The Exchanges

Q Did you ever feel like, oh man, we might have invested ahead of the demand for machine learning since we're like a decade before the whole world is realizing it?

A I guess yes and no. You know, when we saw deep learning, when we saw AlexNet, And realized its incredible effectiveness in computer vision. We had the good sense, if you will, to go back to first principles and ask, you know, what is it about this thing that made it so successful? When a new software technology, a new algorithm comes along, and somehow leapfrogs 30 years of computer vision work, you have to take a step back and ask yourself, but why? And fundamentally, is it scalable? And if it's scalable, what other problems can it solve? And there were several observations that we made. The first observation, of course, is that if you have a whole lot of example data, you could teach this function To make predictions. Well, what we've basically done is discovered a universal function approximator, because the dimensionality could be as high as you wanted to be, and because each layer is trained one layer at a time, there's no reason why you can't make very, very deep neural networks. Okay, so now you just reason your way through, right? Okay, so now I go back to, 12 years ago. You could just imagine the reasoning I'm going through in my head that we've discovered a universal function approximator. In fact, we might have discovered with a couple more technologies, a universal computer that you can teach.

AI assessment note: “I guess yes and no. You know, when we saw deep learning, when we saw AlexNet”

Q Ok, so wait, wait, first question. Was that the plan all along? Like, when, when did you realize?

A I realized, I didn't learn about it until it was too late. We should have implemented all three too, yeah. But, but we built, we built, and so we had to make the best of it. That was really an extraordinary time. Remember, Revo one 20 was mv three. NV-one and NV-two were based on forward texture mapping, no triangles but curves, and it tessellated the curves, and because we were rendering higher level objects, we essentially avoided using Z-buffers, and we thought that that was going to be a good rendering approach, and turns out to have been completely the wrong answer. And so what Revo Run-Twenty-eight was, was a reset of our company. Now remember, at the time that we started the company in 1993, We were the only consumer, three D graphics company ever created, and we, we were focused on transforming the PC into an accelerated PC because at the time, Windows was really a software rendered system. And so anyways, Riva one, 28 was a reset of our company because by the time that we realized we had gone down the wrong road, Microsoft had already rolled out DirectX. It was fundamentally incompatible with Nvidia's architecture. 30 competitors have already shown up, even though we were the first company at the time that we were founded. So the world was a completely different place. The question about what to do as a company strategy, at that point, I would have said that we made a …

AI assessment note: “I realized, I didn't learn about it until it was too late.”

Q And Andrew, do you recall in your journey over the course of your life the first time where you saw what you felt was a really attractive investment opportunity in what people would consider growth investing or high growth investing or tech investing that felt counter to some principles that you had internalized from your dad, from reading the Buffett letters, from your style of investing earlier in life?

A You know, I can't remember a specific one, but I think The sort of evolution happened a little bit gradually. So a value investor, you would sort of look at what the current cash flows of the business are and kind of valuing it on that and not making much assumption for growth. And then there's a cohort of growth companies that weren't exactly tech companies in the way that tech companies look today. But, you know, you could look at things like where rolling out stores is a big thing. Starbucks or the auto parts companies or Walmart or Costco, all that type of stuff. And then also things where really attractive acquisitions and synergies were attractive or were a huge part of the story, you know, John Malone's cable roll ups and things like that. And what's interesting is you sort of learn that instead of looking at cash flows, there's this concept of sort of maintenance cash flow. And then You could think about where to reinvest that, and if you can reinvest that at really high rates, really attractive rates, that's a better thing to do than just sort of hoarding the cash or whatever. And by the way, and Buffett talks about this when he talks about the concept of owner earnings and things like that. And then it's not too far to then say, well, those same sorts of investments, you can make them out of the cash flow statement, but you can also make them out of the income stateme…

AI assessment note: “I can't remember a specific one, but I think The sort of evolution happened”

Q So revenue is going like this intentionally. You're the fourth CEO. So at this point is the team. How do you get the team on board? These crazy decisions you're making when they're like three other people came in here and tried to turn this thing around and didn't.

A You know, I think from a leadership standpoint, um, the real puzzle in that first year was gaining trust from everybody that mattered. Um, B of A was our bank, kind of a lost cause, we had to replace them. They just weren't gonna buy it. But Whitney invested, that was key, and we kept them with us all the way through. The leadership team took time, you know, and it was, you had, you had to deliver sort of on outcomes, but here's what we did. Six weeks in, we redid the plan, took profits down. The plan was millions of dollars. They didn't have a prayer to hit that. We took profit down, but it was a profit plan. They hadn't made a bonus in four years, and we went after cash flow, and that was shrinking the mix. We hit our plan that year, and people got a bonus. And we hit the plan that we'd sent nine months earlier. I spent really eight weeks intensively looking at it, but I think we knew what we were seeing, and we generated ten million of cash that first nine months. That's how much we shrunk the balance sheet with focus. And here was the key though. You have to, you have to do horizon one, horizon two, horizon three, right? You've got to, you've got to solve it all. So I had 10 things to do. The board said, oh my god, you're crazy. Pick four. No, you don't understand. We, we had to get the adrenaline right, um, because that shoe was critical for us, and we had to, we had to re…

AI assessment note: “you had to deliver sort of on outcomes, but here's what we did”

Q we've got a little fun interview with Dan Albert, who is the executive director of the Solana Foundation. So here we go. Well, Dan, you guys are up to something really interesting in the Solana ecosystem with stake pools or liquid staking. Can you share with us what that is and how it has some advantages over some of the issues with just regular staking, like the lack of liquidity?

A Hey, thanks for having me. The goal of the Solana Foundation is to foster the growth of the Solana network and the Solana community as a whole. The goal really is to have one billion people with self custody of their keys and the ability to understand what that means and sign transactions and do useful things. So in order to get a good chunk of the world's population doing this, we need a whole robust suite of apps and services that are useful to people as humans. To that end is one of the reasons why I'm really excited about stake pools because it provides a great vehicle for ordinary people who want to participate in the crypto ecosystem, the ability to participate while also fostering the growth of the network and supporting the growth of a larger set of validators. And so what this is really is a way for people who are interested in crypto and interested in supporting and securing Securing the blockchain networks that they care about through staking, but providing people a liquid means to do so. So what does that mean? So an individual user or users can deposit their soul into one of these programs and get back a derivative token. And what happens under the hood is the stake pool automatically distributes the underlying tokens to one or Many different node operators or validators on the Solana network. So traditionally on Solana and on other proof of stake networks, when yo…

AI assessment note: “deposit their soul into one of these programs and get back a derivative token”

Q like, well, of course I want to know, like I could glean so much more information and like subtle signals from like talking to somebody in person. On the other hand, I kind of think like, well, I really care about what you do, not what you say. Uh, and I can just see what you do in your filings. Um, yeah. How do, how do y'all think about that?

A This has changed a lot over the past decade, because of course, seeing a management team talk is easier than it's ever been, right? It's, it's publicly available. Um, there are some times when it's helpful. There are some times when it's harmful, you know, it probably nets out to be net helpful. Uh, but I'm just thinking of one interaction, um, that we had with Rich Templeton, the CEO of Texas Instruments in early February, of 2009, right? It's a terrible time. Everybody's unhappy. Uh, it's, it's really rough. And Rich walks in the room, big smile on his face. How's it going, boys? You know, a recession is a terrible thing to waste. And you're like, what's going on?

AI assessment note: “There are some times when it's helpful. There are some times when it's harmful”

Q have these, um, two concepts and then one kind of super concept that combines both of them of, uh, resilience and optionality that you look for, uh, in investing. And, um, you know, neither of those are terms that, uh, uh, most investors are, are familiar with. Um, can you, uh, can you define what you mean by both of them and maybe, maybe give a few examples of companies?

A Sure. Yeah. On, on the resilient half of the portfolio. Um, I mean, we, we kind of say, you know, when you see it, which I think is kind of an unsatisfying answer, but generally what we're looking for are companies that are further along kind of in their S curve and their growth trajectory. Um, and so this would be a company like companies we own in the head of the portfolio, be someone like a Microsoft or a TSMC where we're not, we're not looking for like value stocks or kind of like cheap companies. We're looking for companies that are healthy growers that we think can durably grow for the next, you know, 30 years and our, our turnover in this half of our portfolio is around 10%. So this is, um, really kind of like the hopefully set it and forget it part of the portfolio. And so, um, they know a few characteristics we tend to see in that part of the portfolio are, are kind of like mission criticality and switching costs, which I know you guys cover well, um, and, and some of the, the deep dives you've done. Um, I mean, just scale like TSMC, which we can talk about in more details, just like a classic scale company where, um, you know, we, we talk about power laws in our, our investing framework and kind of like, You know, pockets of industries where one company can take 90 to 95% of the profits in a given industry, and TSMC is a great example of that. And then you, exactly th…

AI assessment note: “On, on the resilient half of the portfolio... be someone like a Microsoft or a TSMC”

Q It is reasonable to call you the founder of Microsoft's enterprise business. That is not a narrative that is often discussed. And we wanted to ask you, how do you feel about the fact that it basically defines the business today?

A Yeah. Uh, interesting. Uh, very kind fathering something. I feel good about that. And I think there's a lot of truth to that. Of course, there are many fathers to the enterprise business at Microsoft, and I feel both good and bad about it because the truth is Microsoft started out as a consumer company and we built a very important consumer business. That success translated into the opening to go build an enterprise business. And one of my regrets is we lost the consumer muscle along the way, because I think the ability to be ultra ultra, I mean, we're a great company, Microsoft's great company, but to have both of those muscles totally firing, if I'd been able to sustain that consumer muscle and, and I had some ideas about why, why that didn't happen, but the enterprise muscle. Very big and very strong. And, uh, so I'm very proud of that. And the fact that, you know, it's also funny when you say consumer and enterprise. What does it mean really to say enterprise? Sometimes it can sound just like backend stuff. And the truth of the matter is Microsoft office slash M three 65, whatever exactly it's called today is super important. It was the foundation for having permission to be in the enterprise. And yet it's a product that sits right there in front of users. So the question is, do you think about users or consumer, and do you think about enterprise, or do you think about IT? …

AI assessment note: “I feel both good and bad about it because the truth is Microsoft started out”

Q Well, ok, so speaking of, we're here in San Francisco, in Silicon Valley, the tech and AI capital of the world. How is JPMorgan Payments keeping pace with the innovation that is happening in this room all around us, the businesses that you all are building?

A As Mac said, it's part of our DNA. You have to innovate to survive. We are building stuff for next five, 10, 2000 years. We, within our Onyx business unit, have the largest financial blockchain life ecosystem on the planet. Uh, we do bigger transactions than any blockchain, including the crypto blockchains. Um, we basically have pretty extensive embedded finance solutions where you might be interacting with the platform, but really it's our rails that are seamlessly serving you. And then the list goes on and on, and even in AI, which you cannot not mention anymore in the world, Um, we use AI to catch fraud, which you can imagine, you know, you've got to go up some against some AI systems on the other side. You need to have some AI of your own. So, uh, the, we are building stuff at a, you know, different scale and scope. When I think of JP Morgan payments, we perform miracles in magnitude every single day.

AI assessment note: “within our Onyx business unit, have the largest financial blockchain life ecosystem”

Q you've set up, you just can't. And I think, you know, in doing all the research for this, a thesis we've developed is that like, that is just one of the core fundamental advantages that Meta has. Um, so as you were setting up the company, you know, when you were so young, even when you went public, you were so young, like, why was that so important to you?

A Well, In 2006, Yahoo wanted to buy the company for a billion dollars, and everyone on our management team wanted to sell it, and the board tried to fire me, and everyone, and basically in the next year, everyone else on the management team left because they, I hadn't done a good job communicating, I mean, I don't want to blame them, I, like, I hadn't done a good job communicating the long-term vision because I didn't, I wasn't thinking about that at the time. I, like, wasn't thinking in terms of this as a company. I was like, this is a great project. It's awesome. Like, a lot of people, Like what we're doing. I think this will probably continue for a while. I think it's going to be pretty important in the world. Um, but I didn't, I didn't like know how to think in terms of, you know, like long-term financial plans or, um,

AI assessment note: “In 2006, Yahoo wanted to buy the company for a billion dollars”

Q When you're on the Expedia side of things, And then you get a fresh start at Uber. How do you take those lessons with you, and what did you learn?

A God, I learned so much. Um, Booking was an execution machine, and their focus, when we talked about focus, was hotels, hotels, hotels, and Expedia was much more, it started with air, right, and hotels was to some extent secondary, and so I think one of the lessons is like, hey, go after the larger market, and if you're a marketplace business, go after fragmentation of supply, Which is, if you think about hotels, there's so many more hotels in the world than there are airlines. So I think they focused completely in the right area and built a global business first, uh, and just were an absolute execution machine. The other area was that Expedia was probably more focused on building demand, kind of consumer demand, brand, et cetera. Booking was more supply-led.

AI assessment note: “one of the lessons is like, hey, go after the larger market”

Q Did you consider, I mean, this sort of famously was an issue in the Microsoft transition and, um, has been an issue in the Disney transition. Did you consider, hey, actually, maybe it would be better for the company if I didn't serve on the board just to give enough space for new leadership?

A I talked to Barry about it, and it's ultimately up to him. Right. And I think he decided that he wanted me there and I try to be helpful, but, but I think it's absolutely right, which is it, you know, the job of the new CEO to some extent is to be the CEO and do something different from the old CEO. Like that's definitional and the, you know, a little bit about that. Yeah, exactly. There could be hesitancy at a board meeting, et cetera, because the Old person's there, you know, and so that, it was, I think on a net net, I trust that Barry's judgment, it does feel weird sometimes, because I've moved on, but it's working. I think it's working, but it's complicated.

AI assessment note: “I talked to Barry about it, and it's ultimately up to him.”

Q Did you have a PDP one or how did you get access to Space War?

A Well, there was a difference. It was the console successor to it, right? It was like they made, they took that idea and they made a box out of it basically. Only a few of them, but somehow one of them ended up In, ah, in, it was not the PDP version that you guys talk about in your episode, but it was a, a, like, cabinet. Yeah, like a cabinet version of it that, that, that, that was propagated in somehow this Woolworths in, or Walgreens, I can't remember what, in, in Fort Lauderdale in a mall had one of them outside of it, and that was literally the first video game I ever played, and then it was, you know, Robotron, and those kinds of games were sort of my jam growing up.

AI assessment note: “Woolworths in, or Walgreens, I can't remember what, in, in Fort Lauderdale”

Q Well, there's just no regulation at this point, right? Like back then.

A Well, yeah, it's the whole host of things that don't make sense. That's probably one of them. I kept reading these white papers and coming to a conclusion, which is Man, I can only, I feel like I can only learn so much. Like I need to actually play with this stuff a little bit so I can figure out how these things work. If I'm going to be knowledgeable on the space, like I should at least have some sort of feel for it. I mean, it would almost be like asking somebody to, I don't know, like regulate cell phone companies, but you're not allowed to use a cell phone. You know, so in my head, I thought, okay, well, I don't think I should be investing, but I do want to play around with it. So I took like a little margin, a couple hundred bucks or something, and started playing around in DeFi, and I quickly realized I couldn't do anything with my ETH because the gas fees would destroy it. Did that for like a couple of weeks. And then in my plan, which I ended up doing was I'll just give it all the United way when it's over the United way accepts crypto donations. And so I did that for a couple of weeks. I forget how long it was not too long, but ultimately learned probably more playing around with it than I ever could have just reading. And so from that, not only did I feel like I understood it better, But I also felt like I could, I could legislate in a, in a more thoughtful way. And s…

AI assessment note: “Well, yeah, it's the whole host of things that don't make sense. That's probably one of them.”

Q that we can talk about later, but let's say in the late nineties, it's a lot of like bureaucrats, process people, people who want to polish something for Seven years to accomplish what used to take one because we now have all this process in place. Do you think Silicon Valley has so much infrastructure now that it is attracting the nineties NASA people instead of the sixties NASA people?

A Maybe three weeks ago, we could have had that conversation or three months ago, we could have had that conversation a bit a little more worried about it. I do think markets are self-correcting in that respect. So you can talk to people who've been through downturns before. I haven't. I mean, I'm not someone who was working in Silicon Valley in 2001, but like you have some partners who were. Yes. Yeah. These sort of natural corrections that happen, tourists often leave and sort of people realize that they have to think differently. There's, you know, the kind of famous Ben Horowitz, peacetime CEO versus wartime CEO. There's sort of like Peace time in Silicon Valley versus wartime in Silicon Valley. And I do think there is sort of this question of, are we entering that now? And that leads to a lot of innovation, especially for early stage companies. I mean, the companies that are built, historically companies that have been built in downturns become tremendous successes because they sort of have to rethink the playbook. I mean, you could make the argument that a lot of people are going to have to be going through that and that the most innovative thinkers will win coming up through what we're seeing.

AI assessment note: “I do think markets are self-correcting in that respect. So you can talk to people”

Q These are two completely different models. And so I think one of the things that it illustrated to David and I is, uh, capital efficiency is a mindset and culture thing more than a business model thing. And I'm curious to hear both of your reactions to that, but, but also what are the things that enabled you uniquely more so than 99% of startups to be so capital efficient?

A I can take that one. I guess I've seen a little bit of Zoom and a little bit of Eva. Uh, I would say probably it starts with a mindset, you know, just run a profitable lemonade stand. From my point of view, for me, it was there's safety in that. Cash generating business is always going to be valuable to somebody. At some point, a business that's not cash generating is going to be valuable to nobody, right? You might be able to sell it before it becomes It, you know, not valuable, but you can only, there's only, there's security in long term, uh, you know, so it starts with a mindset. I think Eric shared that, and then, uh, you have to have, uh, product excellence too, right? And that's something I think Eric and I share. We're both product people. I think also we both worked really hard, you know, and we work really hard now. I think especially Eric, probably in the first five years, I worked really hard, and I saw, You didn't see me working really hard, but I saw you working really hard. So worked really hard, worked really focused. Anything that wasn't related to the product or the customer was just BS, you know, and, and just don't do it. Like first five years, I was not at a conference like this, for example, right? I was just maniacally focused, and then the market really helps too. Um, and that's something you just have to get lucky on, right? You have to, it was the righ…

AI assessment note: “product excellence, real focus, mindset, and then you have to have some luck”

Q We teased earlier that we were going to talk about the difference between network effects and network economies. And this is something that David and I have flubbed on a few episodes where I think I've conflated them in our power section. And I'm curious, what are some telltale signs of a company that has network effects, but did not develop network economies power?

A So I think network effects in the types of things that we've been talking about in this episode are Common. You know, it's when a driver joins Uber, he makes the platform more valuable to passengers because more efficient route structures are now enabled, right? And that's a network effect. So the things that happen there are somebody joins the network, that's the network part, that's the new driver joining, and something happens to somebody else in it that has a value implication, that's the effect, that's a network effect. So the question is, what would you like to call network economies? That sounds like an odd thing to say, but that's really the question. And you could say anything that their network affects and there's power, you could call it, that might be one choice. And Chen, you and I are currently debating this. And so there's another choice, which is the one that I'm currently going down, which is that it's when there's power from direct network effects. And a direct network effect is where your joining has an immediate value impact on somebody that's sort of on the same side. So I joined Facebook because I'm your friend, and those effects are strong because they're additive. So another friend's join, it doesn't substitute for the one that just joins, it adds to it. So, and it's those kinds of effects that do more lead to winner take all kinds of situations. So my n…

AI assessment note: “if there's power as a result of direct network effects, and that's a network economy”

Q long before Vanta, you were at Union Square Ventures from 20 10 to 20 12. You were really starting to be at the forefront and see how software was going to Make it so companies could get way more leverage on people and money and all the resources they have at their disposal to accomplish so much more so much faster. Was that an inspiration to what ultimately became Vanta?

A So definitely, especially in retrospect, like I think when I was at USV, I didn't know the word fast, and that's a reflection on me, not at USV at all. But what we called it, or how I thought about it, was like developer tools, right? And this was, uh, is it too niche? How many of these people are there? All their customers are startups. Clearly that's not sustainable. You know, how do you sell new age tools to old companies? These sort of Being on the inside of USV, like, saw the traction of, like, an early Twilio or Mongo, right? And so you sort of just be like, oh, no, people haven't caught up yet. Like, this is very much a real thing. And I think I just... Yeah, saw that a little bit earlier than, I mean, the market broadly. And so, coming into Vanta, just deeply believed, like, a go-to-market focused on startups can work, right? There are pros and cons of any, but you get, like, fast iteration cycles, and, like, that works. You don't have to worry about selling to, I don't know, IBM, you know, when you're a five-person startup.

AI assessment note: “So definitely, especially in retrospect”

Q And that means people who have KYC'd themselves so that they can receive tokens?

A Yeah, or if enough people have self-custody, maybe we'll hang the self-custody wallets on the creator side, and you can just do an on-chain send on a fast chain with low fees, and you don't have to go through KYC at either end. Now that, that was always what people told us to do. You should only do, you know, direct on-chain. And I looked at it, and even with our Bitcoin prototype, it was too expensive. I talked to people like Balaji of TwentyOne.co, which Bitcoin bought. I talked to the Open Bazaar founder who'd actually DM'd me first. He said, we're thinking about adding bat. And I said, aren't you Bitcoin without a fee? Why do you need bat? And he said, well, nobody wants to send Bitcoin. They want to hodl it. Which is very true, and which at the time, it would have been a good strategy. Just sit on it. Don't shave those Bitcoins to send something, send scraps to your favorite YouTuber. And you know, people will send Bitcoin. People are using Lightning, or Jack and so on are all excited about it, whatever. There's lots of options for this. But Getting people to do direct on-chain sends is still challenging for the UX reasons we mentioned, the usability, the security, the sort of familiarity on the both the sender and the creator who receives it, but with Brave at four hundred million, we can hang self-custody on all sides of our ecosystem, even the advertiser side, the full …

AI assessment note: “Yeah, or if enough people have self-custody, maybe we'll hang the self-custody wallets”

Q He was really like a Leonardo da Vinci type, right?

A He was amazing. Here's a guy who was a medical doctor, screenwriter, director, travel writer, um, short story writer, novelist, and just was probably the greatest guest to ever have at a dinner party, because he could talk about anything with an extraordinary depth of knowledge. And it's fascinating to me, because later we'll talk about another friend of mine who I love putting together, and that's Marc Andreessen. Um, the two of those guys, um, Probably suck. 90% of the brain power that God gave away in their birth years. Um, they're just like extraordinary, but Michael ran into a very tough patch, really tough patch. And a lot of writers and creative people, and you've probably heard the expression writer's block.

AI assessment note: “medical doctor, screenwriter, director, travel writer, um, short story writer, novelist”

Q Was there an element, I, I know this was the case at WMA, but maybe at all the agencies of a holdover from old Hollywood where, where New York owned these, like who owned these, uh, your competitors, uh, like, um, like, like you said, you know, when CAA did well, y'all did well, like it was partnership. How were economic structured at other agencies?

A They just made what they called market deals. So if you wanted to hire an agent, you try to pay them whatever they asked that was a market deal. And we did just the opposite. We paid very small front money and said at the end of the year, if we do great, We're gonna overpay you. We're gonna pay you more than you can get elsewhere. You know, we had an agent who was co-head of our movie department get offered a job by Jeff Berg at ICM, who was a very good agent, and Jeff invited him to a meeting, and the guy came in to see me, and he said, should I, what should I do? I'm just gonna turn it down. I said, absolutely not. Go take the meeting. Now, I had two things in my head when I told him that. One, I wanted to know what they were gonna be doing and what their thought process was going forward, and I knew that he'd get that out of them. But two, I knew they'd under-offer him, and I wanted him to see what he could get elsewhere. Now, I didn't tell that to him. So he went and took the meeting, and they were having a Jolly time. And until it came to comp and I had instructed our guy to ask for what he'd get paid. So the answer came, we'll pay, I'm going to pay you more than I'm making.

AI assessment note: “They just made what they called market deals.”

Q Without naming names, because I'm sure you can't, do you have any fun meetings of what it was like to walk into a, a pitch? Like any memory that sticks in your mind where you're trying to raise capital and you're describing the trade that you're making?

A Yeah. So people were really excited hearing it, but they're also like, they had all these questions, right? And, and like the questions just keep coming of like, how'd you handle A and B and C and D and E and like risk and custody and things like that. And I mean, we're trying to answer them, right? We're trying to be like, well, you know, we like, here's what, but, but like, what's the honest answer, right? Where, where are we really actually coming from? Is like, I don't know, we just fucking started this company two months ago, and we're trying to scale up extremely quickly. Like, we don't have great answers to some of your questions, right? Like, we, you know, what's your policy on X? We haven't written a policy on X. We've been around for two months, and we've been desperately trying to get a bank account the whole time. Um, so, Like, definitely there are a lot of people who are like, I'm super excited, um, to this. Can you show me your audits? And we're like, literally no crypto company has ever gotten audited before of any type. And we've been around for two months. Obviously we don't have an audit.

AI assessment note: “people were really excited hearing it, but they're also like, they had all these questions”

Q And by the way, we've got a giant amount of volume from our, our sister company Alameda on the platform. So there's a, a big counterparty if you want to trade with us, right?

A Right. It helped basically solve this sort of like problem of like, well, you, you're just starting up an exchange. Sometimes there's a catch-twenty-two where like, how'd you get volume without liquidity? How'd you get liquidity without volume? And, and this, this sort of gave, gave a solution to that. Um, So, um, of, you know, basically starting with liquidity so that people could come and trade, you know, we took a lot of feedback, we kept iterating, and, you know, in the end, most of our initial growth, um, came from power users, the people who You know, or spending hours a day in the ecosystem and would try out every new exchange that came, you know, and, and use the ones that they liked the most. Like that was the best fit. And we didn't really do marketing per se. Eventually we learned how to tweet. That was about it.

AI assessment note: “It helped basically solve this sort of like problem of like, well, you, you're just starting”

Q Not particularly venture-backable. What are your emotions like right now? Are you just like, I'm happy-go-lucky, it's all gonna work out, or are you like, kind of tearing your hair out?

A I'm to a fault and like, you know, everybody has their double-edged sword and mine is optimism. Um, and so, you know, like never, never once was there a time when I was like, uh, my life is absolutely over. You know, like when I joined breather and took a lower salary and it was a risky thing, my mindset was like, you know, my absolute worst case scenario here is that I moved back to my parents' house and I can still eat meals and I can still sleep in a bed and there's a roof over my head. So like, The floor is not that low. Certainly this time around, you know, there's, there's a hundred percent ego piece of this. Cause I have a bunch of friends who are doing really, really great things. And I was, you know, when I tried to bring not boring club online, I was sitting there, I had trivia nights that I like spent all day writing trivia questions and making slides and seven people showed up. And I was like, this is with my Duke education, my expensive high school education, all my experience, like this is what I'm doing with my, this is incredibly embarrassing. And so, you know, I decided to kind of just let Not Boring Club, the digital version, uh, fall by the wayside. In, uh, you know, February, early February, Pooja and I decided or learned that we were, uh, learned that we were pregnant. Um, and then really, you know, COVID, COVID kind of hit. And I remember just probably Apr…

AI assessment note: “everybody has their double-edged sword and mine is optimism.”

Q Santa Fe Institute, which I want to get into. I think, uh, Bill Gurley talks about this, uh, uh, fairly frequently and, uh, Michael Malvison, and, uh, that's how I kind of originally got turned onto it. But, um, but, but tell us a little bit more about like, what, what is it? And because, you know, it's, it's not, it's not at all about investing. It's about the world.

A That's right. Um, yeah, in fact, I think it was Bill Gurley that recommended complexity to Brad. Um, so, you know, complex adaptive systems are all around us, right? That's what governs the world. That's how the world works. We don't know how the future is going to unfold because the system is interacting together, and it creates what's called emergent behavior, and emergent behavior makes predicting useless in most cases, and we can have guidelines and heuristics, and those are all helpful, but As far as exact, you know, sort of outcomes and what's going to happen in the future, those are, those are a lot more difficult. Um, Santa Fe Institute started with a group of scientists from the Los Alamos National Institute. Labs, and they came together, and they, they were mostly physicists, and they started talking to economists. It was sort of hard sciences and soft sciences, and the physicists were like, hey, economists guys, you guys seem really smart, but you know, your theories, like, they don't work. Like, all your math doesn't work. So what's, so what's up with that? Like, you know, with, with our math, like, it's, it's extremely precise. In fact, you know, when the math is off just a little bit, Einstein's like, oh, your math is off. Pluto should really be here, and he comes up with a theory of relativity, right?

AI assessment note: “Santa Fe Institute started with a group of scientists from the Los Alamos National Institute.”

Q And that's like not him trying to say that purely because it's good for the world to care about all your constituencies, you know, not just your shareholders, but also your customers and partners. Like he's literally making an economic argument for shareholders that that's the long-term value maximizing thing to do, right?

A I think that's right. And, and, you know, he was a consultant for Intel, um, back when, uh, ARM processors were starting to come out and actually dominate the mobile space. And they came out with this sort of Dumped down processor. Uh, right. Yeah, exactly. Um, but, but even before that, I think they came out with another one and John, I'm blanking on the name of it. Um, but, but, uh, it was, uh, it's in the paper. It's in the footnotes. I'm sorry. I forgot it, but they came down, they came out with a cheaper version of it, but in reality, that's not what they should have done. They should have, you know, actually embraced a totally different business model like arm dead. We're just, they were just selling IP and enabling a whole ecosystem. Instead of trying to take all the profits for themselves.

AI assessment note: “I think that's right. And, and, you know, he was a consultant for Intel”

Q So let's, uh, uh, maybe even before getting into some of the nerdier semiconductor topics, let's stick with an investment one. What semiconductor companies do you own right now in the name of resilience and which in the name of optionality?

A Let's start with the two different versions of semiconductors, right? So there's a lot of semiconductor makers that are on the digital space on the leading edge, right? They're, they're making You know, three nanometers and, and, and on, and these are the high compute functions. And there's other semiconductor makers that aren't really dependent on that leading edge. They're more dependent on having the breadth of a catalog. That would be like Texas Instruments that has a 100,000 parts or a microchip. And so in our top positions, we're more heavily weighted towards the catalog names, these names that The lifetime of a part is 30 or 40 years. Um, you know, the, the, the margins are high, the, the growth is pretty good. There's clear NCS in the business. They're definitely creating more value than they take. And they're very hard to replicate, not because what they're doing so technically hard, it's hard, but it's because the breadth of what they have would take you decades to recreate.

AI assessment note: “in our top positions, we're more heavily weighted towards the catalog names”

Q Ooh, David, that is a great bridge to, to complexity investing. Like, the future is so freaking unknown for early stage companies. Michael, I'm curious, uh, how, how do you apply this in an early stage type company where the world could change so much between what the nascent company is now and what it will become?

A I mean, these are really hard questions and there are sort of two pieces. One is, you know, how would you value it? And then how do you just think about the business itself and how the world might unfold? Um, and we should come back to, you know, when I think of complex adaptive systems, you know, I think about a certain features. I mean, to break that term down, complex just means the interactions of lots of agents, right? Adaptive means that those agents learn They try to anticipate their environment and react to it, but the environment changing itself changes how they learn and changes their behaviors, right? So it's, it never, the city system never settles down. And then system is the whole is greater than the sum of the parts. So when you think about the world that way, there's a very big evolutionary component to it, which means that's why we can't, I think have a difficult time anticipating where the world's going to go. That said, um, Ben, I think the one thing that I often think about young companies is really options more than, you know, like a sort of bond or something boring like that. And, you know, an option, you know, options theory has been around for a very long time. Obviously Black-Scholes in the 19 seventies sort of defined mathematically some of the key principles. It's not a perfect mapping to the real world, but not too bad. And then in the late 19 sevent…

AI assessment note: “the one thing that I often think about young companies is really options”

Q more as, uh, um, optionality versus the same way you would think about investing in a late stage company. Are you sort of making the argument that, um, and you can deploy a little bit of capital and it's effectively buying an option on the potential that the, the way the world shifts that company becomes big, that that's sort of the way to think about an early stage investment?

A I think that's right, Ben. I think the other interesting thing is, you know, we wrote a big piece on public to private equity probably a year, a little over a year ago. And one of the things that I thought was really cool in that report was an analysis done by a few academics on the return profiles for three sets of investments, asset classes. The first were venture, right? So I think they looked at, um, look at the number, right? I hope. 30,000 venture deals. Some gargantuan number of venture deals. And then they looked at 15,000 buyouts. And then we looked at 30,000, uh, periods for public companies. And so what you're looking at is the distribution of payoffs, right? So, and I'll, I'm going to say what everybody already knows, right? Which is the, the, the median Venture deal earns nothing.

AI assessment note: “I think that's right, Ben.”

Q is, well, no, everyone is competing on this global playing field now. And so, it's so much harder to get the type of returns, especially at the amount of capital that Warren was investing. Yeah, so Michael, my question for you is, will we ever see someone who has the 60 plus year track record that Warren did ever again, or will no one ever be able to match that?

A It's a fascinating question. And this is another Stephen Jay Gould from the same book where he says extraordinary streaks are a combination of skill and luck, right? If you think about it, you can't have a streak without having a lot of skill and a lot of luck. They, they need both components to it. Um, so what we're arguing here is the luck piece hasn't changed, right? So that's, that's the world. Maybe, maybe some of the outcomes are more extreme, but luck is basically the same thing. Although we could talk about, you know, luck has their, their sort of independent event luck, like rolling dice or whatever. And then there's sort of social phenomenon where we get these power law outcomes, but basically that whole thing is, is roughly the same. And then I think if we're arguing that skill has become more uniform, then it would say that it'd be very difficult for people to replicate that. There are certain statistical streaks that I think are going to be very difficult for people to match or exceed Joe DiMaggio, a 56 game hitting streak. And by the way, there are a bunch of books about DiMaggio streaks. Some of them are right over on that shelf over there. And, um, he, you know, there are, there are a couple kind things by scores at the scores table. There are a couple of random plays, you know, so he, there's a lot of luck, but again, amazing skill, right? He was a three, 25 hi…

AI assessment note: “it would say that it'd be very difficult for people to replicate that.”