State of the Markets and AI with Steven Wolfe Pereira

Welcome to the Boardroom Governance Podcast. I'm your host, Evan Epstein. In this special episode, I talk with Steven Wolfe Pereira, the founder and CEO of Alpha, an AI governance platform designed for board directors and C-suite executives, to discuss the state of the markets and the rise of AI. This is a new format that I may include from time to time, focused on timely developments that matter most for corporate directors and governance professionals. We cover a wide range of topics at the intersection of capital markets, technology, and governance. We discuss IPOs, valuations, and the health of today's markets, as well as the tension between private and public company growth. We also examine the pressures boards and executives face around performance, accountability, and compensation structures. A central theme of our conversation is the explosive growth of AI and its implications for governance. We look at OpenAI's future, the shifting power dynamics in leading tech companies, and the challenges of innovation moving faster than regulation. We highlight the unique responsibilities of directors in this new era of AI companies, including navigating ethics, legal accountability, and startup culture. If you enjoyed this episode, please consider subscribing, leaving a review, or sharing this podcast on social media. You can also support the podcast by subscribing to the Boardroom Governance newsletter at evanepstein.substack.com.

The Boardroom Governance Podcast is sponsored by the American College of Governance Council. The ACGC is a professional association of lawyers and academics in the US and Canada, widely recognized for the expertise and achievements in the field of corporate governance. The ACGC was founded by some of the most prominent US corporate governance lawyers, and today the organization includes over 150 practitioners and academics. The ACGC's mission is to promote a high level of professional standards among governance lawyers, along with a better understanding and broader adoption of best practices within business organizations. You should check out their website at amgovcollege.org. That is amgovcollege.org.

Steven, it's so good to see you again so soon after our last episode.

Great to see you, Evan.

You know, we're doing this in part as an emergency pod, and in the sense that there's a lot of stuff happening in the market. I had 2 guests that canceled last week, and I thought, you know, who can I talk to where we can have a fun discussion, a current discussion about what's going on in the market? And I thought about you, and you came up at very short notice, and here we are. So it's semi-experimental, but I'm excited to talk to you. About all these things, there's a docket that we've come up with, and I think a lot of directors and board members are asking the same questions. And I'm excited that we're doing this, and thank you again for doing this.

Well, happy to step in, and let's get right into it because the the markets are obviously at all-time highs, and there's a lot you know a lot of questions and concerns. So let's let's definitely get into it.

All right. So I thought we'd start with IPOs. So last week there were a couple of IPOs: Klarna. A venture-backed company from Sweden. It's been venture-backed for 20 years. Sequoia, one of the big backers, 22% of its equity owned by them. And Gemini, from the Winklevoss brothers of Bitcoin fame, one of the crypto exchanges, went public. And this is on top of other IPOs that happened recently, such as Figma, Circle, CoreWeave, Bullish, and eToro. So For a long time, for many years, there was this discussion that the markets were closed. It was not a good environment. Nobody knew what was going on. And there have been these IPOs that have been quite successful depending on what metric you use, but there's a lot of encouragement in the market. So let's start with that. Any thought with the IPO market and how that's going?

So it's kind of a tale of two cities, right? 'Cause obviously if there's anything that is tech, even infused with AI, Um, you know, there's going to be insatiable demand from investors for that. Um, but if it's not tech-enabled, you're seeing a lot of challenges.

Yeah.

And, you know, just—

It seems it's AI and crypto. Those are the 2 themes.

Sure. I mean, well, again, tech, AI, crypto, absolutely. Um, because you just look at the current administration and you see kind of what's getting supported and, or, you know, what's being regulated or not being regulated. Um, certainly there's going to be a lot of demand for that. But there is concern over kind of the health of the market, given the frothiness of the market. And I feel like people, certainly investors and a lot of the VCs, are trying to make sure they maximize this window as long as possible because they don't know when it's going to close. And obviously there's a lot of concerns about where we are with kind of the labor market. You see kind of the jobs reports coming out. There's a lot of underlying concerns, and now you're talking about a rate cut potentially. So So the health of the market I think is going to be a real concern moving into the fall and into '26, which is obviously a midterm year. But right now, obviously, if it's tech, again, AI and crypto, there's going to be a lot of demand for it.

Yeah. One of the things that, and I've been discussing a lot about this in my podcast, is distinctions between private markets and public markets. And for a long time, a lot of these tech companies that were staying private could raise a lot of money. We're talking unicorns, we could talk in decacorns, hectocorns. I mean, they keep coming up with new terms and higher valuations and avoiding in some way going public with all the complexities that that may entail. At least 2 things make me think about this. One, if you recall Airbnb, when they were a private company, they were at about $30 billion. In fact, there was a drop, a huge drop in the pandemic, and they had to raise at $18 billion. It was a big issue. Silver Lake, I think, came in. And then they go public and they go public at $100 billion. So, the public market had a valuation of 3 times higher than the private market, which was something that people and academics were saying that private markets were a bubble. It was like these VCs that were putting massive valuations. And now we see Figma, also a company that was almost bought at $20 billion by Adobe, that fell through for antitrust issues, and it goes public and it reaches $60 billion. So 3 times more in the public markets. Let me tell you something. I think that if founders realize that they can get treble valuations in public markets, that's a reason to go public, right? But I wanna talk about that because—

But isn't there a lot more to that? Because for example, When some of these companies actually get priced, they're leaving a lot of value on the table. And actually, it was kind of a good thing because if you looked at Klarna, there was actually a report in Barron's about this that, you know, the stock did not pop and it didn't have a triple-digit return, you know, the way that you've seen some of these other IPOs like CoreWeave and other ones. And that's actually maybe a good thing that they're not leaving so much—

For the company.

Yeah, you're right, for the company. They're not leaving so much on the table. And so Again, I think the question is who is making money in that value chain? Because a lot of times it's not the company. And certainly maybe it's, you know, kind of understanding the way that that is set up. And again, you look at Stripe and like all these other companies that are still waiting in the wings, they don't need to go public and they don't need to, like, again, access to capital's not an issue anymore, right?

But let me ask you something. So I can't remember, you know, these valuations change so quickly, but let's say that Stripe is a $100 billion private market valuation. If they could be valued at $300 billion, I mean, I think that number would make the Collison brothers say, you know what? It's better to have a 3 times higher valuation now.

But for what purpose? Okay.

Well, that you can acquire more companies, you can pay more people, everybody is happier. You have more capacity to act upon everything you want already.

But all those things they could pretty much accomplished as a private company right now. They could do secondary sales. They can actually give liquidity to employees in terms of selling their stock. Obviously, there's tons of capital available for them. They can acquire any company. So I think, and you've seen the reduction in the number of publicly traded companies over the past 40 years, right?

Yeah.

I mean, it's actually declined since 1995. And so I don't know, it's concerning to see kind of the concentration that you see in the market. In terms of how much of the NASDAQ or the S&P 500, how much it, it's being driven by just a handful of companies. Mm-hmm. And I think a lot of companies realize, you know, kind of the, the challenges and obviously a lot of the pressure, certainly with activist investors, to be a public company.

As most things, this is all about price, right?

Mm-hmm.

So at some point, Klarna, I think, had a $45 billion valuation when SoftBank came in. Clearly it, it, it was super high. Now I think the public valuation is about $20 billion.

No, it's $16 billion.

$16 billion. Okay. So clearly, it didn't reach, you know, public markets say, no, that was overpriced, right? So I think it's interesting because people tend to think, well, private markets, it's all these VCs that mark up their deals and it's all fake. But there are examples where actually there's a lot of demand. And maybe if you're an AI company and you're in a hot sector, maybe It's worth now, maybe it's worth more effort to be public if you're priced much higher. That didn't used to be so much the case. And I think it would be exceptional to find that because valuations in public markets are much more transparent. There's more disclosures. You'd think it's more accurate than in private markets.

I mean, one would think, but, you know, look at, look at Figma, which is interesting. You know, Figma obviously had their huge pop in their IPO. You know, I think they hit a high of $142, you know, almost $143 a share. It's now trading at $53, right? And it's actually down 54% for the year, right, since they, since they went public. So, you know, they've settled in at, you know, $26 billion market cap. And again, this is a point in time—

Which is $6 billion more than what they would've gotten for the Adobe.

Absolutely. But it's the kind of thing where it's like, how do you really find, you know, kind of that balance? And I feel like the, There's so much pressure to perform and to keep on growing. And the minute that any of these companies have a hiccup, they're gonna be taken down because the growth expectations are so high for every single tech company. So unless you could really guarantee that you have the growth engine to keep on delivering, you know, kind of beat and raise every single quarter, like why take that risk?

Mm-hmm.

I just feel like you, you see people waiting, you know, um, you know, kind of founders waiting as long as possible to even think of, okay, now we're gonna file the S-1. And again, it really depends on, are the VCs pushing for it? Do they need liquidity? Do they need tech? I mean, there's so many different factors that go into it, but just overall, I think it's gonna be challenging to see which are gonna be the companies that are in tech that are gonna continue to go public. Because if this window closes, you know, outside of maybe like an OpenAI or some of those, you know, real outliers, I think it's gonna be tougher, you know, kind of your— average, in quotes, tech company that doesn't have, you know, superstar growth, how they actually go through that window.

You just made me think of Oracle and what just happened there with 40% in the market cap after the earnings. I mean, there is something going on in the market where these prices are crazy and it's hundreds of billions moving back and forth. What do you think of that Oracle valuation?

I mean, the first thing is I wish I still had more of my Oracle stock because Oracle acquired a company that, um, that I was at called DataLogix, you know, about a decade ago. I mean, look, it just goes to show the insatiable demand that every single investor has for AI.

And Larry Ellison becoming the richest man in the United States, right? In the world, I suppose.

For a brief moment. I don't know if he's still having that title, but it is just incredible. But it's, you know, kind of one customer in OpenAI, you know, that deal. I think after the euphoria over this kind of stuff, when people start to kind of scrutinize these numbers, you're gonna see that we're, we're really in a bubble right now. There's, there's no way around it. I mean, um, you know, my, my co-founder from, from my new company Symmetry, Tom Chavez, he wrote an article talking about how we are in a bubble.

Mm-hmm.

And, you know, the good thing about a bubble, and we, you know, kind of did this very cool analogy back to the early days of the internet. Think about all of the fiber that was laid. If you remember the companies back in the day, Level 3 and Global Crossing, and, you know, kind of all the fiber optic that was laid, they completely overinvested and the market bit up all those companies. A lot of them are gone or they've been acquired, but that infrastructure buildout really laid the foundation for the internet wave that we saw for the past 25 years. And we're kind of in that moment right now where you're seeing all of this bubble kind of hype up all these companies. There's so much demand and you're seeing all this buildout, but you're gonna see the shakeout because the difference now is you're seeing the compression and the speed for a competitor to kind of spin up a, you know, very similar type of offering if it's kind of software technology related. It's so easy now with AI. So how do you really defend these moats? I think it's going to be very, very difficult.

Well, it's funny because the new cable seems to be data centers, and it's like $3 trillion their outlay, $1.4 billion coming in from the, you know, Big 7 or Magnificent 7. I mean, we're talking about $3 trillion, right? Like, it's totally off the chart, and clearly Maybe that we're gonna have a lot of data centers, a lot of electricity. It's all about energy these days, but there you go. People are putting a significant amount of money there.

But that's also an interesting investment angle. And obviously all the private equity firms, you know, I remember there was a conference that The Information did at the New York Stock Exchange earlier this year, and they had Blackstone, you know, kind of General Catalyst and a bunch of other, you know, kind of capital, you know, providers talking about why they're investing in the infrastructure. Because if AI is truly going to become the operating system of society, then we need a lot more energy to power it all. And we're nowhere close. And, you know, we are in a global race. It's obviously between the US and China.

Yeah.

And when you see the ability to kind of really spin up either nuclear power or whatever it is to kind of power everything that we're going to need in terms of AI, and we haven't even seen the beginning of the next wave of internet, I mean, of the AI revolution being agentic, you know, there just isn't enough power. And so we are in this kind of very, um, dangerous and competitive AI race, and obviously everyone's trying to race to, to fund it.

Yeah, you know, talking about one of the big players here, OpenAI, they just announced $10 billion in secondaries, uh, meaning employees of OpenAI are gonna, you know, come out with $10 billion more. I think they've already sold $6 billion. So, this is a company that hasn't gone public, that's going to have what, $16 billion of secondaries in whatever year they are. I suppose you're 10 or I suppose you're 4 from having their first ChatGPT moment. But what do you think about that, the rise in tenders? I guess it goes hand in hand with the idea of, look, We're not going to go public. We're going to stay private. We're going to allow investors and employees to get this secondary money, and we're going to keep going and keep raising and keep raising. I think they are signaling $500 billion valuation, and they are just continuing. And the biggest story, of course, is it's restructuring, and they announced some deal that is non-confirmed deal with Microsoft where they're going to convert their for-profit entity into a PBC. The nonprofit is going to remain nonprofit, although that's subject to big regulatory oversight. The state of California and the state of Delaware have that enforcement. And there was news that they were kind of saying, hey, we're going to leave California if you don't let us do this, right? So that's a big story. The latest that I read is that they are valuing a new stake for the nonprofit at $100 billion. And I don't know if you saw this, but they say that they have a new People First AI Fund, and this nonprofit is going to get $50 million grants to nonprofits for AI literacy and public understanding, community innovation, and economic opportunity. So my question, Steven, are you applying for a grant? $50 million right there, man.

So, um, You know, they they set up. All right, so you just covered a lot of things, right? So I'm trying to keep track of it in my head. So while we take that last one first, so the OpenAI Foundation they actually set up a committee that included folks like Monica Lozano, who's on the board of Apple and Bank of America. Dolores Huerta was actually a part of that as well, and really trying to figure out if this is going to be. Certainly a generational wealth event in the state of California, how do they actually set up funds to help the community? And so that's kind of a little bit of the background as to why they set up this foundation and obviously doing the grants. So I think it's a good thing. Obviously there are some very famous endowments like the California Endowment that was actually set up through these kind of transactions, companies going public and getting the funds. To help the state. So, you know, I live in Los Angeles, you know, I love California, and, you know, certainly these are good things. But tie this to kind of the secondary sale, you know, it was actually initially going to be $6 billion, and they actually raised the sale to $10 billion. And so this is unprecedented where, you know, kind of employees are now going to be able to get value out of their stock in a way that exceeds, you know, an IPO or maybe an M&A transaction. Again, back to why does a company need to go public if you can actually do all the things and you have all the features? Again, it's a, it's for special companies. You know, there's, there's, you know, different, different classes of citizens here, right, in corporate. And, and certainly OpenAI is going to take advantage of all these benefits, which ties to the fact that because they know how important and special they are, they want special treatment. And so now it's like, oh, if, yeah, if I can't do this here, Well, then maybe I don't need to stay in California. And obviously you saw Elon kind of moving Tesla and kind of you see everything happening, you know, with the Delaware, you know, uh, Dexit, you know, people leaving. I, I feel like everyone that has, um, kind of—

they're holding all the cards. Now that is real leverage, isn't it?

Yeah, yeah, no, but, but this is the point. If you hold all the cards, if you're that special of a company, you have that much power to wield, well then the rules don't really apply to you, right? And so it's an interesting flex That, um, I don't know, it's concerning moving forward because it just goes to show the concentration of power inside of these companies.

Yeah, what was it saying? Like, if, if you owe a million dollars to the bank, they own you, but if you owe a billion dollars, I guess, you know, they owe—

That was the famous Brady Bond, uh, situation with Latin America in the '80s.

Yeah, I say that a billion and so it sounds so quaint. It should be like $10 billion or a trillion at this stage. You know, money, dollar is not what it used to be. But yeah, no, certainly it would be huge for California. That's a big negotiation. I think it's gonna be really interesting to see what goes on there.

But zoom out and just see where we are. And again, you can't avoid anything that is not touching AI and certainly technology in general. And so the Magnificent 7, if you look at those companies, They are roughly, call it a third, you know, anywhere between 32 to 36% of the S&P 500 index. That is astonishing.

Yeah.

That is also not healthy. And it just goes to show the dominance. And, you know, maybe a company like OpenAI would actually say, you know what, I really do want the benefits of being, you know, a publicly traded company because I could actually even get more power and, you know, the valuation would get even bid up even more. So, you know, certainly, If you see that Magnificent 7 and you add OpenAI to that, or maybe Anthropic if they actually kind of all make it out, but maybe call it 10 companies that are basically going to be, I don't know, in the next couple of years, maybe it's half of the S&P 500 value. That concentration of power, those companies can do anything.

Yeah, which is a whole different situation in terms of governance and how we think about them.

But then does governance even apply then? I mean, it just, no, seriously.

Yeah. Yeah.

Have it, having some real talk. So much that we see in boardrooms a lot of times is theater.

Mm-hmm.

And, you know, people are going through the motions and they're asking the questions cuz they need to ask a question, all that kind of corporate board theater. But if you are a tech company and you're like, hey, I have all the power, I hold all the cards, you know, I'm not even gonna play by these rules. I mean, come on, look, look at Elon and, and Tesla and, you know, kind of his latest, you know, kind of comp package.

Mm-hmm.

Right? I mean, the governance doesn't seem to apply to this kind of class of companies.

Well, I mean, that's a big topic because you would hope that it still applies. There's still regulatory oversight from the SEC and the DOJ. There is still, to some extent, plaintiff litigation. Of course, Elon went to Texas, and now in Texas, you need to have 3% of Tesla stock to Sue them, so it's only like four entities that own that amount. So you've they've basically kind of recused themselves from shareholder litigation. But you would hope that the board would still be accountable. Look, the let's talk a little bit about comp, right? So the comp of Elon, his original comp is still pending under the Delaware Supreme Court, and we'll see where that goes. They just approved a new package of a trillion dollars. Now, it is a really interesting. interesting comp package because he's got to generate, I think, $8 trillion in value. So it's, again, it's got the same structure. And I find it to be really interesting because it really uses kind of a Silicon Valley framework where, look, you get zero if you don't generate any value, but we'll give you a huge package if you reach these crazy numbers.

Yeah.

Now, Elon created, made it the first time under nobody believed they could do it. I mean, $1 trillion for Tesla is more than every other car company combined.

Yep.

And if you look at that, that's kind of a really incredible valuation. A recent company, and, and I kind of mentioned this, Open Technologies, right? I don't know if it's a meme stock, and it's just gone through like an incredible rise in stock price. They just brought a new CEO from Shopify, and he's got a package as well where He's only getting paid if the stock goes to $33, and then he gets paid $2 billion if it gets there. I think the stock is at $9, right? So there is, and there was these mega grants at some point, you know, emulating Elon, but they're very hard to get, right? You gotta have a lot of metrics that's not only tied to your stock price, but it's tied to performance. And what happened in the Elon situation is the court found that, look, that board was just— the independent directors were not really independent and you got procedural issues.

Absolutely.

So I think it's a real topic. I think it's subject to litigation. Whether leaving Delaware gives you more leverage is something that's discussed very much in the governance world, whether Texas and Nevada is a race to the bottom. But remember, the Magnificent 7 under political pressure, both from Republicans and Democrats, So, I think it's interesting because in China, for example, they said, let's get away with these people, right? We don't want to— you're not going to get anywhere near a Mark Zuckerberg or Elon Musk category.

I know, but this is the capitalist wild west.

Exactly. So, here we are.

This is capitalism Mad Max style, right? Like, they love this.

Yeah, yeah.

And, you know, again, think about— first off, think of what has happened with Google. Google being one of the Magnificent 7. And again, for your listeners, if they don't know who the Magnificent 7 are, Apple, Microsoft, Alphabet/Google, Amazon, Nvidia, Meta, and Tesla.

Right.

So those are the Magnificent 7. And when you think of where they went from, call it a decade ago, they were like 12% of the S&P. Now they're over 30%. And so understanding that these companies reign supreme and they just get away with, with everything. I mean, the fact that Google went to antitrust, they were, you know, kind of being threatened to be broken up to actually remove Chrome and the browser and their ad tech monopoly. And they basically just get a slap on the hand. And so what, their stock popped like $200 billion or something like that because basically no one's really going to challenge them. And then on the flip side, you see kind of like traditional media companies. I'm sure you followed it, but you know, the crazy pay package that David Zaslav had at Warner Brothers Discovery and how they basically like changed the goalposts and was like, oh, you know, it's actually not going to be this kind of form of comp. And, you know, these aren't the targets. We're going to make it about cash flow. Right. And so obviously making it easier to kind of hit those pay packages. And then over the summer, you know, there was the say on pay that, you know, a lot of institutional shareholders, they rejected. They said, no, like, we actually don't approve this. So that's an example of where the shareholders you know, kind of did hold management accountable. But if it's a tech company and all your shareholders love what you're doing and they just— again, it's this kind of unique, um, you know, kind of— it's, it's delusions of, wow, the, the myth of the tech company, the founder, because obviously a lot of them are founder-led companies. There's something special where they get, you know, this, you know, incredible treatment, whether it's on the regulatory side, whether it's on the shareholder side.

They could just do these things and no one is standing up and saying, Well, I can tell you that Google, for example, just settled a shareholder litigation where they committed to put $500 million on more compliance, having a committee of compliance. You know, people can be skeptical, and I think this is gonna yet to be seen. And some people are trying to curb and try to really have these boards more accountable. But this is a big theme. You know, this is what we do. You know, board governance is—

Wait, so a $500 million slap? Slap, with a slap on the wrist. In Q2, they did $96 billion in revenue, right? Their CapEx is like, you know, like $85 billion. So I mean, it's just, it's kind of crazy. These are, these fines aren't commensurate with the actual value of the company. They need a different type of, you know, kind of calculation that's either a percentage of market cap or revenue.

Trillions.

Yeah.

I mean, it's just a joke.

Well, if they'd rather pay the fine. Well, yeah, I mean, I think Anand Anmati at Stanford, she has a paper on this, right? Like where, you know, if you'd rather pay the fine and it's better for shareholders, then you'll do it, right? So how does governance operate in that way? And the system as it is is not working. You know, think about Meta and Mark Zuckerberg realizing, look, I need to get AI in motion and I'm paying $100 million bonuses for employees to come and work in the company. I mean, $100 million. I mean, this is LeBron James kind of numbers.

Or just think about the way they structured the acquisition of Scale AI, right? Only doing 49%—

Let's talk about Scale AI because maybe a lot of, you know, we kind of know what's going on in the market, but maybe explain that deal. Like Scale AI, a hot, hot new startup company, Alexander Wang, Facebook comes in, Meta comes in, we're gonna pay $14 billion for 49% of the company, so a valuation of $28 billion. And Alex Wang comes in, runs AI, But it's like, this is what I heard this term the other day, which I love. Instead of M&A these days, we have L&A, licensing and acquihiring.

That's right.

So essentially, you go out, you take one of these companies, you license the technology, you pay a fee, a nominal fee. Now, it could be in the billions, but it's still not the venture returns that these investors are looking. And you hire the founder and the top employees, and you pluck away the fruit. And it's changing the dynamics of venture. I think Windsurf had this with Google.

Absolutely.

Amazon did this, Inflection AI and Microsoft, right? So this is a new world of LNA, licensing and acquihiring. What do you make of this deal structure?

So one, this is just another example. And look, I work in tech. I obviously believe in the power that technology can change either society, you know, the way that companies operate, efficiencies, effectiveness, all that good stuff. But there is also this incredible group of folks that are just so smart, they can outsmart these structures. And this is why I think we have a true governance gap. The traditional way that governance has been working is just outdated, and it's not ready for this AI-led revolution for the way tech companies are operating. And so what does, you know, is it AI governance? Is it tech governance? But thinking about the way that these companies need to be governed, you know, Scale AI is a great example. So you have this company that basically did data labeling, right? The way that all these companies, by the way, you know, and Uber and, you know, kind of other companies did this as well, where, oh, you know, we're not gonna have employees on our books so we don't have to pay benefits so we can get around those kind of regulations. Um, you know, they're doing data labeling and they have people all around the world in places like Africa and, you know, other places in Latin America actually, where you have people labeling data so that you can actually train the models and, Obviously, that's a huge asset because data is truly the new oil. This is the most incredible asset that you do not find on a balance sheet, but every single company's data is going to be the differentiator because you only have 2 real moats in the AI world. It's going to be your brand and your data. And so they acquired 49% non-voting stake in Scale AI for, call it roughly, almost $15 billion. And now you actually have access to this company. You bring in the founder, like you said, they set up Meta Superintelligence. The downside is that you now have kind of, you know, 2, you know, kind of groups inside of the company that you have all of the cool kids now under superintelligence, and then you have everyone else. And so there's infighting already, and it's very Game of Thrones. But this whole idea of the acquihire, people have been doing it forever. I mean, think about, you know, Instagram and WhatsApp. I mean, people were like in shock that, you know, they acquired WhatsApp for a handful of people for $19 billion.

Mm-hmm.

Right? But you're trying to get this whole war on talent and you're trying to really kind of corner the market as fast as you can. And that's why this isn't for the faint of heart, but the regulations and the governance can't keep up with the innovation in terms of how do I get the talent, how do I get the data, and how do I really win?

Yeah, but here's the big difference. LNA for WhatsApp would've looked like We get the CEO and the founders and a bunch of employees and we license WhatsApp.

Yep.

So the investors of WhatsApp would not have had the windfall of $19 billion, right?

Correct.

So for the VCs, it's a big difference, right? So I think the VCs are looking at this very nervously because, you know, they're putting all their money and then suddenly the founders leave. And the deal is, look, I believed in you, Alexander Wang, to have a massive exit and we just license the technology and maybe giving me my money back, 1x, maybe this 2x, 2.5x. It's a very different deal. And I think it was done because the big tech companies were very afraid of acquiring the companies like WhatsApp because the antitrust authorities would stop that deal. So what they did is they went around the corner and they said, look, well, this is not an acquisition. We're just licensing the technology and you coming as employee to the company. So it is a very different environment, I think untested in courts. And people are looking at this from an antitrust perspective because—

But this is the problem. They're going to look and they'll keep on looking. And by the time they figure something out where they're going to say, hey, you know what, this is probably not okay, you know, they've moved on to the next thing. And so the speed of technology, you can't have regulations that are just so slow and outdated that cannot keep up with the pace that you're seeing. And this is now an exponential pace. Especially with AI.

But you know what, what's their argument is they're saying, well, you know, we're competing with China, right? So we can't— if you stop us, you know, we, we have to compete. And that's the argument. It's either Zuckerberg or China. What do you prefer, right? That's the argument.

So absolutely. And again, this is where we said at the beginning of the pod, you know, we are in this race with, with China, and that is true. But I also feel like it's a little bit of a false, you know, kind of argument. It's, it's a red herring. Because there are ways to compete and win, and then there are ways to just say, hey, it's a land grab. And I don't know, I mean, don't autocrats say that? Hey, you know what? We need to have military control in a place like Chile because you know what? We need it.

Yeah.

Because unless we have all that control, we're not going to be able to win. And so it's a very slippery slope argument. And unfortunately, that's the argument that's winning.

Well, let me put another governance theme here because we are— a lot of people listening are directors, and I think I've said it before in other episodes. So we talked about a bubble. So let me give you a couple of examples of these like hot AI startups. Well, I don't know if startups anymore. Sutskever, who is one of the co-founders of OpenAI, left and created this SSI company.

Safe Superintelligence.

Safe Superintelligence. I think the valuation is $32 billion with no product.

Mm-hmm.

Mura Murati, who was the CTO of OpenAI, leaves the company, raises $2 billion at a $10 billion valuation just on a name, Thinking Machine Labs. Now—

Yep.

Here's what's interesting. Governance terms. She gets 100 votes to 1 on the shareholder level. She gets to outvote every other board member. So at any point in a decision of the board, she outvotes everybody. It's a public benefit corporation. So the PBC is the new form of everybody here. So OpenAI wants to convert into a public benefit corporation.

Yeah, Anthropic is a PBC.

Anthropic.

So here you have a new reality where we're not used to that, right? PBCs, the charter, it's still a for-profit corporation, but you have to declare your public benefit. In this case, they say the public benefit is, surprise, surprise, To humanity, yes. So we can't agree anything here about you know the United States. We are in a massive civil you know discussion among Democrats, Republicans. It's everything is polarized, but the AI companies know what's better for humanity, China comprised, right? So incredibly, we are using PBCs to betterment of humanity. Nobody knows what that means, and so it's interesting, right? From a corporate governance perspective, we are in a new world. And I think it's really interesting. There are reasons to be skeptical like you are, like, hey, what you going to do if they leave California? I mean, you're talking about trillions of dollars of value for society. And it puts us in this incredible moment of how do you think about boards, about directors, about their role in actually governing these companies?

So come back to the theater that we see in the boardroom. So You know, Mira Murati's, you know, Thinking Machines is a really interesting example, right? So she was being courted by Zuck to kind of go to Meta. She turned them down. She raised $2 billion at a valuation of $12 billion, led by Andreessen Horowitz.

Sorry, I missed $2 billion.

So $12 billion on a business plan. Right? There's no product. There's no nothing. And the whole idea of chasing the deal because you don't want to miss out because you know that we're in the gold rush. This is the bubble phase of all these cycles. And the thing about this is this time it's quote unquote different in the sense that it's intelligence and obviously it is exponential and it is very, very unique. reordering of everything that we know of in terms of digital, right? But economics is still economics and valuations are still valuations. And so how are any of these companies ever going to achieve that type of valuation? And maybe the OpenAIs, Anthropics, the new ones like, you know, Thinking Machines or Safe, uh, Superintelligence, because of their superstar founders, they're gonna be able to maybe find a way to achieve that valuation. But for all of the—

I agree.

99% of all the other wannabe AI startups, those companies are gonna go bust the way you saw it with the dot-com era. I agree.

I agree.

And they're never gonna achieve the valuations. And so you really do have, again, the rockstar superstar founders in AI. That's why they're able to raise this capital because people don't wanna miss out. And if I'm going to, you know, be a part of the deal, I'm gonna accept whatever terms you're gonna give me. And so back to the whole idea of governance doesn't apply to these companies 'cause it's more important to get into the deal than, you know, thinking about, oh, 100 to 1, I, I'm not down with that. I mean, just think about that, 100 to 1. How on earth can any VC of a, I mean, just like look at that and be like, oh, we're okay with that. 'Cause I know if it wasn't because of the people, like these AR superstars, would you give that deal to everyone else? No.

Well, let me go back in memory lane. You know who had 100-to-1? Elizabeth Holmes and Theranos.

Oh boy.

Who, by the way, I don't know how she's now tweeting around a comeback and is getting a lot of followers from jail, from federal jail in Texas. So I've been doing this project where it's called the Startup Litigation Digest, where we look at what litigation there is in startups. And we've got like 30 companies.

I mean, hey, if Adam Neumann can make the comeback and he can get capital, why not her, right? I mean, America loves a redemption story.

I will put a difference where somebody's been convicted of fraud and is in prison, and Adam Neumann may have made a lot of mistakes, Hubris, but he was never convicted of fraud.

I mean, which is a I think those things are open for debate and interpretation. I'm sure there are many many investors who would would probably disagree with that outcome.

Well, I mean, I think at least she did go through like the full trial, and there is a lot of these cases where for the first time we saw you say where was where's the accountability? Well, a lot of these people try to be. Sergey Brin and Larry Page, Mark Zuckerberg, and they lie their way into all these companies. And we've seen quite a few of them end up in federal jail and serving real time. Now, what's interesting is some of them have been pardoned by the current president, which is a whole different discussion. I think Elizabeth Holmes is trying to get this pardon. Sam Bankman-Fried from jail did an interview with Tucker Carlson from the from jail and obviously asking for forgiveness, asking for a pardon. And so there is something about that. There's quite a few companies and founders that have been found guilty of fraud. And I think there is at least if you are a startup and you start lying and you lie to investors, that can end up hopefully, and maybe it's the lawyer in me, that there is still some level of— Obligations here and you will be caught. I've just been writing about these cases. So there's a company in New York called Castle, and it was run by a woman, and they raised, you know, hundreds of millions of dollars. And it turns out, you know, they were faking numbers. And, you know, now she's under investigation. You know, there's fraud charges from the DOJ, from the SEC. You know, here you go. Another person will probably be in an orange jumpsuit.

Orange jumpsuit. It depends on the prison, I guess. But no, but look, I think it's very important that you do track it. We do need to have the accountability. And I do feel for every director that's listening, they need to track this and take it seriously.

Well, and there's another company, IRL. I don't know if you heard about that one in Silicon Valley, uh, in real world. And, and, and they were, uh, and the founder just got, uh, charged with fraud by the DOJ, had been charged with fraud, uh, by the SEC, was, uh, litigating. In fact, SoftBank sued him and a bunch of founders for, uh, fraud. And, and that's on civil litigation. I think it's back in Delaware. There was lit— that's still litigation in California. The same judge is overseeing the SEC case with the shareholder litigation.

You know, it is this fine line and it's been covered in documentaries, in books, you know, and obviously the Elizabeth Holmes and Adam Neumann examples are interesting, right? Because, you know, a founder needs to sell a dream and part of that is selling hype. I mean, Everyone from Steve Jobs and Bill Gates did it back in the day. You know, you have maybe a version of the product, maybe it's vaporware, or, you know, maybe it's a— it has some of the features and, you know, maybe not all the features. So you're always in some part, you know, kind of doing a P.T. Barnum. You're showing and telling a story and trying to get people to believe and enrolling them. And that is obviously a part of the founder, you know, kind of lore of, you know, everyone. And, and, and, um, I think it's also the appeal of that founder story. But there is a very fine line between telling a story and lying. Yeah, yeah, for sure. And when you're starting to fabricate numbers, that's where, you know, you really do have to say, okay, this is black and white, and these are the kind of things that need to be held accountable. And back to the governance thing, you know, all these companies that are projecting and telegraphing our valuation You know, that is a subjective thing because again, value is what you are willing to pay for, right?

Well, the irony here is that Sam Bankman-Fried was an early investor in Anthropic. I mean, his stake would now be valued in billions and billions of dollars. And if it would've continued, he well could have, you know, filled that plug and, you know, he would never have gone under. And it was only because it was this crash, right? 2022 or something where the prices were really low. But, you know, This is interesting, right? This is really all about, and you know, when the market is frothy in a bubble-like situation, people are like doing great. But when the tide goes out, we'll see a lot of all the shenanigans. And that's what we're seeing now. All these frauds that I just mentioned happen in these you know bubble-like scenarios. So just a few numbers, right?

So I think in venture capital, again, that that that's the famous Warren Buffett quote, right?

Exactly.

Only when the tide goes out do you discover who's been swimming naked. And I do feel. Like we're still in the bubble right now, but we saw this with the dot-com days and, and the bust. We will see kind of what is gonna be real. The difference, I think, for this whole moment that we're in, it's speed. It's the speed to market, the speed to kind of get to, you know, as large of a valuation as possible so you could get to the next raise. The, the speed, the, the compression that you're seeing in all these companies and actually the ease to actually achieve these, you know, crazy ARR goals.

Yeah.

I mean, a company that, you know, we, we had at the Alpha Board Forum in New York, a company called Glean, you know, they achieved $100 million ARR at the beginning of the year, you know, and they are growing like a weed. And so, you know, the speed that these companies are achieving these milestones, it's unprecedented. We've never seen this. And at the same time, that's part of the reason why if you don't get in, you're going to miss out. And, you know, it is a winner-take-most type of environment.

Well, if you look at, I was just looking at the numbers in venture capital raised in the United States, it's about $170 billion this year. Probably 60%, 70% of that is AI. So there's a lot of money going into the system. If you're AI and crypto, you're in a good spot and everybody else is hurting. Biotech is, other industries are hurting.

Yep.

And, you know, that also puts people into this mode of, Well, now we are all AI, right? And there was this greenwashing moment, which is now, you know, maybe there's gonna be this AI washing.

Oh, it is AI washing. I mean, again, every public company CEO is talking about how they're using AI.

Exactly.

And we all know it's not true. I mean, that MIT report that came out saying that 95% of AI pilots fail, I have a lot of issues with the report because again, it was a tiny sample set. It was, you know, kind of, I think, poorly done. And obviously the media—

the money quote was AI is going to be like email, and its contribution to society is like, whoa, that's—

yeah, yeah. I mean, that, that's just irresponsible. Um, you know, the, the reality is this is about business transformation. It's about how do you get people using this. And so yes, a lot of pilots are happening, but these pilots are never going to go to production. And this is the difference of having folks that understand how an enterprise works How the applications are going to connect. And this is again back to data, because if the first inning of this AI revolution called from November 30th, '22, when OpenAI came out, you know, ChatGPT-3 to basically this summer when OpenAI released their first agent, that's the first inning. We're now entering the second inning, which truly is about agentic AI. And you're about to see every single enterprise become agentic. Because they're going to have to. And this is what we're calling the agent economy. And so once agents really start to pop up in consumers' lives, because again, the consumer will drive the adoption because the enterprise is too slow. Boards are still discussing, hey, you know, do we need to use AI? What are the questions? They don't even know how to govern it. But once consumers truly start to adopt agents, then the companies are gonna have to figure out how do I have agentic finance, agentic commerce, agentic marketing, you name the function, And then all bets are off. But the data's gonna have to fuel those agents, and it can't be generative and probabilistic. You need these things to work properly. So it's gonna take time, and then you figure out how does this change the labor force? Because that's the other thing. I mean, you could have CEOs AI watching, saying that they're doing it on public earnings calls, and usually it's an example of a customer. And again, usually it's the marketer that owns that. So I think marketing's gonna be the tip of the spear to really drive agentic everything inside of an enterprise. But the challenge is you still need to figure out how is this gonna operate with people? And so what do you do when the days of 100% human labor force are over? You now are going to have hybrid people and machine labor forces. And how does that work? What do the agents do? What do the people do? And then what's that messy middle where maybe people are managing agents or maybe agents are managing people? We don't even know how to even think about that from a governance perspective.

Well, Steve, all I can say is we're living in very interesting times, and I think there's going to be—

That's an understatement, Evan.

Yeah.

Yeah. I mean, I keep— I've been writing my newsletter for 5 years, and all the time, I'm like, man, this is incredible. But it's been 5 years since the pandemic of every time you think it's like more crazy, crazy, and it just never ends. And then you see these valuations. At the beginning, it was tens of millions, hundreds of millions, billion. Remember when unicorn was like a huge deal? Like, yeah, when they wrote about this unicorn, and now it's like, you know, hectocorns, $100 billion, and we're talking a trillion. Sam Altman at some point said, hey, I'm gonna raise $7 trillion for this new infrastructure. And, you know, okay, let's go. Exactly. So anyway, I think this is—

but we've come a long way. You know, Aileen Lee at Cowboy Ventures, she kind of coined the phrase of a unicorn. And now to see where we are, just you know the the numbers are astonishing. I don't know if it's sustainable, but again, I think for a handful of companies that are truly AI infrastructure, that are truly the ones that are kind of leading this, and again, it's not just an AI company like an OpenAI. You also have companies like Databricks, you know, kind of that are doing kind of the data and the infrastructure to power and fuel all this. Everything from superintelligence and you know thinking machines. I mean, think about. OpenAI acquiring Jony Ive's company, right, for $6.5 billion, and there's no product.

Yeah.

So we're in this kind of very weird, frothy stance, but it's such a land grab right now. And I think we'll look back at this time, back to kind of the, the fiber optic build-out analogy. This is the moment where everything is actually being laid. The foundation is being laid brick by brick. And that's why you see everyone rushing, because they know this. There's a reason why they're throwing so much capital at this. There's a reason why everyone is speeding and rushing because they know that this is the moment to lay the foundation and the new winners will be established now.

Well, I think I saw the number that there were 500 unicorns on AI now, just AI unicorns, right? So now we are, you know, in this new race. And the reality is these big tech companies have realized that by investing in AI, their market cap just goes into the trillions of dollars, right?

Mm-hmm.

So Microsoft, you know, Satya Nadella very smartly, you know, as they built this relationship with OpenAI, the company added valuation and added trillions in valuation. So for Mark Zuckerberg putting $100 million pay packages when the valuation is doubling, it's nothing, right? As you said, it's nothing in their market cap. So they just need to signal to the market that they're gonna own the AI race. And people need to put their money somewhere, and they are betting for this. So, Steve, thank you so much for the conversation. I hope that we clarified a few items, at least talked about what are the issues or some of these issues. I would hope that as a director of a company, even of these large companies, you have a big role to do. You are the people who are going to be accountable to other shareholders and society at large. And I would hope that boards play a strong role. It's not only about the founders, and certainly not everyone is the super founder. I mean, there are these categories of Elons, but there are very few people like that, right? And people, you know, that it's kind of a pyramid, right? Where at the very top you can command these deal terms, but everybody else wants the same, but they're just not the same.

No, that's true. And the work that you do, I think, is so important because we need Directors to truly lead. We need AI governance, and the more that you can help people understand the issues the way you've been framing them, it's a really important service. So thanks for all the great work that you do with this pod.

All right, Steve. Talk soon.

All right. Take care.

All right. Bye.

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