8 million or €7.5 million in an auction like a month before. And I think it just speaks— and by the way, you can't bring— for the audience, why don't you bring the European car to the US? You can't for 25 years. So I think it just speaks to the strength of the economy, or at least some segment of the economy in the US versus anywhere else globally. Like, the amount of wealth creation that's happening is just astonishing. Yeah.

What is actually driving the wealth creation and the effects in the car market? Because It feels like it's super easy just to be like, it's all tech and AI money. But I feel like there aren't that many tech and AI people that are actually into the particular cars that I see.

Yeah, yeah, I know exactly. There's a guy, there's a guy who sold a big internet company. He's got a lot of Porsches. Yeah, but like, he's got a lot and buys them in every color and every shape. But no, I think it's Americans Wealthy American— if you were wealthy 3 years ago, and you were in America, you owned— and this applies not only to collect cards, it applies to probably not art, funny enough, because the art market actually hasn't gone crazy.

Oh, interesting.

But the collector card market's gone crazy for sure, like Michael Jordans and stuff like that. But I think it is a function of people were wealthy 3 years ago living in America, and a lot of those people owned equities.

Yeah.

And so today, look at the stock market. They're exponentially more wealthy. And they've since realized that they can't die with it. And they're not getting younger. They're only getting older. They can't take it with them. They're like, you know what? My son or my daughter is 28 or 32, or my grandson is 15 and is into cars or into watches or into whatever. And I think it's the same reason. And I think it's a combination of equity markets AI, secondaries in venture. I think it's like it's all of it conflated together and people are not— are just spending money.

Yeah, I heard another interesting—

more concentrated here than anywhere else in the world.

Yeah, I heard another interesting random thing that some family offices are allowing a portion of a trust to be invested in cars. And so sometimes the second or third generation might say, okay, great, like we're going to allocate 3% of this massive fortune to cars. I get to go to Curated with a $50 million shopping list and buy one of everything. And so there's, there's more people sort of securitizing and seeing this as like a financial asset.

It's not like— I think it's like planes too. Somebody told me that you can't even get a NetJets or Flexjet plane right now. Like you can't get one because if you're— if you try to go become like a new NetJets customer, they'll be like, we're sold out.

Whoa.

And it's only going to get worse. Like, somebody gave me the stat. You guys probably know it better than me, but like the number of people— if you believe that Anthropic is worth $1 trillion or $1.5 trillion and you believe OpenAI is worth that and where SpaceX trades, like those 3 companies create more gains than the entire internet bubble. Like, those people are going to go spend money. And just like if you want to know where to make money in collectibles or in cars or art or real estate, Just figure out— sit outside Anthropic headquarters and be like, hey, what do you plan to do after the IPO? What do you plan to spend money on? But I just think the amount of money that is— and by the way, if somebody has made a crazy amount of money very quickly and, you know, there's a— and they want to be at a house in Jackson Hole or Aspen, they want that no matter what. Or in downtown San Francisco and it's a 6-block radius and there's 3 homes for sale. Yeah. Well, then the buyer is kind of like price agnostic. He'll be like, I really just want to live there. I just made a bunch of funny money. The seller knows there's no inventory. And actually, I think the big problem in real estate right now is people are locked in the low-rate mortgages from 2020 and '21. There's like no incentive to sell.

Yeah. Hence, a lot of the poster cars going up in value a ton if somebody had it on their poster. poster of the car on their wall when they were a teenager. They make money in their 30s or something. They got to go get that car because that's the car they looked at every day when they were growing up.

How many, how many luxury car clubs do you think that Southern California can support? You have Thermal right now. You have Elsinore Ring.

Oh, yeah.

And you have—

Is that Willow Springs or is that—

No, no, these are 2. These are 2 new developments. Track-focused driver communities, clubs, whatever you want to call them, that are springing up, that are bringing on hundreds of new homes online?

My guess is— look, I'm a member of Thermal. Tim Rogers, who runs it, is a great guy. He's been at it for 15 years. My guess is he's probably like, good luck. I think it's a lot harder than people think. You need to build— you build a track. You got to get, you got to get enough members there so you can have like member race weekends, you know, like who wants to be the first 5 houses? I think it's, I think it's hard. I think it's tough.

Cold start problem. I like that the Elsnore Ring had a funny brand to it that, oh yeah, I know the Nürburgring, I'm never going to get to Germany. So if I can have that experience, but I looked at the length and it's like 1/5 as long as the Nürburgring. So it's not bringing that experience necessarily. necessarily. It's like roughly the same length as, you know, the GT.

I also think people need to— look, I, I truly believe that it is extremely dangerous to drive, um, street cars on a racetrack. Okay. I think, I think, I think the most dangerous is to drive street cars on a race— on a street crazy fast. Total insanity. Yeah. Um, people do it. I mean, people also die, like, you know, Call of Duty, like, you know, the guy that died in LA. Yeah. It's crazy dangerous. The next thing is driving a street car on a racetrack. And the thing that's crappy about America is, you know, in Europe, at least when you buy a fancy car, they can put 4-point harness seatbelts in them due to like, you know, European car regulation. In America, you can't do it. They don't do it. Driving a car down a racetrack at 170 miles an hour with a lap belt, I think is totally insane.

Yeah.

Like, when you can literally— and these are multimillion-dollar cars— when you can literally go buy a $100,000 to $300,000 proper race car that is very safe. Like, look at race accidents on Instagram or YouTube and look how people walk away from these things.

Yeah.

Versus you hit, you know, you hit the wall in a street car at 100 miles an hour, you're dead.

Yeah.

So I think that's something that people don't, like, appreciate enough. But, like, I think a lot of these crack— these country club tracks should actually not even really allow street cars on the track. If you want to be a member here, you need to get a race car.

Yeah, it makes— it also just makes way more sense to use track-only cars on a track. Like, economically, you can get away— like, if you're looking for like a specific style of car, the track-only version of the car will be half the price.

Yes, correct.

Exactly. Why would you not?

Yeah.

So what are all your guests— what are all your guests telling you guys about, like, AI? What's going on?

Like, well, I think, I think the thing that was— I'd be curious to get your opinion, but this weekend was like the most amount of infighting that I've ever seen in tech. And, and I don't know, throughout your career, have you ever— has there ever been a moment where you felt like there was this much sort of like fighting and disagreement from within the same industry, right?

Because I couldn't believe the 3 guys, the 3 guys that all run the companies actually all agreed though.

Yeah, which is causing a lot of people to be like, oh, this is a conspiracy, they're colluding, they're trying to create a cartel or a monopoly. And so I think that's what people are debating there. They're both debating like, is the risk real?

And then, no, although I don't know all 3 of them. I actually have heard Sam, by the way, is in the cars. I don't— I do not know Sam. I do not know Dario. And I don't know Elon Musk. Never met him. But I would bet that those guys are genuinely concerned that if this stuff advances too fast, it's just the unknown. I don't think they would say, we definitely know this is going to happen, but this stuff needs to be regulated. And by the way, I also think it's valuable that we have open source models because I don't think all the power She's sitting in the world of 3 companies either.

But let's, let's bring it back to racing. I mean, pacing the frontier to me, you can, you can— there is a racing analogy, which is, you know, you can be, you can be going extremely quick without risking at all. Right. Correct. And I've been on the, I've been on the track with you and you're driving at what you feel like is a very, you know, comfortable pace. And I might feel like, you know, we're going to go into the wall, but for you, that's You're fully in control. You're still— you're quick, but you're not going to risk it every corner.

What I do find interesting, though, is when the quickest guys are then telling you the car is too fast. Sure. We should slow it down a little bit. You probably might want to.

I think the halo in F1 does slow the car down. It is extra weight, and yet it saves so many lives. You could see the video of Lewis Hamilton almost taking a wheel, and it hits the halo, and he's fine. And, uh, yeah, that's an example of like—

I, I, look, I think what this really means, and I, we've said this for a while, this stuff is going to be regulated. It is not— it is go— I think if anything, the one fear is government overregulate things. Yeah. But like, when you have the best equivalent, you know, if you have— if you had— if you had Lando Norris Kimi Antonelli and Max, you know, Max Verstappen and Lewis Hamilton and Charles Leclerc.

Yeah.

And Piastri all saying, yeah, hey guys, we need to, we need to do some of this stuff.

Yep.

Maybe it might slow the race down a little bit, but we want to, like, we think it's important. You probably should listen to them because we have— you effectively have the same thing now happening with these, with these 3, with these 3 companies.

Yeah.

And like, you probably should listen to them. Now, again, it probably just means— it doesn't mean that AI is not going to be important, that it's not going to change the world and all this stuff. I think they're just saying like, hey, we probably need some regulatory frameworks. And by the way, I think the Chinese— I credit these guys for saying this, actually, because I think China is already thinking about this stuff. And I think they've been thinking about this stuff for a while on how to put in place proper regulatory frameworks around AI.

Yeah, DeepSeek founder.

Well, yeah, and even the AI, the sell-off today, I didn't understand because, I mean, I actually understand why it's happening. But if you read into their messages, it's not saying we don't want to still go fast and still continue to innovate. It's just that we don't want to hurtle off of a cliff.

Correct. I think that they're just like, we want to work as an industry To— but we want to work as an industry to make sure the proper frameworks are put in place. Like, I mean, it's, it's kind of crazy. I mean, that we read that, like, you know, you read that— it was funny, like a month or two ago, whenever the OpenAI hacked— whenever the OpenAI model hacked Hugging Face, like, can you imagine if you read like, oh, sorry, like JP Morgan accidentally hacked Goldman Sachs?

Yeah, it's a crazy, crazy storyline.

It's crazy sci-fi. Yes. And so I think that these guys, these people that run— guys, gals that run these companies are like, some of them are probably genuinely concerned.

Yeah.

Listen, we're not saying we got to stop. We're not saying we have to pause. It's just like, let's make sure we're all on the same page and where things are going. And by the way, there will be people that use these nefariously for sure. It'll probably increase. Look, I mean, I've talked about it for a long time. It's still shocking to me that nobody's built in the security world. I think voice fraud is going to explode. If you can recreate somebody's voice very easily, then think about what you can do by using somebody's voice to commit all types of fraud.

And Apple still hasn't fixed the Ryan Peterson was talking about this this morning or yesterday. Apple hasn't fixed the phone call spoofing. So, you'll get a call from Google.

Oh, really?

And it says on your iPhone, Google.

No way.

But it's a scammer that's trying to get you to reset. And if I wasn't aware that that was a thing, I would be much more likely to engage with somebody that's just calling from Google saying, hey, there's an issue with your account. We got to reset the password. So, there's so many of those.

I'm not a— we've made a couple of very successful cybersecurity investments. We backed Doug Song at Duo Security, and he built a huge business. Andrew Peterson at Digital Sciences. And literally, I think that the biggest risk today might actually be a cybersecurity attack, like the biggest global risk. I mean, think about it. People get mad when for a day or for like 3 hours, they can't buy an airplane ticket on Delta. Because the CrowdStrike Microsoft update. Now imagine the internet goes down for like 3 days.

Yeah, it would be a big, big deal.

It would be bad.

And that was actually Dario's biggest shift was in the past, he's talked about existential risk and there's a lot of people at Anthropic who have talked about wiping out all humanity, which is such an extreme scenario. You wind up having to deal with, well, what about people that aren't on Earth because they're in space? Or what about people that are on remote islands and then the Amish? But he actually grounded it a lot more reasonably, just saying like, I think that there is a small possibility that in the next year, you could have a massive internet outage via a botnet that takes over the internet.

Yeah.

And that would be bad. And that's much more tractable to get through. It's like, oh, okay. Like, yeah, you just get something that's misaligned and it just gums up all the systems of everything. And that's really annoying to everyone, and you don't have to jump straight to, like, the most extreme sci-fi doomsday scenario to be like, yeah, let's avoid that.

Here's a question for you. When do you think American venture capitalists band together to create an American Bending Spoons? Because you've got to imagine that there's some frustration of, like, well, we invest hundreds to billions of dollars in these companies, and then Mr. Ferrari comes in and buys them for pennies on the dollar. It'd be nice if we were also the buyer of our bets that don't actually achieve the tremendous outcome.

By the way, you're going to get Joe Lamont. I don't know him. I know of him. Joe Lamont ran a business called Trilogy Software that did back in the '90s and 2000s. And by the way, he tried to start his internet company, failed, and he's built a giant business. I don't know what's happened. I mean, I know it's still a huge business, but somebody's going to do it in the States. Probably some of these are good businesses, they're just overcapitalized, they were over—

Well, in my view, part of the reason why I think that Bending Spoons is going to print on a lot of these deals is that there aren't a lot of buyers. There aren't a lot of people that are willing to say, yeah, I'm going to spend $1 billion for this company that's not growing anymore. But when you're paying 3 times revenue and you can get A lot of efficiency.

When you're paying— look, if you basically got a business where you pay 3 times revenues, and you think you can run it for— so you buy a $100 million business for $300 million business, and you think you can run it with like $70 million of EBITDA or $60 million of EBITDA, well, then you basically paid yourself back. That's an amazing free cash flow yield on it. So yeah, these people are going to— they build like factories. Somebody else is— you're going to— I think you'll— I'm actually surprised you haven't seen more of them, um, you know, private equity-backed ones happen. But there's, there's a lot of investors, private equity, venture capitalists, buyout, you know, everybody, like, they just can't let go. And sometimes it's just like, hey guys, we've been in this thing for 15 years. Yep. Just sell. Yep. Like, who cares? Just get out of this stupid thing. Yep. And I think that's something else. I think that— I think people struggle with that.

Yeah, I think people have been surprised by Bending Spoons because they're buying like not household names, but household names in tech, as opposed to Trilogy bought a lot of companies, but a lot of smaller businesses that were not high-flying venture-backed. The founder's been on podcasts, and now Bending Spoons is going and saying, let's get these companies that you know, and we're hot, and we're backed by tier 1 VCs. And so, it's just a different sort of flavor and narrative to it, but I agree. Someone in the chat, John Exley's calling out Octave Capital.

Our friend Jeremy.

Potentially working on that, and I think there's other people too. Yeah, interesting stuff.

There's a lot of assets they get to pick. I can tell you that. There's going to be a lot more too. There's going to be a lot more, I think. Look, there's going to be some of the world's greatest companies created over the next 20 years.

Yeah.

Who knows if they're even the Anthropics and OpenAIs of the world? Like, there might be companies that never even existed. I've used this analogy, but like, had we sat here in '99, we wouldn't have talked about ByteDance or Facebook or Snapchat or any of these things. The $5 trillion— social media is a $5 trillion market today. Like, yeah, I think. And then A huge amount of people that are building new companies will fail. It's just like the failure rate will be high, and you'll have a few, but the prize is gigantic for the guys that win. There's a lot of companies from 2012 and 2015 and 2018 sitting around in 2022, and it will be '25 in a few years that people don't know what to do with.

Yeah, and I think a lot of the founders want to move on, start a new company. Do something that's with a fresh team, and we actually saw that with betting spins. One of the companies that they acquired was able to spin out their AI products experimentation division. Take the founders, some key employees who wanted to go on that journey. Other folks were able to stay with the business, and there's a whole different story and chapter emerging. Yeah, but always great to catch up. Thanks so much for popping on the show. See you guys soon, Mitchell. You're the best. Have a good one. Goodbye. Let me tell you about public.com investing for those that take it seriously. They got stocks, options, bonds, crypto, treasuries, and more with great customer service. And I'm also going to tell you about MongoDB. What's the only thing faster than the AI market? Your business on MongoDB. Don't just build AI, own the data platform that powers it. And we have some very special guests joining us right now. We have David Rosenfeld and Ben Gilbert from Acquired. I'm not even going to call it the Acquired Podcast. I think it's just Acquired. We need to adjust the cameras a little bit, but Thanks so much for being here. Congratulations on all the progress. What's the latest in your world?

You know, talking about home improvement.

Yes.

David and I have spent a lot of time—

You knew, you knew what was going to be viral this weekend and you were like, everyone's going to want to get away from AI psychosis.

Alex, Alex, calm down.

Touch grass and go to Home Depot.

We actually have already gotten a comment on our Home Depot episode, which just came out, was, thank God something to take my mind off AI.

How did you pick Home Depot? What stuck out to you about the company? Was it just the next one in the queue, or was there something that drew you to this company in particular that got your wheels turning? I know you found a lot of interesting stuff during the process, but what was the inciting element?

So it's like a top 5 listener-requested episode. There's probably a lot of people thinking, that's a boring company, I don't know why they did it, but we would get emails Every week, David, for the last two three years, saying when are you going to do Home Depot?

Okay, and where did you start? What was the initial research process?

Well, the most curious thing is how large it is. Yeah, I mean that every giant retailer does everything: Walmart, Costco, Amazon. These are general retailers. Home Depot is a specialty retailer. But somehow is worth, you know, fluctuating between $300 billion and $350 billion because home improvement is just an absolutely enormous category. And they own, depending on how you sort of frame the market, like 50% of the market.

Yeah.

And so they sort of, they picked the most interesting category to be in and then they built a business that had scale economies so they could negotiate the best prices, do the most volume. And so they're this giant business in a giant category.

Is the— yeah, yeah. Is the only source of strength scale economies? Has that been the story the whole time, or is the brand also important? Like, what else plays into—

College GameDay, baby.

College GameDay. Okay.

No, brand has been very important. Lots of things. I mean, the— come back to that in a sec. But we picked it for the reasons Ben said.

Yeah.

But then when we got into researching, we realized Home Depot is actually the greatest total returning stock, public US public stock since the day it went public. So like you could have bought any other stock, Apple, Nvidia, Microsoft, whatever, on any other day.

Since 1981.

Since 1981, when Home Depot went public, you would not make as much money as you would have if you had bought Home Depot. Home Depot on the day of its IPO.

They beat Domino's. Isn't that nuts? I thought Domino's was the best performing stock.

Domino's, Monsters is up there too.

Monsters is good.

Yep, yep, yep. Monsters number 2.

Even if you bought Nvidia on IPO day in 1998, nothing will exceed your total return with dividends reinvested compared against buying Home Depot on IPO day in 1981.

So there were people that put in $1,000 and what do they have now?

$17 million.

$17 million for a $1,000 investment. And, and it feels like— is Home Depot, because it has a consumer-ish brand, does it actually attract a different, different cohort of investors? Like, is it— is it— is the— is the actual investor base more diversified? Are there more employees who participated in that?

Yes. So they had this strategy that one of the unique things they did early on was instead of recruiting employees that you would for any retailer, you know, Walmart employees, they recruited former tradespeople. So plumbers, electricians, people that could actually help you with your home project. And the goal is, hey, if you buy, you know, a successful toilet and you manage to install it yourself, you're probably going to get interested in redoing a bathroom or building a shed or, you know, an ADU or something. And their goal was to kind of level you up. And they were in a category where they could take someone who was originally in to buy a $0.10 washer and eventually turn them into a $100,000 customer. That doesn't really exist anywhere else in retail.

Yeah.

And because they could do that, they kind of bet the company on being able to do it. And so they built this whole engine around this like shoot-the-moon strategy of We're going to get really big, we're going to get big fast, and we're going to motivate our entire employee base to do so. So even back in 1980, they were giving out compensation to employees like retail employees on the floor in the form of stock.

Wow. Which is—

these people became like multimillionaires.

Yes.

How important are the founders to the story? How singular is the founding story versus potentially a violation of the great man theory of history. Take me through the role of the founders in that journey because, yeah, basically till today.

Yeah. I mean, Home Depot is crazy because Bernie Marcus was the CEO and sort of the primary person, but it was this team and they all had different superpowers. So it was Bernie Marcus, Arthur Blank, who owns the Atlanta Falcons today, a guy named Pat Farah, who was the merchandise And then Ken Langone, some folks listening might know who Ken Langone is. Yeah, he was an investment banker, but he was one of the co-founders. And like, it was all part of this strategy, right? So like, Ken took the company public when it was basically a year old, 2 years old at this tiny valuation because he could. And then he helped architect—

$32 million. $32 million market cap at IPO.

Wow. And is that just like— is that just his unique ability as an investment banker to get that deal done? Because we've seen smaller IPOs happen through like SPACs, and there's some oddities out there in the market where I could see, oh, if this company 1,000x's, it could be a crazy story.

But I've actually been surprised that we haven't seen a super subscale company do an IPO in this market, right? Because you could imagine if you just took If you took, for example, 3 decently smart AI researchers and you put them in a vehicle and took it public.

Yeah, but it would go public at $10 billion already, so you don't have the upside. You can't— there's no scenario where you can do a $32 million IPO.

Well, okay. Yeah, that's correct. But at least the bankers would be able to price it much, much lower than that, and then it would trade up to some insane. And it would— right now there's too much incentive for venture capitalists to say, don't, don't do that. That'd be crazy. Let me give you $500 million and you can take some secondary or whatever. Yeah, there's a lot of reasons not to do it.

Robust private market financing, especially not for a retail concept. I mean, the retail concepts, they're capped, right? How big could it possibly get? But they sort of invented this like giant category and then took half of it.

And it almost happened with the VC dynamic, almost happened with Home Depot because Ken Langone got famous because he took Ross Perot's company public, like EDS.

Yeah.

And so when he and Bernie and Arthur were starting Home Depot, Ken took them to Ross and was like, oh, we'll just get my buddy Ross to finance this thing. And Ross, there was a deal on the table. Ross Perot was going to own 70% of Home Depot and bankroll the whole thing at 70%. Which today would be worth about $230 billion.

Yeah.

And the whole thing blew up because Ross tried to dictate the type of car that Bernie and Arthur were going to drive. They drove Cadillacs and Ross— bro, this is— you can't make this shit up. Ross was like, it was like, my guys don't drive Cadillacs, they drive Chevrolets. If you're going to drive a Cadillac, that's going to be a problem. for me. Okay. And so the Home Depot guys walked away.

It is sort of seemingly kind of random to be Cadillac guy building—

You have to remember that back then, like, a Cadillac was like a Mercedes G-Wagon and a Chevy was like a Ford Taurus. Like, the brands have now coalesced.

I know, but still, it doesn't seem like similar. It doesn't. I don't think of Cadillac as like the—

it was like, oh, you spent money.

Yeah, but you're running a home improvement contractor supply business.

No, Cadillac was what you get around on Wall Street on. It's a limousine company.

No, but I just think that's notable. They're not driving an F-150 or whatever.

Because the founders, including Ken, they weren't home improvement guys. They were retail guys who saw the opportunity in this category, had gotten into it in another company in the past, and then started Home Depot. Home Depot was basically Their prior company matched up with Costco. They knew Sol Price, who had started Costco. They saw what Sol was doing with Costco in San Diego, and they were like, oh, we can do the same thing with home improvement and it'll crush.

What was their rotisserie chicken?

You want my money? You got to LARP. You have to LARP as blue collar.

So what was their rotisserie chicken?

Yeah. Did they ever think doing a membership model like Costco? Did they ever pull anything else from Costco?

They pulled a lot from Walmart, interestingly. I mean, the, the obvious stuff they pulled from Costco, so it's going to be a giant warehouse, we're not going to face the labels out, you're going to have to go up to the pallet and, you know, just grab it off yourself however it shows up in the pallet. Yeah, um, there's those obvious parallels. Interestingly, they got a lot from Walmart, uh, the employee compensation stuff they got from Walmart, and then the, um, uh, what was the other thing they Oh, everyday low prices. Walmart sort of invented that idea of like things don't go on sale, it's just everyday low prices, and obviously they've moved away from that now, but that was Home Depot's ethos for a while too.

Yeah, but no clear hot dog lawsuit. Was it up only, or was there some dark days? Like what was the—

There was, the company almost completely died in 2006, '07 going into the financial crisis, but not for the reason you think. You would think like, oh, home improvement companies probably falling apart because the macro is changing and actually housing's at the root of it. Yeah, they had brought in leadership, a new CEO in 2000 who was just— the first few years were good, but then just absolutely the wrong person for the job. And the culture got kind of messed up. The whole value proposition to customers became like less and less clear. And they really tried to focus— it was a GE guy that came in, really tried to focus on Six Sigma. We're going to be as efficient as possible. We're going to have as few employees on the floor as we can. We're not going to hire expensive specialized employees. We're going to try to get more general retail staff. And it really watered down the whole value proposition. And actually, Frank Blake, who became CEO in January 2007, is credited with saving the company. If you ask Ken Langone, he said Frank absolutely saved the company.

Wow. What was COVID like for Home Depot?

Crazy.

The greatest thing that ever happened to them.

They grew.

So you're saying they may have been behind it? Behind it.

You're pointing fingers.

That would really be a conspiracy theory.

They built out an astonishing amount of supply chain and e-commerce readiness in the like 3, 4 years leading up to it. And I mean, they just had so much capacity for everyone who was trapped at home, wanted to improve that space in their home, but also didn't really want to go to the store to get all of this stuff. It was this like ridiculous, perfect thing that fell into their lap.

Mm-hmm. How, how do you square the fact that Home Depot has been on this tear? America seems to be very into these DIY projects, into building things. There's been this, you know, centuries-long buildout of the American home. And yet there's so many talking points about we can't build things in America. There's a housing crisis. There's not enough housing. How can these 2 things coexist at the same time? What's actually going on here?

Home Depot is the perfect end around this, at least in the early days, because it's, it's DIY. Okay. You don't need permits when you're just doing this yourself. You don't need permission. That was the whole ethos of the company. Contractors and pros now are half the business. Yeah, even still, it's mostly residential. Yeah. And a lot of that just skirts around all this bureaucracy.

Got it.

And I completely agree with you that America is not building enough housing, especially single-family homes. We're building a lot of condos and townhomes, but people want to live not necessarily in cities, but near cities and in single-family homes. And we aren't building many of those. Home Depot is experiencing like the most ridiculously awesome secular tailwind from that ever. Because America has a giant housing base that gets older every year.

Oh, yeah.

The median age of a home is up like 15 to 20 years versus when they were getting founded. And so for them, it's just this like almost an annuity that people need to be working on these old houses.

So new homes don't need as many trips to Home Depot. So you think Home Depot might secretly be behind the housing crisis? Look, you're the conspiracy theorist. You're like, you keep trying to put words in our mouth.

But how do you— Wow, this goes way deeper.

This goes way deeper. It's the most powerful company in the world. Forget the AI companies. This is why you would have made more money investing in Home Depot than Nvidia. You know, you need to apply the skepticism that you apply to every AI leader's blog post to the Home Depot team for sure. Every move they make.

Did you guys do any— did you guys do any Did you do any projects as part of your—

Oh yeah.

Did you like try to—

Did you add a 4th bedroom or something in your house personally?

I did some shopping trips. I didn't do a major project.

Okay.

Every time I go, I'm back 7 times. Like that retention, it's sort of like anti-churn. Like you can't get out with just one trip because you go and you're, oh, I need a different nail, I need a different screw, and then you're back there a couple times.

There's so many beautiful dynamics to it. This is it. Like, you know, at least for the DIYs and for the pros, Jobs can't stop. Yeah, you know, if you're trying to get something done on a weekend yourself, or if you're a pro, it's your job during the— you run out of nails, you got to go to the Home Depot. Yeah, yeah.

Uh, what is the retail footprint strategy? Have they been just growing the number of locations continuously? Have they been consolidating?

Is this a leading question?

Do you know the answer? It's nuts. Okay.

Uh, Home Depot grew stores Like crazy. I mean, seriously, it was like the original blitzscaling company from 1979 until 2006.

Yeah. And we're not talking like McDonald's scale, but we're talking thousands of stores.

2,300 stores.

2,300 stores. Okay.

And then they stopped. Okay. Dead stop in 2007. And they essentially didn't build another store until 2 years ago.

Whoa. Wow.

That's crazy. And was that just because they were—

I mean, that had to have driven so much of the performance because you have like, you know, one of your primary costs of, you know, all this CapEx. And then suddenly you're like, no, we're pretty much good. We have our storefronts.

And they just focused on e-commerce buildout and building more fulfillment centers and specialized fulfillment centers for e-commerce. And it was this like, okay, we already have most of the good real estate. We're just going to focus on store efficiency and building all of this fulfillment supply chain stuff. And now they've started building again. They're like, okay, we took— what was it, a decade and a half off and time to build.

So like they went to all the other leaders in the space, told them, let's just stop the expensive CapEx right now, make sure the margins are in a good place so we can get out, perform in the public markets, you know, tinfoil hat.

They wanted to pace the frontier.

That's what they did. The frontier.

Pace the frontier of their retail expansion. Is there? But on the structure of their actual retail footprint, is there a similar? You know how people will McDonald's, and I think you've you've you've illuminated this a lot on like is McDonald's just a real estate play? Like they own all the real estate. Does what is that dynamic with McDonald's? And then is that is it the same with Home Depot? Like is there a value to a company of just like getting a lot of retail space or like owning a lot of buildings? Or is that always just like a sideshow that people put too much focus on?

I actually don't know for McDonald's. The thing I do know for Home Depot is, it's not like you just look at their real estate portfolio and say, oh, that's half the market cap right there. But it does benefit them in that when they build a Home Depot somewhere, all this other stuff gets built around them. And then they don't have to go renegotiate the lease in 10 years or risk losing it to their competitor. They now do own Yeah. All or most of the stores because it's sort of a durability thing.

What are some examples of things that get built up around them? Like HVAC repair shop or something? Like, what are you referring to there?

Food, everything.

They anchor shopping centers.

Oh, okay, okay. Like whole— like there might be a Best Buy across the street or something.

Or a Target. Yeah.

Okay, okay.

Grocery stores, yeah.

It's not specific to what you need to do a home project.

They actually don't want you going anywhere else. The whole strategy is This should be your one-stop shop. We're gonna stock an insane amount of stuff, and you shouldn't have to go anywhere else for your project.

I think that robotics are gonna be another tailwind for them, because if you assume that a humanoid in, let's say, like, you know, let's be generous with the timeline, a humanoid in like—

1,000 years.

200 years. No.

Depends how much we pay for criteria.

10 years. 10 years. 10 years. Assuming you're walking out of your house in the morning and you can tell your humanoid, like, hey, I actually want a fence there, they'll just spend the day building a fence, right? And it sounds crazy, but today we do a lot of digital work like this where you're like, hey, I want to understand, I want to build this piece of software, I want to do this. This is going to transition into the real world, and it's just not that hard to imagine doing a lot more because you have this sort of latent labor capacity that you already have as like an individual, somebody, you know, with a house or whatever. And you, you, you're gonna probably want to do a lot more than if you have to coordinate with somebody and, and then there's someone else's fee and all this stuff. So I think that's interesting.

And, and yeah, I think you're, you're even more right than maybe you're thinking about because the logistics for getting this stuff to your house is quite unique. Like, Imagine trying to put, you know, 3,000 pounds of lumber through the Amazon logistics system.

Totally.

You know, and Amazon has built out some side channels to be able to do this, but this is all that Home Depot has been investing in for the last 20 years when they haven't been building stores, is this. Like, you can get 3,000 pounds of lumber in 2 hours at your house.

Have there been any, like, misadventures where—

I actually need lumber.

Where they've considered, like, going upmarket or going into Potentially like home decoration, furniture. There's a whole bunch of adjacencies that could be opportunities, but also risks.

Yeah. So the biggest one is HD Supply. Yeah. In the early 2000s, they bought a bunch of companies and tried to sort of squish them together and then make this distribution business like a different way to distribute to pros, pro contractors outside of using our physical store footprint. That ended up being this, like, big distraction. They needed to spin it off. Hilariously, a decade later, they ended up buying the most valuable part of it back. And it actually is part of the business now that they're sort of ready to do that expansion.

Interesting.

The other one is China and international. Yeah, just the culture around DIY and home improvement is not the same in most places of the world and definitely not the same in China.

So they tried to expand their footprint there and were basically unsuccessful.

They opened a dozen-plus stores, maybe dozens of stores. And, uh, yeah, interestingly, in China, um, it's not cool to be working on your house on your own. Like, why can't you hire someone to do that for you? Uh, the wealthy people want to live in cities which don't really need much DIY.

Sure.

Um, so it's a very different— All the buildings are new.

Yeah.

Seems very un-American over there. I don't get it. Potentially a completely different country.

Lowe's is roughly— has like roughly a third of the market cap. Was there ever a period where, where they were more neck and neck? Obviously. Yeah. Break, break down maybe that like the most kind of competitive period before they seemingly kind of ran away with it.

So Lowe's is over a century old. It was Lowe's market for the longest time. And Home Depot started, you know, many decades into Lowe's existence and then just went And basically discovered this new business model of giant warehouse store, 5 times the amount of square footage that Lowe's or any of these other sort of regional chains at the time, essentially hardware stores, had. And it turned out that your ROI on a giant store that had everything was much higher than your ROI on a bunch of little stores that had a limited number of things. And so Lowe's, to their credit, When Home Depot passed them in 1989, Lowe's really woke up to this and said, okay, we're completely changing our whole business. And so they started shutting down the old store concepts and building basically Home Depot clones at first. And then they, they kind of developed their own twist on them. But that's why they're so similar today.

Interesting. Do you have an idea for how Home Depot's e-commerce penetration maps to other physical stores like a Walmart? It feels like the urge to, I need this particular nail, I'm going there right now, the project must go on. I would assume that Home Depot, even if they've been successful in e-commerce, they haven't been as successful at shifting the revenue there as other retailers. But what's actually happened?

The sleight of hand there that Uh, you did unintentionally is for most people, most retailers, e-commerce equals delivery.

Yeah.

And that is not true at Home Depot. An enormous amount of their e-commerce is in-store pickup because in your case, you know, you're home, you're doing the project, you have the wrong size nails, but like you have 4 hours to finish this project. You got a family, you gotta go do TBPN stuff.

Yep.

And so you're not really willing to wait the extra hour to have it delivered to you. You're just getting in the car, but you want to know that when you get there, it's going to be ready for you. It's going to be super easy to pick up. So I don't remember the exact stat, but it might be like half of their e-commerce is actually pickup.

Yeah. I wonder where all this goes because I recently DoorDashed something from Best Buy and it was an amazing experience because it was faster than me driving to Best Buy and back because They found a local driver who was able to just pick it up. So there was like no way that I could ever outperform it because—

That was the first time you ordered like local delivery or?

I mean, it was just— it was the first time I ordered delivery that wasn't like food.

John discovers FedEx.

I'm wondering if they're more optimistic on that or drone delivery or anything else. Like, do you have any idea of where the current management team is seeing the future of Home Depot? Like, what are they actually excited about? Because sometimes it's just e-commerce, sometimes it's basic AI stuff, sometimes it's new delivery trends. Like every management team always has like a stump speech for like where they think things are going and maybe it takes a couple of years to get there, but what are they excited about?

Well, a huge focus of the company and most of their growth for the past decade or so, COVID excluded, has been from pros, from contractors and getting bigger and bigger contractors and builders more deep into their supply workflows. So, and e-commerce is actually a big part of this too. You know, a lot of the smaller contractors, residential GCs, they're already— Home Depot is their primary just-in-time supply and increasingly like their main supplier. But if you think about like really big builders, multifamily, commercial, You know, cranes, all big stuff. Historically, Home Depot has not been penetrated into that. They've been penetrating a lot more into that. So now, now you need like corporate relationships. Yeah. You need like orders aren't just like coming to the store. You need to be able to deliver it or, or go to the store, but it all needs to be in a very different enterprise kind of system. Yeah.

But it's not drones. Like it's not any of the things you were just saying. It's AI a little bit. They, they talk a lot in their annual report about the ways they're using AI to better help people find the right products that they want and use the website and build their IT systems and all that. But they sell big, heavy stuff.

Yeah.

Trucks.

Yeah.

I'd be a little worried if they were like, we're getting into drone delivery. It's like, oh, I'm happy to hear you're going to be flying lawnmowers.

Why don't you be the last?

Yeah, you're last. You're last.

Although rentals is a big part of their business. So you think about you need a concrete mixer. You need some kind of specialized tool. You need a backhoe.

Yeah.

Okay. So, I needed this episode to happen like 2 weeks ago because I got a bunch of dirt delivered. I wanted my oldest has like an electric dirt bike thing. And I was like, well, he's got an electric dirt bike. He needs a track. So, I got all this dirt delivered thinking, oh, I'm just going to use a shovel or whatever. I start getting out there with the shovel. And it's like, OK, now I'm basically doing kettlebell exercises for 4 hours straight, like moving dirt around. I even had Nick on our team stop by to hang out. And I was like, get ready to shovel some dirt.

Yeah.

Felt bad about that one. But I was not even aware that I could just get that equipment delivered.

That would be fun.

Question from the chat. Is the smell natural or is it engineered?

Uh, like, like, dude, have they—

because that feels like it's a part of the brand now. And so that's something they need to— like, if they lose that, like, they lose all the nostalgia and all the memories that kind of come flooding back when, when you walk in there.

Does it smell mostly sawdust? Is that what it is? I don't know. Anyway, what do you think?

You want to tell the store opening?

Yeah, yeah. So I don't know about the smell today. I assume it is intentional, uh, if not engineered. But in the early days, there's a famous story about the first 2 store openings. The store managers thought they were going to surprise everybody and like do a really fun thing for the store opening. They hired a cleaning crew to come in and polish the floors the night before. And then the founders come in at like 4 in the morning and they lose their tops and they're like, what are you doing? These need to be action places. We can't have polished floors. And so they grabbed a bunch of forklifts and started skidding them around the floors, and they sprinkled sawdust all over the place.

No way. Wow. Yeah, that's super thoughtful. Last question for me. I feel like you guys are fantastic at finding archival images, just odd documents. Was there anything from this process that stuck out as your favorite piece of Home Depot lore or fun fact or obscure image or document or something like that?

Yes. So we, uh, we relaunched a new website this year, and we've been working with this fantastic designer, um, and she, uh, she found this— she launched this thing called Artifacts. So if you go to acquire.fm/artifacts, you can see the artifacts we discovered from any given episode. She found the Moody's Manual from 1977 and 1978 that Ken Langone referenced when he looked at the original share price of Handy Dan, which is where the founders worked before they started Home Depot, and, uh, and became interested in their company. So I, like, I thought we were pretty good at this, but what Ellie has found is nuts in terms of some of the, the— Um, old stuff that you can do for our artifacts page.

Some of these annual reports are, are super, super cool. The, the visual design of the first annual report, so much imagery there. I feel like, uh, I don't know, this would get like dunked on in the modern era being like, too many images, not enough facts. But I, I think it tells the story really, really clearly. Uh, this is, uh, acquired.fm/artifacts/home-depot. The team's showing it on screen right now.

Uh, what What acquired episode should people go listen or relisten to, to have some historical—

What's the companion piece?

No, no, no. Costco, for sure. No, I was gonna say historical context for this moment in AI, where in tech, where there's like extreme tension, extreme infighting, you know, people that are generally aligned on a bunch of things are suddenly deeply misaligned and have different interests. Anything that stands out?

This was before acquired episodes were good, so I always hesitate to recommend this one. We were still warming up, but Standard Oil. Oh yeah. Okay. In like 2017, '18, we did Standard Oil. Yeah.

Yeah, that's good. And the other one I'd throw out is Lockheed. Lockheed Martin. Lockheed. Okay.

Interesting.

Obviously coming out of the wars, World War II.

But Last Supper, that there's a famous moment in the history of the defense industry. Yeah. Where the, the Secretary of Defense gathers all the prime contractors around at the end of the Cold War and says, we are shrinking our procurement budget and expect it to shrink basically every year for at least the next decade. And so there's going to have to be less of you. I don't have any say over antitrust, so I'm not really advising you to do anything anti-competitive, but you need to figure out how we have less mouths to feed.

Wow. And then sort of the punchline of the whole episode, which we didn't know going in but discovered, is Lockheed and the military-industrial complex created Silicon Valley. Like, yeah, literally Lockheed created the town of Sunnyvale.

Yeah, that's crazy.

And I think there were something like 10 times more employees working in the secret Lockheed Lockheed Missiles and Space in Sunnyvale than the rest of the tech industry combined at the time. I mean, it's like they, they literally brought everyone here and started it all.

All those early Silicon Valley startups selling chips, who do you think they were selling to? They were selling to Lockheed and the military.

Yeah. Wow. Yeah. Amazing. Well, we'll listen to those. Great to see you both. Let's hang out soon.

Let's hang out soon.

Great to see you guys. Yeah. Congrats.

Have a good rest of your week. We'll talk to you soon. Goodbye.

Cheers, guys.

Let me tell you about Console.com. Console builds AI agents that automate 70% of IT, HR, and finance support, giving employees instant resolution for access requests and password resets. Our next guest is with us in the waiting room. We'll bring in Faraj from CogniChip, the founder and CEO. Welcome to the show. How are you doing?

Great to be here. Thank you so much for having me.

Thanks for hopping on. Since it's the first time on the show, I'd love for you to kick us off with an introduction on yourself and the company.

Sure. Thank you, first of all, for the opportunity. My name is Faraj Alahi. I'm the founder and CEO of CogniChip. I've been in this industry for over 40 years, the last 30 of it in—

Overnight?

Semiconductor business. Yeah, I started when I was only 2 years old, guys. Straight out of the crib. Exactly. Yeah. Prior to founding this company, I founded a semiconductor company back in the late '90s, took it public on NASDAQ.

Wow.

And then I took another startup, built it up, and took it public on NYSE in 2017, sold it in 2019 to Marvell Semiconductors. I went on for 2, 3 years and did investing, You know, helping other entrepreneurs get their ship off the ground. And that's when I learned enough about AI to, to kind of have the light go on and see, realize that perhaps with AI I could actually solve some of the issues that I had as an entrepreneur building 2 semiconductor companies. And, and that's really kind of like it's been the mission for me now in the last 2 and a half years.

Amazing. What is your process for finding opportunity and how has it changed? Because are you looking at the applications of how people are using chips, where there's demand, where the bottleneck is, and then going and working backwards to design a chip that improves things? Like, you've been doing this for so long that it's clear that there's not a one-size-fits-all solution. So what is your process for actually discovering opportunity?

Yeah. So, you know, a lot of times, you know, ideas that you pursue in life come from your own experiences, right? So building these companies over time, I started to realize that the cost of developing any kind of chip is just getting bigger and bigger. When I started my first semiconductor company, I raised $50 million. When I took it public, I had $17 left in the bank still.

Wow.

The second one, I raised $200 million. And frankly, I took it public because I didn't wanna do another private round. I wanted to just go public. Public and raise public money. And now it takes several hundred million dollars to do a chip. Chip cost of developing chips has skyrocketed. Complexity has gone up. Time it takes to build a chip, to design a chip, it's 2 to 3 years. And, you know, then it takes another year or so to get your customers up and running with it. And then year 5, year 6, you start to make some money. And the problem is, is that the software is moving so fast that leaves chips behind by almost 6 years, right?

Mm-hmm.

And so we need to close that gap. And the third problem in our industry has been that we have diminishing number of electrical engineering students graduating to keep up the good work as the industry grows. So we have, you know, diminishing resources, more complexity in the chips, higher costs and longer time, and we're completely getting outta sync with software. My thought process was, as I was learning more about AI by investing in AI companies and learning from other entrepreneurs in that field, that there was a great intersection of these 2 really awesome technologies to be able to solve all that problem, collapse that time by a large factor, reduce the cost it takes to do a chip, and then we can do these chips a lot faster and that gets the software going faster, right? So you get this essentially this flywheel working. And so it led to the idea of building a frontier model lab that focuses only on semiconductors. So, unlike other large frontier labs that are working on general intelligence, I set out to build artificial intelligence for chips. So, we call it ACI, artificial chip intelligence. And giving that focus and that particular sliver of the world knowledge required really to bring together scientists from math and physics and pair them up with people who have 20, 30 years experience actually designing chips. People in this company on the chip side have done hundreds of tape-outs, which is the process of completing a chip. And sending it to a fabrication facility and then bring in other software people that can kind of encapsulate all of that knowledge and capability in an enterprise-class product that then chip designers can use to make the chip design a lot faster. What a lot of people don't realize is that 90% of the time in the chip business, our engineers are spending doing things that can be done by these models now. Right? And so what we need to do is to get those folks, instead of wasting their time, to be on the creative side where they can think about new products, new markets, new capabilities, and then use this, essentially these digital designers to help 'em get the project through. So that's been really a passion of mine for the last 2 and a half years.

How, you know, we've had a bunch of new chip startups on the show and you were kind of mentioning this earlier, just like, how significant the timeline is to get from concept to tape-out to powered and actually doing workloads. How much— these startups are taking some amount of technical risk, obviously execution risk, but then there's the other technical risk of like, is the architecture still going to be relevant by the time? And can I scale up my production enough We had a founder on the team yesterday that pretty much all the labs and the hyperscalers are saying, like, I don't just need to know that this is gonna work and be relevant when you're ready. I need to know that you can hit gigawatt scale. So how much— right now it feels like there's just demand everywhere. And so these companies are getting funded and they're getting kind of pilots and stuff like that. But how much do you worry about the sort of technical risk that these teams are taking on, knowing that every— there's so many different players that are going to be innovating over the next 5 years that by the time they actually are ramped up, will there be a real market for them?

And honestly, you put your finger on one of the toughest jobs for people in the semi industry. When we start a brand new project, whether you're in a small company or in a startup, when you start a new project, and you know that this chip is not gonna go in production for another 5 years. I mean, nobody on the planet has that kind of clarity 5 years from now what is needed, right? Because the world is changing and we're all limited as human beings about how far in advance we can see and analyze. And so the risk you're taking on acceptability of this device in the market is one of the overriding things. And the way we deal with it in the chip business, we used to deal with it, is recognizing it's going to take 5, 6 years to get there, is we pack these devices with a lot of things that may or may not be necessary. But it's sort of like our insurance policy and essentially hedging against what might change in the industry. Right. And so it's a very, very tough place to be because the chips get bloated, their power consumption goes up, their cost is unnecessarily high. And even with all of that, you don't really know whether you're gonna get there and there's gonna be a, you know, your hunt is not, whether a hunter's gonna, the dog is gonna hunt or not. So with, by collapsing the time in the time, you know, the collapsing time that it makes to do a chip, you're actually getting rid of all of those unknowns.

Yeah.

You're increasing the probability of you hitting the market dynamics that you want at the time you want it with the right kind of power and performance. And that we have not had in semiconductor industry for a very, very long time as chips have gotten more complex. And what my vision is and what I love to do is to be able to return our industry back to a point where, like I did with my first company, you know, 4 or 5 of us went to Sand Hill Road, raised a reasonable amount of money, and were able to bring a chip to the market and, you know, and get it, get it deployed and take a company public. That possibility needs to return back to our industry to bring the innovation back and frankly keep up with the world that has now woken up with the chip thing. And they want to, you know, we're going to have a lot more competition on the world scale. Right. And so we need these kinds of innovations to get us there.

In some months, there's been a variety of teams working on math-specific models. And it's been interesting over the last month or so as we've seen generalist models actually go out and solve some of the most important open problems. And we saw Navier-Stokes and everything. Why do you think that semiconductor design is going to work out differently than— and why is somebody going to be able to go 0 to 1 with a new chip with CogniChip And not with a more generalist model? Is that because of having the right data sources? How do you sort of compete over time, assuming that the frontier will just continue to advance?

So the models are as good as the data that you use to train them. If they've never seen enough of the examples, then they actually don't know how to get it done. And so no amount of reasoning is going to get you to something you've never seen.

Yeah.

Right? So it's very fundamental that you use the data from your industry to train these models. The reason large-scale LLMs are not good in chip design is because chip design data as an open source is actually not available, very little of it available. And what's available is not very useful, frankly. So what you need to do is to start from ground zero and build datasets that can be used to train a model, and then you train that model with that data. So the knowledge is inside the model, the reasoning is inside the model. And in that way, a specific model trained on a specific technology becomes very, very powerful, right? So the reason, for example, software, these LLMs do a good job in software because for the last 30-some-odd years, Software has had a history of having open source data widely available, and that's why a lot of these large frontier models do pretty well in software because they're all essentially consuming the same data. That doesn't exist for semiconductors, and we're the first company that actually took that on. And for the last 2 and a half years has been building a data mode that we think today is the largest data set in the industry for semiconductors. So if you train them on the right data, then they get the right intelligence. But that's also kind of not frankly enough because semiconductor industry is the process of getting a chip from idea formation to architectural innovation all the way out to something physical that, you know, it's going to have transistors that are physics items, right? All put together and working well requires complete understanding of the workflow that a mature semiconductor industry goes through to ensure that everything works. You know, when we talk about putting hundreds of billions of transistors on a piece of silicon and they work, they work because not one of them can be misplaced. Right. So you can't, you know, make things up. It's not like poetry. It's not like, you know, talking about some trip planning. Right. It needs to be— you need to bring that precision and that precision of workflow really can come from people who've done it and putting them alongside the mathematicians who can use the train. And that's, that's sort of like how we built this company out. We wanted to do the hard work because we think this is going to be for a long run a fundamental way that we're going to design chips. Our industry cannot go on taking 4 years to design a chip and cost hundreds of millions of dollars and not know whether there's going to be a good market for it or not. That's not sustainable. That's not investable.

Yeah, it feels like we're going to have biotech-style or pharma-style mechanics where you have this massive investment, and then it's almost a coin flip on whether or not, or worse, on whether or not there will actually be a market there and it'll function and scale. You said you raised $50 million for your first company. It's still a lot of money, but it was Definitely a lot more money back then. What was the prehistory? Why did— why were you so successful on Sand Hill?

Yeah. So, so this, this goes back to, to the days when people were using dial-up modems. Right. And, and we were inventing this new way of building a chip that was DSL technology. It's the way broadband is served to many of our homes today. And we had a You know, a good solid approach, a great team. It was one of the funnest times of my life when we were building that company. And we went from opening the door to having a chip in hand that we were selling and generating revenue. And we took the company public almost 3, 3 years to the day we opened the door. That still holds the fastest record that semiconductor company has gone from inception to going public. But, you know, in these kinds of things, you need to have a good idea. You need to have a great team. You need to have good timing. You need to have good luck. All of those came together for us, fortunately, in the first company. And it just kind of all clicked. And it was— we had a hell of a time doing it. And so that's how it came about. On the second company, we built a product for data centers. So data centers at the time were transitioning from 1 gig to 10 gig. And we built those world's first 10-gig chips and that was the success there. So this time I'm not building a chip, but I'm building a system that helps everybody else build chips faster.

Amazing.

Makes sense.

Very, very cool. Well, we'd love to have you back on as you continue to make progress and it's amazing to meet you.

Yeah. Thanks so much for hopping on the show.

Thank you.

Wait, also give us, what's the art on the wall? the chat was asking about. Is that Tom Brady?

That's Tom Brady. I'm a big Patriots fan. And so yeah, Tom Brady all the way and the Pats.

Amazing. Go Pats.

There you go. I bet you could get Tom in the next round.

Yeah, he might be interested. That'd be fun.

Make it happen. Awesome. Great to meet you.

All right.

I'll talk to you soon. Good talk to you. Thanks. Let me tell you about Codex. Codex is a powerful workspace for getting work done with AI agents, whether you're writing code, analyzing data, creating content, or automating business workflows. Codex helps you move projects forward from start to finish.

We got some breaking news.

What's the breaking news?

The president just phoned Jensen live on stage at the All-In Summit.

Whoa. Wait, Jensen was on stage?

Yeah.

Or the president was on stage? Jensen was on stage and he gets a call from Donald Trump?

Trump says the great thing about Jensen is that he can create the best AI chip in the world, but can't figure out how to put me on speakerphone.

What? That's a wild, wild thing.

Very big, big moment. So anyways, that's, that's crazy. Apparently, yeah, Mike Isaac says, okay, wow, per folks there, Trump called Jensen in the middle of his interview. He was on stage and Jensen put the phone on speakerphone. Well, okay. Jensen thanked Trump for his social media post this morning pouring cold Water on alarmism.

Yeah, Jensen's been anti-doom for this entire cycle. We'll see. We'll see where it all goes. I'm sure there'll be more. Brad Gersner chimed in. Do we have a new? Oh, there's a video. Do we want to play the video? Trump calling Jensen live on during the All In Pod interview. And I mean, we just read it out, so I think you know what's going to happen. But this is a wild.

The great thing about life is that Jensen can develop the most complex computer chip in the world that nobody can copy for 10 years, but he can't figure out how to put me on speakerphone.

He is on speakerphone. He is on speakerphone.

I think he must have had a hard time getting it set up.

Okay.

Mr. President, you're now talking to the planet.

The funny thing about life is that Jensen can develop the most complex—

It's the joke again.

—that no one can copy for 10 years, but he can't figure out how to put me on speakerphone.

An odd joke. Okay, well, anything substantive come out of it? I'm sure we'll know more tomorrow.

We'll be back.

We'll be back at 11 AM Pacific. Thank you for tuning in. Leave us 5 stars on Apple Podcasts and Spotify. I'm off to go get some rest, and we'll see you tomorrow.

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