The Exchanges

Q Yeah, that might have been 14. But that moment in time, did you have some insight that you felt nobody else had at that moment, or was it the right time, like how?

A I, I, a few things. Number one, I did have confidence that, you know, I was a decent Investor. Right? So we worked really hard. We're blue collar. There's different ways to prosecute the strategy. I think there's some people who work the cocktail circuit. And, you know, we really were, we're students of, we're anthropologists about like where things were going and what was going to be big. And at the time, there was a lot of pessimism, frankly, about cloud computing. Salesforce, you know, had some quarters where they saw more deceleration than people thought. And there were really, kind of, these obstacles. One was the cost of computing the cloud versus the cost in a data center. But the big one was this perception that, like, I'll never put my customers' data in the cloud. Right. It was really a security issue.

AI assessment note: “we're anthropologists about like where things were going and what was going to be big.”

Q the capital markets business. Cause that feels like something that like, again, if I'm a C, if I'm a Dimitri of modern charge, like that's something that, you know, even as the early stage guys are adding later stage operations, like that you can really bring in a way and have for Roblox for plaid for so many, you know, others, how did that start? And what is that business?

A Well, I think it's, you know, so I'm, I'm talking to a, you know, a well-known venture capital firm's LP meeting tonight about capital markets, what's going on in the public markets, what does it mean for, you know, their venture portfolio, et cetera. That's just fundamentally different, right? And I'm an IPO lawyer, spent 20 years in the public markets. We've worked on, you know, participated in over a hundred IPOs, right? When the equity syndicate desk at Goldman Sachs and Morgan Stanley need to sell an IPO, they call us. Right? They call long onlys, and so we've been in and around that market for a long time. Bill Gurley and Rich Barton and I, going back 20 years, um, were fascinated with how inefficient that market was, with mispricings in that market, with, you know, uh, It's crazy.

AI assessment note: “I'm an IPO lawyer, spent 20 years in the public markets.”

Q It's a little much. Joe, the first question we have that our audience has been asking is, how has your life changed since being on Acquired? Are you, like, getting recognized in cafes now?

A Yeah, by Web Three Nerds. I'm huge, and I was at, what's it, ETHCon or something, and everyone was super stoked. I was joking just there, but it's true, and I'll earn some instant credibility, perhaps, By saying when I listened to your Ethereum episode, it really did change my mind about what Web three is. And I really wasn't aware of any of its merits. I was kind of only aware of the hype and the scams and I'm coming quite strongly around to seeing how important it is for the future. And I'm, I'm still really just early and learning about it, but you really inspired me and it makes me excited for, for what it's going to become.

AI assessment note: “Yeah, by Web Three Nerds. I'm huge, and I was at, what's it, ETHCon”

Q He was one of your founding partners, right?

A Yeah, Bill Haber could read a screenplay, a teleplay, And give as good a notes as any executive at any television company. As a matter of fact, I could probably make an argument. He could probably do it better. He was really good at it. We put together Shogun. As a miniseries, everyone said Bill and I were crazy that we'd lost our minds. Who cares about the Far East? And how do you make a TV series about a bunch of Asians and one in Anglo? Well, it was our point of view from everything we were reading that Asia was becoming a very hot commodity in the seventies and eighties. People were really interested in what was going on. The rise of electronics and electronic companies like Sony and Matsushita, Panasonic, National, These were major players in our business developing hardware for all of the software that our clients were creating, and those are the kinds of things we would think about, but moving back to Coca-Cola, We weren't in the ad business, but we had a sense of what people wanted to watch, so I was at a Allen and Company conference, and Herb Allen was the, on the board of Coca-Cola, and of course, the CEO and president of Coke were at the conference, and we were having a coffee out on Herb's porch, and the, both guys said to me, we're getting Hurt by Pepsi Cola. And bear in mind, in the eighties and nineties, there was a book written called The Cola Wars, where these …

AI assessment note: “Yeah, Bill Haber could read a screenplay, a teleplay”

Q the sort of pre-CAA studio world, you know, the talent agencies would represent the talent, and then the studios would do development, where the, the studios, you know, they would buy the script, and they would attach a director, and they would turn it into a film, and then they would go cast the, the actors. How did you sort of get the idea of, oh, we could do that?

A Well, the idea was pretty simple, frankly, in that when we started in 74, we didn't have any clients. So all we had were relationships. So all we could do is put elements together and try to attach ourselves and hang on to a bucking bronco. And by doing that, and if we could hang on, it developed that as we took clients in, we'd surround them with elements. Because it became very clear to us that the clients were the creative force And they were the ones that were gonna dictate what was going to happen. It was kind of the same reason that I encouraged everyone at the agency to read a lot of magazines. Now, you can't think of magazines today the way we did. Because in the seventies, eighties, nineties, and early 2000, magazines were vital part of the culture of the country.

AI assessment note: “when we started in 74, we didn't have any clients. So all we had were relationships.”

Q To set some context, you, you said Jane Street, you, you were a trader at Jane Street Capital, which is one of the top quantitative hedge funds in the world. The, so that, that 200,000 dollar a day potential arbitrage opportunity in Bitcoin, how did that compare to the best trades you saw in traditional markets at Jane Street?

A So it's interesting, and without going into, you know, detail about IP sensitive things here, I guess what I'll say is like, first of all, how much volume did Jane Street trade per day? I don't know if there's a public number here, but I can tell you that, like, equity markets trade some number of hundreds of billions of dollars per day, maybe a trillion per day, depending on how you count, right? And like, Jane Street's one of the big players in it. It's not, I would guess it's not the biggest by volume, generally like a true HFT firm would be, but okay, so that can get you a sense of like, the volume numbers that you'd be talking about there would be way bigger, right, than the volume numbers that we're seeing. I mean, maybe if you traded a hundred percent of crypto volume, but, but you're not gonna do that, right? Um, on the other hand, if you can make one basis point on a trade in traditional finance, that's a good trade. No, no firm like, ah, you're only making a BIP on it. Why bother? If you're doing, if you can get it done in a day or something, right? Like if this isn't like a, you know, year long holding position, right? If, if you could just like say like, yeah, here's like a shorter timescale trading and make a base plan for like, yeah, go do that trade. That sounds great. You know, if you can do it big, do it big. That sounds pretty good. We're happy with that. Mayb…

AI assessment note: “if you can make one basis point on a trade in traditional finance, that's a good trade”

Q at Tesla and, and say, like, when the margin of safety is as narrow as it's ever been in making an investment in any asset, because multiples based on any aspect of a business are at all-time highs, uh, how, How are you sort of walking through an exercise with your students of working backwards from some ungodly valuations of companies and where it still may make sense to invest?

A Yeah. And by the way, not surprisingly, Tesla has been a company we've analyzed in our class a bunch of times. Usually, by the way, at the end of the class, I bring in, uh, portfolio managers who assign stocks for the students to work on. And Tesla has been one that's been sort of a perennial one for many of the reasons you just described, Ben, um, sort of the head scratching component. Well, um, yeah, I, I, you know, you, you just have to sit, sit down and pencil it out and think to yourself. And by the way, Tesla is another example of sort of this optionality, you know, are there things that they're doing that are not visible? That could be a value in the future. So you have to pencil all that stuff out. The other thing I'll say about Tesla, which is, um, you know, we have a bit about this in the book, but the idea has been around for a very long time is this concept of reflexivity. So we tend to think that, you know, there's this thing called the value of the firm and I'm sort of the observer. And if the value is, you know, higher than the price, I'm going to buy it and make money and so on and so forth. And we forget that this goes back to complex systems, that there's an interaction between the observer and the actual A thing itself. And, um, that reflexivity basically says the very act of bidding up a stock changes the fundamental outlook for that company and so on and so…

AI assessment note: “you just have to sit, sit down and pencil it out and think to yourself”

Q point. Like, did we think if you reflect back to 2001, That the top 10 companies, you know, banks and oil companies were, had as many defensible business model characteristics as the big five tech companies today. Like everyone is obsessed with these network effects and the value that they derive from being platforms and their staying power is just unbelievable. Did, did, did we think that 20 years ago?

A Yeah, but think about it. I mean, the number one company was General Electric. General Electric was considered to be sort of the You know, case study and everything about innovation and management. And I mean, if you could draw a manager from GE's considered the best management training program in the world, right? Um, the banks, interestingly, look, most of these banks have been around for Decades, if not centuries, right? You think about these leading banks. So, you know, whether they were considered to have, you know, like Google-esque type of moats is a different question, but, but, you know, they had decent returns on equity and so on and so forth. So, yeah, I mean, I don't know if that was quite as, quite as excited as it is, um, today, but, uh, but yeah, I mean, I, I, and by the way, you can go back in time, you know, General Motors, Seemed like it was untouchable in 1970, right? Untouchable. And so that just, just to bear in mind that, that, that worlds change and things show up and, You know, interestingly, one area that seems to be substantially underrepresented, but a huge sector is healthcare, right? So you, you get a couple of marginal guys in the healthcare, but might there be some sort of digital technology oriented healthcare company that becomes one of the top companies in the next 1015 years? Interesting questions anyway.

AI assessment note: “I don't know if that was quite as, quite as excited as it is”

Q Can we go back to the three concepts you guys are doing? Breakfast, the bagel shed, drive through lunch, and then delivery for dinner. Where did they come from?

A There's also the fourth concept coming. Super stoked about, but, um, yeah, I can kind of walk you through all three of those. Um, the first one was, uh, the, was the drive through. Uh, we saw that as being the biggest revenue generator. Um, we have a ridiculous amount of labor here. It's, it's the most expensive thing, and we knew that one of these concepts had to actually work. Um, and so, we just, I, geographically, if you understand the way this restaurant works, you can pull right off of the street, right under our port cashier, you can stay in your car, and you can roll right on down the driveway, and it was like, that's what we knew we needed, that the cleanliness there, the ability to not have any contact with the guest, Um, but still sort of be facing them, and, um, so yeah, we were embracing our inner drive-thru as a fine dining restaurant. It was just like, guys, this is us. Come on, let's just let it out of the bag, and, um.

AI assessment note: “The first one was, uh, the, was the drive through. Uh, we saw that”

Q sort of at a compounding rate now that it's turning into much more than everything you've described so far, with its own search engine, with its own native wallet capability. You're at this unbelievable milestone now of having accomplished fifty million monthly active users. What was one or two of the tipping points along the way where you realized, oh, this particular value prop really resonates and accelerated the growth?

A Well, some of the stuff was early mistakes you make when you're a small startup, you choose to use a shortcut. We use the Electron framework when we switched from a private version based on Mozilla's Gecko engine to Chromium Blink, and using Electron was a mistake. It wasn't designed for a browser. It turned off the sandbox. That was horrifying to discover, and it's kind of bloated and replaced a lot of middleware files in the Chromium code that Google was Breaking through internal API shifts, and we finally got onto a proper, well-maintained Chromium fork, including the front end. Now, the downside of this is we look a lot like Chrome. We have the brave lion icon for shields. We have the triangle for bat. We have our own look for the tabs, but it still looks a little like Chrome. It's tabs on top. It's got Chrome extensions, which can be loaded if they don't use the Google account system I mentioned that's for tracking that we disable. But, you know, it's still a little bit too Chromey, and yet I think it's worth it because that helped us get users off Chrome. Until we really did that rebasing on the front end of Chrome, we were paying a growing maintenance cost on all this electron forkage, and our users were suffering because it wasn't fully Chrome. There were extensions needed to be manually supported or ported, and things weren't working right. So we switched to a more com…

AI assessment note: “I think it's worth it because that helped us get users off Chrome.”

Q And Mark, just to context that for our listeners a little bit, when you say getting back to our high volume roots, for folks not from Seattle, Canlis is fine, fine dining. What does normal volume look like, and, uh, what does the adapted volume look like?

A I don't know. I feel like I live in a bubble, and I don't really understand the real restaurant business, but, um, in the, in the world of Okay, so let's just try to understand fine dining for a second, because I think it's a funny term. Um, we consider fine dining just to be the most considered form of caring for somebody with, with food and hospitality. It's like, um, so, uh, for us, we're considered to be a massive fine dining restaurant. In the world of fine dining, you know, 12 to 15 tables is pretty standard. Uh, we have 33. Um, but on a busy night, the most guests we can serve are somewhere around 150 to 200. Um, I have a 115 employees to make that happen. So we are a model of inefficiency and, um, that's just six dinners a week. That's all we're doing.

AI assessment note: “on a busy night, the most guests we can serve are somewhere around 150 to 200”

Q Doug, can you contextualize what a big moment in, like, world history this is?

A Yeah, I mean, it's an interesting concept because sports cars in general weren't a thing that much. They were, and there's gonna be people who ran and say, no, there were a lot of sports cars before, but it was really a thing of, uh, real enthusiasts, wealthy people, that sort of thing, would buy cars to go motor racing in the era of, you know, brass era and that kind of stuff. The concept of creating like something more affordable littler that was still fun was like, it was kind of an interesting idea that, you know, this was a real, it was a touchstone of a concept that has really been taken obviously by them and refined and others as well.

AI assessment note: “it was a touchstone of a concept that has really been taken”

Q Did you talk about the letters with him?

A No, I asked him about like, so I was explaining to him. I was like, Charlie, I'm literally in the middle of like reading about you when you were like around my age. So every time I read a book, I'm like, okay, I, first of all, I know what year they're, they're born. So every time as I go through the books, I'm like, how old are they? And I write down, okay, he's 24 here. He's starting. I want to know what they were doing in and around my age. And so I was like, Charlie, I'm thinking about you guys, like you just started, like your fund starts, he's like, 41 or something like that, I don't remember what it was, right? And, um, and I was like, then like 50, like you start out, you're trying to figure things out, you could see them kind of figuring out, making the mistakes, you guys did an excellent job on your episode, like, talking about what they learned from, getting to, like, get away from the Ben Graham, like, get to wonderful, excellence, great businesses are rare, we should be in there, and then just let time do all the work, and I was like, and now, like, you guys put up the greatest Investment record the world's ever seen. It's like, are you surprised? He goes, of course. He's like, of course I'm surprised. Like, how could you not be? Like, we want to be successful, and we were like, had, we were ambitious and driven, but there's no way you could say, hey, I'm gonna wait…

AI assessment note: “No, I asked him about like, so I was explaining to him.”

Q Where in this, the cycle of this era, do you think we are to call it the social media era? Are we towards the end or are we just at the beginning? Are we in the middle?

A I think we're like a quarter of the way or something. Like my sense is like, I still think we basically don't know where it ends. Um, I think we're basically still kind of Making this up as we go, and that it's probably going to be a while before, you know, people feel like, all right, we now understand all the implications that that ended up having for society, right? Like, I don't think we're close to that. Um, and, uh, uh, yeah, I don't know. I, I, I think we're like, We're starting to understand some aspects of it, but like, we still haven't quite seen how society, like what the new society that that forms is, you know?

AI assessment note: “I think we're like a quarter of the way or something.”

Q true all the way to today at immense scale, but it hasn't always been easy, and it hasn't always been perfect. And I want to go to this moment in 2009 on the 40 nanometer node where development was slower than TSMC had hoped, and it was costing customers like Nvidia time and money. Can you share the story of how this came to be and how it was resolved?

A Well, I, um, decided to, um, give the CEO job Uh, to, uh, a potential successor of, of mine while I will still retain the chairmanship. In Taiwan, usually the chairman is the top man anyway, even though, uh, uh, uh, CEO is another person. So, uh, the problem you just mentioned, uh, happened during the period when someone else was, uh, the CEO. Apparently, it was a manufacturing problem. It was also a quality problem, and, uh, it was the quality problem that, uh, the CEO, uh, first reported to me, but the CEO insisted that Uh, our people. Uh, we, we had the Director of Quality, uh, insisted that, uh, we were not, TSMC was not at fault. And, uh, so on that basis, on the basis of our, uh, quality, uh, um, managers' arguments, uh, He had not offered NVIDIA anything. Now, as far as the manufacturing problem was concerned, it was a yield problem, and everybody was suffering from it, and of course, NVIDIA at that time was perhaps the biggest customer of that node, the 40 nanometer node.

AI assessment note: “the problem you just mentioned, uh, happened during the period when someone else was, uh, the CEO.”

Q And when you said he had the skill, like what, what, Had he built websites before or had he built?

A Yeah, that's right. He had, he had, he had had some experience building websites and other like startup type businesses and products. So he kind of knew in, in a startup world, like what was going to be the stuff that was going to be challenging. And I honestly, I think my car, I had worked at dealerships before and for an automaker before. And so I had an idea in the, in the car sense of what was going to be challenging. And we were both car enthusiasts who had done transactions on bring a trailer before. And so we kind of got the, I mean, the whole, we had the whole concept kind of down. And so it was like a, It was like a pretty good, you know, way to start this if you're going to start it. And so we started hiring employees and you know, it's funny because one of the things when maybe we'll get into this, but one of the things you mentioned is, Hey, we, maybe we should talk through some like, you know, like different things that people don't realize about the business or whatever. One of the biggest is your audience. We'll realize this, but a lot of my audience and general audience doesn't. We launched this business. We had 10 employees or something like that. I mean, and now it's grown considerably. There's still a large contingent of people who believe that every dollar made by the business goes directly into my pocket. And this is incredibly annoying to me. They're like,…

AI assessment note: “He had had some experience building websites and other like startup type businesses and products.”

Q Did you contribute code to the Spotify code base?

A No, they won't let me do that yet. So I, I got a little bit more work, um, to do before, before they allowed me to do it. Yeah. I think out of spite, they probably won't let me do that anyway. They pride themselves on, on not, um, I don't have any access to any of the actual systems. Um, but it was, it was such a liberating feeling because it made the re-entry for me, um, so much easier, uh, and so much more enjoyable. And so I think about that. So if you think about the world of music now, there are tens of millions of people, uh, in the world that probably are recording stuff, but there's a hundred, Two hundred million, something like that, that's playing some kind of instrument and expressing themselves musically. There's nothing that says that it wouldn't be possible for those hundred million plus people to make something that actually sounds pretty good. Now, again, um, what is that going to do with the music industry? And is it really going to be that all of a sudden everything becomes commoditized? I don't believe so, because we've seen time and time again the quality rises to the top and actually becomes even more valuable, um, in that world. Photography being the sort of key reference point. When Instagram came, oh, no, no one's gonna want photography, but Price of fine art photography actually increased, not decreased. So my view is you're going to see both extremes. …

AI assessment note: “No, they won't let me do that yet.”

Q I think about that element a lot. I also think about every piece of content you create as a churn opportunity. David and I regularly look at each other mid episode and we're like, okay, is this of acquired quality or is it actually net negative for us to release this episode because we've now reduced the average quality of a thing that someone comes to expect from us?

A Yeah. I mean, well, thanks for putting the pressure on me, uh, right up there. I better make sure this is interesting, but it's interesting because I would push back against that a little bit. And this is why the consistency part is important. I mean, there's an ongoing discussion. I think there's that new social network post news or something. And I just saw a thing on Twitter. I'd actually fall through, but they want to do micro payments for articles, which I think are terrible. And there's a tendency in a lot of things to get overly indexed on the consumer, which kind of sounds wrong. Like, why wouldn't you want to give the consumer exactly what they want? But just to take the most obvious example, if a creator is not making money, well, the consumer may get what they want, which is free content, but they're not going to get it for very long. There is a short term perspective versus a long term perspective, which well, no, by charging for this, I can do this over the long run. But from a microtransaction perspective, I think one of the issues is To create the piece of content is very time consuming. And then obviously you get the free distribution on the back ends. You have zero marginal cost on the back end. But the problem is you have a timing mismatch with microtransactions between when the payments made and when the investment is made. And so you want to put a lot of tim…

AI assessment note: “I would push back against that a little bit. And this is why the consistency”

Q Eric, did you think from the outset that you were trying to build Zoom as a big company, or did you just think that you wanted to build a profitable company to survive, and then you would sort of see where it went from there?

A I think two things. First of all, at that time, my passion was very straightforward, because, you know, WebEx is more like my baby, right? I feel like I worked so hard for so many years, I let the customer down. I really wanted to, wanted to fix that problem. But Cisco did not want me to, to start over. And I had no choice, you know, but to leave to build a Zoom. That's the number one reason. And after I started a company, I realized, wow, it's so hard to raise capital, right? And by the way, the money that they give to you, don't think about that money. You know, that's a trust. You know, every dollar matters, right? That's why every day I was thinking about how to survive, how to survive, how to survive. Even today, seriously, I still think about, I woke up at night, You know, how to survive, so.

AI assessment note: “That's why every day I was thinking about how to survive”

Q Brad, before we wrap here, anything that you want to point listeners towards? Or where could they find out more about you or Altimeter on the internet?

A Yeah, I would say follow me at Altcap on Twitter. I encourage all of our analysts to be on Twitter. I think they're incredible brains and thought leaders and, you know, being online and sharing content. Like, I don't like to be a cheerleader on Twitter, um, but I do like and encourage our analysts to pressure test their ideas. Right? Whether it's, you know, Jammin talking about what's going on in, you know, in software, or whether it's Vivek talking about what's going on in, you know, internet marketplaces, or crypto, or Frida talking about what's going on in China. And so, I think, I always say to people, if they're interested to learn more about Altimeter, just follow this incredible group of analysts on Twitter. But all of this said, we're truly lucky, you know, to be doing what we do. You guys are doing this incredible podcast. About founders and entrepreneurs. This is a rather new experiment in the history of the world, and I think it's yielded. You read the Bill Gates annual letter at the end of every year, and, you know, we live in the most peaceful, notwithstanding Ukraine. We live in the most prosperous. We live in the healthiest period of time in the history of humanity, and, you know, one of the things that scares me is, you know, that people during periods like this, they'll turn against capitalism, or they'll turn against, You know, technology, or they'll turn agai…

AI assessment note: “Yeah, I would say follow me at Altcap on Twitter.”

Q resilient position in the portfolio, having just done our TSMC episode and got a deep dive on the whole semi, you know, industry infrastructure. You know, you mentioned they also have A competitor, Synopsys. Uh, and the two of them, it's like a duopoly in the EDA, uh, space. How did you decide, how did you decide to own Cadence, and I'm assuming not Synopsys, or do you hold both?

A Yeah, that's, I mean, it's a really good question. We've talked a lot about both of them over the years. We've owned Cadence for nine or 10 years back to our, our days at our, our previous, um, portfolio, um, or our previous, um, you know, employer. Um, I think on, on Cadence, it's, it's a few things. I mean, it's actually kind of a cool story of just kind of like how we even kind of got into the idea of investing in, in EDA as part of our kind of process for finding new ideas and, and just kind of being up to Speed on what's going on in the industry as we follow is going to like industry trade shows instead of investor conferences. Like we don't generally go to a lot of like big investor conferences. And so in like early last decade, I used to go to all these, um, chip conferences and like every presentation, it was like, Someone from TSMC, and someone from Arm, and then someone from either Cadence or Synopsys. And at the time, Cadence and Synopsys were viewed as these, like, sleepy, crappy companies. And, um, it was just kind of like this, like, well, we, we love TSMC, and we love Arm, so it's like, let's do some work on Cadence, you know. And then we, the more work we did, I mean, both, both companies are amazing. Like, they deserve a lot of credit. I think what, what steered us towards Cadence, um, one is the management team. So, Lib Boutin at the time was the CEO. He's act…

AI assessment note: “I think what, what steered us towards Cadence, um, one is the management team.”

Q Yeah, in the old world, IBM would have accrued that sort of platform benefit. Did they see these?

A They were selling a lot of computers and making profit also. They would have been making more profit than we were at the time, just the way pricing worked. There was a little twisty in here though. I should throw at you if you're curious, these things had something called the BIOS basic input output system, which was the lowest, lowest layer of firmware sort of first level software built into the hardware and IBM had its own BIOS and some applications became BIOS dependent. And so then the question is who was going to do an IBM compatible BIOS? We weren't going to get into that game. We didn't want to have that Intellectual property, other arguments, but there were people then, that was important.

AI assessment note: “They were selling a lot of computers and making profit also.”

Q To announce. We've got an even bigger dining room upstairs. How far can we stretch this triangle?

A Look, I think there is, there is certainly, um, all of those, all of those opportunities to do that. Um, I think Sarah says it nicely in, in part, like our job, we're really focused on how do we scale the company, those companies, right? And how, as part of that, having a relationship that doesn't get sort of adulted by this question of the us making another commitment decision. It's like we're, we're, we're in and we're not evaluating Anymore. We're not deciding what a fair price is anymore. We're not trying to decide, um, how to maybe make a, make a strategic call with a company that optimizes for a moment for us to get more capital in. Like there should be, we want to remove any chance of doubts or alternative incentives or questions in, in that relationship, right? So it can be fully, fully vulnerable. And if we do that well, and we've, Partnered with ideas with great purpose and, and, and, uh, a long endless runway to work on. We'll scale, our success will scale through their success. And we don't need to scale ourselves, you know, in, in, independently of those companies scaling. And so I think we'll all, the beauty of being small is like, we'll all do perfectly well.

AI assessment note: “our success will scale through their success. And we don't need to scale ourselves”

Q When did you first hear about the Fortress balance sheet?

A I've been talking, I go way back to Primerica. I used to talk about that. You're gonna be able to survive the tough times. Probably the 19 nineties. And like I said, I grew up my father and I went through those market things. I remember how hard it was on people on Wall Street. Uh, but, but the Fortress balance sheet is, That you run a company serving clients well, you have good margins, good liquidity, good capital. I'm as conservative an accountant as you can find. I don't upfront profits when I can spread them over time. And accounting, you know, of course, accountants hate it when I say this, you can drive a truck through accounting rules. And accounting itself, you know, that certain things are considered expenses, but they're good. They're an investment for the future, but they're called an expense. And then revenues, you know, if I make bad loans, they are bad revenues. They will kill you. But for a while, they look pretty good. So it's all those things, margins, clients, you know, in the banking business, the character, the clients you have will reflect on your bank. So the first thing is who are you doing business with? How are you doing business? And, uh, you know, and also making sure your compensation plans aren't paying people for stuff which is stupid or unethical. And, you know, uh, and you always have to review these things to make sure you have them right becau…

AI assessment note: “I go way back to Primerica. I used to talk about that... Probably the 19 nineties.”

Q but there's two different and very distinct reasons why there's more durability now. One is this concept of forever games. The other is the concept of, Mitch, I think you coined this term of, ah, platform based publishers. Can you talk a little bit about each of those and, and how they sort of fuel each other and how they're different, but how they both provide durability in the industry?

A Sure. I think the forever games Are part of a continuum. I mean, there was durability in the early video game business. It was just not the games themselves that were durable, right? Either the franchises were durable. I mean, you look at FIFA. And, I mean, I started playing FIFA on Trip Hawkins' Three Dio back in 1993, and I'd been playing every year continuously for the last 30 years. And so, if you really, if you think about it, that's a 30 year persistent play pattern very much Kind of congruent with what we've described in the forever games episode with some of these long duration play patterns. It's just that they packaged it very differently. Like you were playing the same game, but you just had to go buy it again and again and again and again and again. And you look at the Nintendo portfolio, which you guys have done a really good job of exploring. And, um, you know, you look at the continuity of their brands where they've been able to bring the same characters and the same kinds of play patterns back again and again as they shift from You know, NES to SNES to Cube to Dreamcast to whatever, and like, and all, and that is a sense, that is in a sense durability.

AI assessment note: “I think the forever games Are part of a continuum.”

Q Like, we spent hours and hours and hours on Zoom. Uh, How did you, like, decide that this is what you were gonna do with your time on this planet? And, like, how did, what led to this?

A Okay, so, I, you know, our mutual friend Jeremy from Formula of Tiny, um, I just spent, like, a bunch of hours with him. He was in town. In one sentence, He, like, he psychoanalyzed me better than anybody else ever has. He goes, you didn't have any mentors growing up, so you, like, you have, then you took it to, like, this extreme, and he said it more, much more eloquently than I am, but he's like, you didn't have any mentors, so I view your career as, like, this psychopathic, uh, search for, like, mentors that can help you, you know, and so, like, to answer your question, it's like, I don't want to go into too much detail here, but, uh, like, I've only had one habit my whole life, and that was reading. I was reading for as long as I can remember. Uh, my mom passed away from breast cancer a couple years ago, And she, we didn't have, like, a lot of money, like, long story, but, like, I was the first person, not only to graduate college, but, like, high school in my family, like, I came from a family, like, unfortunately, both sides of the family, like, no education, a lot of, like, just bad habits, so I identify with a lot what Charlie Munger says because he essentially observes bad behavior and then tries to do the opposite, right? So I was just, let me give you an example. I was just up in Canada, um, actually at an event, uh, Andrew Wilkinson was hosting for a bunch of entrep…

AI assessment note: “I view your career as, like, this psychopathic, uh, search for, like, mentors”

Q path for that company was Book a one-way ticket to SFO and stay on the peninsula as long as you need driving up and down Sand Hill meeting with firms, you know, until you get a term sheet. What's the path now as an example? Like, how did you meet them? How did they present? How does the relationship happen? How do board meetings happen? What does it look like?

A I'll share the story of how I met Hadrian, which was my first investment since being at Andreessen Horowitz, and sort of how that relationship blossomed, because that's another Los Angeles-based company, typically not a place where VCs spent much time, but of course, with the emergence of the just extraordinary new space movement, there's a lot of people spending a lot more time for different reasons in Los Angeles, and I know my partners are certainly spending time there in games and other areas, too. But Hadrian's a company where it was our first formal investment out of the American Dynamism practice, and it's A company that is building automated machine shops for aerospace and defense manufacturing. So talk about a sector that technology just did not go to. We just mentioned the private equity world and it's like private equity had been buying up machine shops for a long time, seeing that as a great place to do roll-ups and to cut people. But in terms of like building jobs and creating new machine shops to actually service the needs of these large aerospace companies, That was not something that Silicon Valley was interested in or that technologists were really interested in. And the origin story of that company, the founder, Chris Power, is this extraordinary founder who moved from Australia a few years ago, was very devoted to this idea that he wanted to do something in m…

AI assessment note: “I'll share the story of how I met Hadrian, which was my first investment”

Q Do you agree up front to a fee? Do you say, hey, let's figure it out later? Do you agree to a fixed price?

A So I did something in those days that cannot be done today. And let's bear in mind, guys, this is. 35 years ago. I worked my tail off to understand Japanese culture. And I read everything that was published. I studied the language. I studied the culture. I studied the art. I studied how they treated people. I read everything under the sun that wasn't tacked down. There was a Japanese American bookstore in Rock Center. I was their biggest customer. And I took a shot at something which paid off for me in multiples. So, all of the banks, excluding Alan and company, and me, asked for a fee letter up front. We asked for nothing. We said, look, if we do a good job, you can pay us an obscene sum of money. If we do a bad job, pay us our expenses and We're all good.

AI assessment note: “We asked for nothing. We said, look, if we do a good job”

Q Do you think having that background at Xerox, did that give you a piece of perspective that helped build Starbucks to what it is today?

A When I hear the question, I have to go back to my childhood and think everything that I've experienced growing up in the projects in more or less a dysfunctional family because of the, the pressure of money. Getting the Xerox opportunity and having some level of success, but realizing I wanted more. The humility, which came with rejection, the shame I had as a poor kid living in the projects, all of that, I think, crystallized in me. And I give Sherry so much credit in realizing that together we wanted to build a different kind of life and gave me the courage, the conviction and, um, the drive to try and do something That I felt I was destined to do. I didn't know what it was. I certainly didn't know moving to Seattle was gonna create the opportunity of a lifetime, but I always felt I had to get out of that station in life where I was positioned not to get to the level that I thought I, I deserved to be.

AI assessment note: “all of that, I think, crystallized in me”

Q amount of transparency, and of course, you've got these great blog posts that, that describe all the volume that's happened over the course of the year. You're very public tweeting. You also gave Mario access to your entire data room so that he could write his pieces. Like, what's the thinking behind this, and why are you doing that when classically no one in their right mind would do that?

A A thing that I think I think about a lot is, sure, ok, like, you say, people do x. Like, tell me more. Why do people do x? You know? Do people do x for a good reason? Like, convince me that x is the right thing for people to do here. And I think often I sort of come away feeling like I was not convinced. You know? They said, do X, and we looked into it, and I don't see a reason why. Um, and you know, you should always update on the fact people think you should do something. Often there's a good reason for that, right? And I don't want to, I don't want to dismiss that. Um, but sometimes there isn't, and like when you think something is dumb, it's a good flag to look into it and see whether you're dumb or it's dumb. Sometimes it's one, sometimes it's the other. Um, And, um, and so I think this is sort of a case maybe of like, I don't know, this thing's basically gonna be public anyway, like, no matter what we do, like, ah, everyone's gonna see this deck. Like, this is, there's, there's a number of people you can show something to after which it's, it's not meaningfully private, and I think that's sort of like part of how I felt about it.

AI assessment note: “this thing's basically gonna be public anyway, like, no matter what we do”