The Exchanges

Q you know, Over-proliferated, too competitive, whatever we want to say on that, but actually we need to move to hard tech. We need to move to, uh, whether that's climate, but much more physical, challenging, I think challenging, uh, style of investing. How do you see that, Michael? Because I think a load of software investors are going to lose their shirts investing in a completely different type of company.

A So I'm unencumbered by any knowledge of technology or, or, or software, nor management experience, by the way. I've never managed anything, and I can't write a line of code. Last line of code I wrote was in seventh grade. This is the venture business. You're going to lose a lot of money. You're going to lose a lot of companies. The question is actually, why does a founder want to take your money if he comes from something else other than software? And I think that'll be interesting and very Darwinian. Some founders, or the great founders, are likely not taking SaaS investors' money. Because the SaaS playbook, as it's become called, doesn't apply to any of these harder technologies. And by the way, you know, we, we've kind of, Dichotomize this. Either you do SAS or you do this like ridiculously hard technology like Annaril. There, there's also in the middle, whether it's, you know, semiconductors or these kind of new emerging fields in, you know, synthetic biology and synthetic chemistry. I've coined this term, you know, when I grew up in this business, uh, fabulous semiconductors became a thing in the late, in the late nineties. I was a early guy around a company called Galileo by Victor Wilenz, which Mellanox came out of and a bunch of others. Fabulous started to be a thing in the nineties. I think we've now, uh, gotten a lab list. So, uh, you can do synthetic biology. You don…

AI assessment note: “the great founders, are likely not taking SaaS investors' money. Because the SaaS playbook”

Q Yeah, to, to M&A. How do you see M&A, Marcus? Is it completely shut? Am I right to be worried?

A Lina Khan, I would say it openly is, I think, a threat to American capitalism. Whether Biden or Trump gets elected, she needs to go, um, because we need to be able to have M&A for the big companies. And as best I can tell, she hasn't redefined what antitrust is. And so I think she's taken a lot of liberties that are, that are just bad for capitalism globally. Where's liquidity coming from? So I have bad news for you. Most people don't get liquid. Actually, by the way, not on most people, like, 98% of people don't get liquid. This is a very difficult environment, number one, but number two, this actually is a hard business. I know there's been like an explosion of venture capitalists. It's a hard business.

AI assessment note: “we need to be able to have M&A for the big companies”

Q have enemies, and, you know, people have different rights, whatever, whatever, but, like, this is still about closing killchains, And you're, like, talking in your MBA language about margin optimization. It just feels a bit off. How do you feel about, like, this new wave of excitement towards defense, and also being aware of the weight of what that actually means to fund with billions of dollars more efficient killing?

A As a father of four children who have served in Gaza and on the northern border, which Hezbollah has been burning nonstop, uh, In Israel, war is a real thing. It's a very serious thing. It's serious because people get killed. It's serious because it shows what you're fighting for, which is freedom and the values of the West. And there are enemies out there. I've written publicly that I think this generation of Israeli kids is the defining generation. They've stood up and fought for what matters. I think there aren't enough people willing to stand up and fight now. These kids, because they've been in battle, have a level of maturity than your average MBA student does not have, and they understand what it means to hold a weapon. Holding a weapon is a responsibility. You know, Israel has a tiny homicide rate, despite the fact that most of the population is armed, and many of them walk around with automatic machine guns on their back. Like, you can go to a wedding. I was just at one. There are eight girls in wedding dresses of sorts, and they have machine guns slung on their back. But you learn to respect it. You learn to understand that this is a serious matter and that if you're not careful and you're not responsible, then people get killed. And At the same time, I think that there was always a, an alliance between Silicon Valley and the defense industry, and patriotism to use, y…

AI assessment note: “war is a real thing. It's a very serious thing. It's serious because people get killed.”

Q Can I ask you, are there any other big misconceptions that you've seen flying around, or seen circulated on social media, you think that many people have who aren't on the ground, who aren't aware in Israel, seeing what's happening? Are there any big misconceptions or things that people should and need to know?

A I'll add one, which is related to what Adi said. You can't look the other way. It's not just on the never again. You can't look the other way from atrocities, and we need to take people at the word. When they, when they say, when Iran says they're coming to destroy Israel, Take them at the word. When Hamas says we're coming to destroy the Jewish people, we need to take them at their word. And across Europe and the United States and Australia, when people say that they're going to do something, we shouldn't just say, hey, they're misguided. They don't get it. Oh, they don't mean it. Turns out that people mean what they say. And I think that's a, that's a really important lesson. You know, one of the things about being a venture capitalist is this question I always ask Entrepreneurs is, what do you know that nobody else knows? And I want to know that the entrepreneur has a unique insight, says something forcefully and directly that I can take him at his word at, that I can trust him. And that's how, you know, our business is done. For whatever reason, we seem to have a blind spot when people do this with hate and, and politics, because, you know, in the twenty-four-seven news media cycle, because we don't trust politicians and institutions anymore, we say, ah, it's no big deal. It turns out it's a big deal. Believe them. In the same way we want to believe entrepreneurs, we need t…

AI assessment note: “we shouldn't just say, hey, they're misguided. They don't get it. Oh, they don't mean it.”

Q We also mentioned some of the institutions that have been, um, criticized for their responses. In particular, what was so wrong, do you think, about their responses, and, and why do you think they were lambasted in the way that they were?

A I don't know if you saw this, but Mark Rowan wrote, wrote yesterday that he's calling on pen to fire two people, otherwise he's telling people to hold their checkbooks. This is not a political issue. People can have different opinions on the politics. Has Palestinian-Israeli policy been correct or incorrect? We can all have debates about that. I'm not sure I know what the answer is, to be candid. We cannot have debates on barbarism. We cannot have debates on animalistic behavior, and we can't have nuance on it. When you see, for argument's sake, Black Lives Matter, the Harvard, various, 70 Harvard organizations, two leading administrators at Penn come out You can almost justify, and by the way, in case of Black Lives Matter, cheer on. Hamas, ISIS. You just have to say no, and this is not political. This is 100% good and evil, moral and immoral. The equivocation shown by these universities is just disgusting. You probably saw Sarah Table, graduate of Harvard, an incredible investor at my former firm Benchmark, just how disgusted she was With Harvard, and Larry Summers, how disgusted he was with Harvard. This should be a wake-up call. By the way, we've talked about it before, Harry. You're, you're a big advocate, by the way, as am I, for not sending kids to college. It's a waste of time and money. I think it's worse than that. You send kids to these places, they are brainwashed w…

AI assessment note: “The equivocation shown by these universities is just disgusting.”

Q a, you know, twenty-seven-year-old who, you know, would, would be called up to any form of reserve, and I'd be terrified, if I'm honest, and I'm kind of got goosebumps listening to you. How, how is your son feeling? And, you know, I know we're talking about Israeli resilience, but this is something that is so alien to me listening. How, how is he? And how are his friends responding?

A It's not easy. And, uh, it's not easy for them. It's really not easy for their wives and loved ones. Um, because as I mentioned, I have a cousin who was killed. We're a tight family. We're a large family, but a very tight family. And, you know, that's affected everyone. How is it for them? I think, you know, they're concerned. They're concerned about the safety of the country. And at the same time, as a country, we took a gut punch, a really, really severe gut punch, punch to the face. We're wounded, but not down. And I think when I ran into the soldiers at the funeral last night, some of which are also relatives, they said, we're going to get these guys, and we have to be determined to get them. And they're fighting like lions against these terrorists. There were Plus terrorists that infiltrated Israel heavily armed. And just to give you an example of what happened after shooting up the cars of the people at the music festival, they threw a grenade into each of the cars to blow the people up and burn the bodies. I know it's hard to hear this and it's very graphic, but it needs to be said. And when our kids look at this, and unfortunately they've seen it because we have social media today, they are horrified, but really, really, really determined and resilient. To beat back evil. I think an important thing to say, you know, both Adin and I work in the tech industry here, and yo…

AI assessment note: “they are horrified, but really, really, really determined and resilient.”

Q cloud providers, Google, Amazon, you name it, essentially say, hey, we need to acquire the foundation models. Your coheres, the smaller ones who can be acquired. And then you're going to see a battle for The crown between Anthropic and OpenAI. And so large cloud providers acquire kind of smaller providers, and you have a battle there because they're too big to be acquired. Do you agree with that summary?

A Could be. Um, I think about it a little differently, which is where do people who use, uh, AI start their day? It's a little bit like the Google question, because I think as you kind of play this forward, you're going to see a whole series of agents. Like I'm not going to go to the New York times.com to read it. I'm going to go to my AI screen and say, fetch me the articles that interest me from the New York times today. And something that, you know, entertains me or is different, or Something I gotta know. I think where people start their day is what's important. And then there'll be kind of an underlying layer that gets accessed via APIs, which feels like Anthropic is, is a head on right now, um, which will service a lot of these companies. And a lot of this will be built into what you talked about, the, the hyperscaler, uh, stacks.

AI assessment note: “Could be. Um, I think about it a little differently”

Q Do you think LPs are aware of that?

A I don't know. I don't know. I think the best ones probably are and others probably aren't. There's a second kind of category, which I call logo chasing. This happens in every one of these cycles where I got to be in the hot one and there could be five or six or seven hot ones. And I need to have that logo. Why? Because I want to tell people I'm in an open AI. I'm in character AI. I'm in diffuse and I'm in all of these things. So, uh, I need to be in them. Uh, then I think there's a third category of people who I think you can replicate a model that exists in one geography and make it in another geography, and it's going to work to the same scale. And they pay up a high price, but it doesn't work in those geographies to the same scale. I think that's kind of a third category of people. And then I think it's important to say, you know, our mutual friend Gavin Baker of Atreides has this line, which I completely agree with, agree with, that foundation models are the fastest depreciating asset in history. And I think that is absolutely true. I was talking to our founder of a Seeking Alpha, which is a company, by the way, I did 19 years ago on Benchmark, and I'm still on the board of. Uh, and he made a super interesting observation, which is that financials, or stock markets, which is a minute-to-minute update business, or, or, or set of data, doesn't do well with a lot of these trai…

AI assessment note: “I think the best ones probably are and others probably aren't.”

Q What were your big lessons specifically on reserves management that you'd advise others when it comes to reserve allocations thinking with bust in mind?

A So there's a few elements you need to kind of unpack here. One is reserves is an art and not a science. It's impossible to know what kind of comes in and out of favor, what people want to invest, et cetera. So I think it's more art than science. The second part of this is it informs our investment strategy in general at Olive, which is a lot along the lines of benchmark, which is we like to work with partners. And that means we are a single stage, basically seed and a fund. We're not doing the big, big fund with the multi-stage thing where I think you have a lot more risks around reserves and around signaling risk when times go get bad. And so we end up with a larger and broader partner network that we always play nice in the sandbox with because in bad times you need them there too. And in good times, and specifically if you're kind of piling money into companies early stage and not leaving room for other people, When times go bad, they're not there to help you either, and when times go bad, you actually need that help, and so that's informed strategy as well from the fund, and then I think the third element, which is perhaps very nuanced, is busts are psychologically impactful far more than they're financially impactful. It takes people a long time to realize you're in a bust, and then even longer time to come out the other side, and that's true of founders. It's true of most…

AI assessment note: “reserves is an art and not a science. It's impossible to know”

Q I completely agree with you. What's the biggest sin of the zero interest rate environment?

A Probably not having sold enough of my portfolio. But in general, you know, when things get too easy, if something is not hard, it doesn't matter. If something is not hard, it doesn't matter. And it, this is supposed to be hard, and life is supposed to be challenging. And when we succeed in challenging things, whether it's relationships, or hardships, or defending freedom, or building a startup company, that's hard to build, like Anderil, or, you know, Orr, which is the synthetic chemistry company, we feel satisfied afterwards. This is meant to be challenging. Life is not supposed to be necessarily easy, and you got to keep working at it. And keep working at it. The Protestant work ethic is a real deal. It matters. And you got to keep this hard work matters. And so, you know, the other thing I think, by the way, I never invested in nickel in China. I think, I think China was a ZERP phenomenon also. China investing.

AI assessment note: “Probably not having sold enough of my portfolio.”

Q I completely agree with you. What's the biggest sin of the zero interest rate environment?

A Probably not having sold enough of my portfolio. But in general, you know, when things get too easy, if something is not hard, it doesn't matter. If something is not hard, it doesn't matter. And it, this is supposed to be hard, and life is supposed to be challenging. And when we succeed in challenging things, whether it's relationships, or hardships, or defending freedom, or building a startup company, that's hard to build, like Anderil, or, you know, Orr, which is the synthetic chemistry company, we feel satisfied afterwards. This is meant to be challenging. Life is not supposed to be necessarily easy, and you got to keep working at it. And keep working at it. The Protestant work ethic is a real deal. It matters. And you got to keep this hard work matters. And so, you know, the other thing I think, by the way, I never invested in nickel in China. I think, I think China was a ZERP phenomenon also. China investing.

AI assessment note: “Probably not having sold enough of my portfolio. But in general, you know”

Q How do you size that in portfolio? So it's like, that is a, a inherently more risky play than a SaaS business or a fintech business, I would argue. Um, how do you size that in a portfolio?

A Also, I don't think it's a more risky play than a SaaS thing. I'll argue that SaaS is way more risky. One, because of the competition and price erosion. It's just, we had a false sense of security from models. Like, I can pull the model forward. I gave this presentation at our annual meeting a few years ago, which I said, you know, we've hit peak SaaS. Anytime you can kind of stamp out MBAs from universities, you can pull the model forward, uh, that's not going to be a venture business. Um, When I hear people talking about some of the growth funds, oh, software's like a bond, you know, with a higher yield. I go, just no. That's not the, that's not the venture business. I gave you cringe from that. Yeah.

AI assessment note: “I don't think it's a more risky play than a SaaS thing.”

Q Do you think LPs are aware of that?

A I don't know. I don't know. I think the best ones probably are and others probably aren't. There's a second kind of category, which I call logo chasing. This happens in every one of these cycles where I got to be in the hot one and there could be five or six or seven hot ones. And I need to have that logo. Why? Because I want to tell people I'm in an open AI. I'm in character AI. I'm in diffuse and I'm in all of these things. So, uh, I need to be in them. Uh, then I think there's a third category of people who I think you can replicate a model that exists in one geography and make it in another geography, and it's going to work to the same scale. And they pay up a high price, but it doesn't work in those geographies to the same scale. I think that's kind of a third category of people. And then I think it's important to say, you know, our mutual friend Gavin Baker of Atreides has this line, which I completely agree with, agree with, that foundation models are the fastest depreciating asset in history. And I think that is absolutely true. I was talking to our founder of a Seeking Alpha, which is a company, by the way, I did 19 years ago on Benchmark, and I'm still on the board of. Uh, and he made a super interesting observation, which is that financials, or stock markets, which is a minute-to-minute update business, or, or, or set of data, doesn't do well with a lot of these trai…

AI assessment note: “I think the best ones probably are and others probably aren't.”

Q cloud providers, Google, Amazon, you name it, essentially say, hey, we need to acquire the foundation models. Your coheres, the smaller ones who can be acquired. And then you're going to see a battle for The crown between Anthropic and OpenAI. And so large cloud providers acquire kind of smaller providers, and you have a battle there because they're too big to be acquired. Do you agree with that summary?

A Could be. Um, I think about it a little differently, which is where do people who use, uh, AI start their day? It's a little bit like the Google question, because I think as you kind of play this forward, you're going to see a whole series of agents. Like I'm not going to go to the New York times.com to read it. I'm going to go to my AI screen and say, fetch me the articles that interest me from the New York times today. And something that, you know, entertains me or is different, or Something I gotta know. I think where people start their day is what's important. And then there'll be kind of an underlying layer that gets accessed via APIs, which feels like Anthropic is, is a head on right now, um, which will service a lot of these companies. And a lot of this will be built into what you talked about, the, the hyperscaler, uh, stacks.

AI assessment note: “Could be. Um, I think about it a little differently”

Q You're certain. So that means that there's a ton of companies that PE have bought, where the cost of that debt is now way too high, and they are in trouble. Does that mean we have a generation of, as I think Jason Lampkin puts it, mulligan PE funds, and do they just get let off the hook for it?

A I have no idea. Whether they get let off the hook for it, I don't know if it's a ton of companies, but it's not one. It's not just Pluralsight. There's a lot more like that out there. There's a lot more like that out there. And we also think about the following. If you are a PE fund that just took a, Significant write down on one or two big software purchases. You gonna have appetite to buy something? I don't think so. There's a small number of really great businesses that are built in venture. It's like 10 a year. Um, and some other ones get smaller liquidity events, which is great. We should have that. Um, but if you can get paid 10 to 20 times on your medium companies, or even five to seven times on your medium companies, It's not a bad outcome. You know, we talk, I don't want to mention company name. We talked before on the show. We just took a hundred percent of our equity off the table in a company. I think we did 11 X or so. We have a different view of the company than the management. Some of the other investors do. That's fine. It's totally fine. And we're very happy and we're very happy. We'll be super happy if the founder makes it into a 30 X and we were wrong. We'll be so happy for him and so happy for the other investors. But liquidity is a thing. And by the way, the last thing I'll just say about the secondary markets, we've discovered, you know, you get these emai…

AI assessment note: “Whether they get let off the hook for it, I don't know”

Q You're certain. So that means that there's a ton of companies that PE have bought, where the cost of that debt is now way too high, and they are in trouble. Does that mean we have a generation of, as I think Jason Lampkin puts it, mulligan PE funds, and do they just get let off the hook for it?

A I have no idea. Whether they get let off the hook for it, I don't know if it's a ton of companies, but it's not one. It's not just Pluralsight. There's a lot more like that out there. There's a lot more like that out there. And we also think about the following. If you are a PE fund that just took a, Significant write down on one or two big software purchases. You gonna have appetite to buy something? I don't think so. There's a small number of really great businesses that are built in venture. It's like 10 a year. Um, and some other ones get smaller liquidity events, which is great. We should have that. Um, but if you can get paid 10 to 20 times on your medium companies, or even five to seven times on your medium companies, It's not a bad outcome. You know, we talk, I don't want to mention company name. We talked before on the show. We just took a hundred percent of our equity off the table in a company. I think we did 11 X or so. We have a different view of the company than the management. Some of the other investors do. That's fine. It's totally fine. And we're very happy and we're very happy. We'll be super happy if the founder makes it into a 30 X and we were wrong. We'll be so happy for him and so happy for the other investors. But liquidity is a thing. And by the way, the last thing I'll just say about the secondary markets, we've discovered, you know, you get these emai…

AI assessment note: “I have no idea. Whether they get let off the hook for it”

Q How do you size that in portfolio? So it's like, that is a, a inherently more risky play than a SaaS business or a fintech business, I would argue. Um, how do you size that in a portfolio?

A Also, I don't think it's a more risky play than a SaaS thing. I'll argue that SaaS is way more risky. One, because of the competition and price erosion. It's just, we had a false sense of security from models. Like, I can pull the model forward. I gave this presentation at our annual meeting a few years ago, which I said, you know, we've hit peak SaaS. Anytime you can kind of stamp out MBAs from universities, you can pull the model forward, uh, that's not going to be a venture business. Um, When I hear people talking about some of the growth funds, oh, software's like a bond, you know, with a higher yield. I go, just no. That's not the, that's not the venture business. I gave you cringe from that. Yeah.

AI assessment note: “I don't think it's a more risky play than a SaaS thing.”