The Exchanges

Q 2010, it wasn't just ramping the R&D budget. It was also the capital expenditures. You, you had had almost a decade of two to two and a half billion spent, you know, building the fabs every year. And in 2010, you, you ramped that to almost six billion. What was it about the competitive environment, the 28 nanometer node that caused you to push all your chips in on that?

A Yeah, I think it was kind of a mutual feeding thing, you know. As I, as I, uh, settled the, um, R&D budget at eight percent of revenue, I mean, to the, uh, uh, satisfaction of, uh, the R&D people, they began to have big ideas, you know. They began to, to be telling me our 28 is going to be the term they, they use, and they have used it several times, uh, 20, but the first term, the first time I heard them using it is the 28. 28 It's gonna be the sweet spot. It's just like tennis racket, you know. You hit, you hit the ball with a sweet spot of your racket. Yeah. Yeah. Do you play tennis?

AI assessment note: “They began to to be telling me our 28 is going to be the sweet spot.”

Q from now, what's the scenario where you would reflect back five years and say, with all the resources we had, that was an A plus outcome. Like, what are the things that you can achieve where that would be the case? And then paint me the other side, where you're like, that was a failing grade based on what we had, or potentially more interesting, what, what's like the C?

A Yeah. So, I mean, what are the metrics we're going to judge ourselves by? And one of them is just like, you know, did we become the biggest crypto exchange? I mean, I think that that's clearly going to be one of the kind of core metrics here. Um, I, I think thinking about like, you know, did we ever succeed at getting retail users right at penetrating that market is going to be one of the things that I think we're going to create ourselves on, which I think I'm, I'm sort of cautiously optimistic about, but I, but we haven't proven that, right? Like, we've never really gone big in that segment before, and so I think that, like, um, I, that that's gonna be one of the big things here, and then I, I think, like, You know, did we manage to expand beyond crypto is going to be, I think, one of the big metrics.

AI assessment note: “did we become the biggest crypto exchange? I mean, I think that that's clearly”

Q And how do you reconcile most of these movies don't end well with, uh, Uh, the Bill Gurley's comment of the only way to, uh, um, get through the downside is to enjoy every last minute of the upside. Like in general, people should be fully invested. So what do we buy?

A Yeah. And I think that, and I, I don't, I, I, the context may be slightly different and I want to put words in anybody's mouth, but I think Bill's attitude was, Bill's, Bill's take is a bit more to me, like this idea of market timing. Rich is, you know, you, you think yourself, you're, I'm really clever and the market seems really expensive. So I'm going to sell it. And then when it gets cheap, I'm going to buy it back and so on and so forth. And what history tells us in that is that none of our, none of us are that clever. We just don't know. And I think that's a little bit of what Bill was saying with the venture thing is that things feel a little bit rich and gee, we should be, you know, we should be throttling back a little bit, but we, we, in retrospect have a hard time being good at doing that. So that would be my context there. Uh, the context I would take that in, but, um, Yeah, no, I, I, but I think, I think the idea of the movie doesn't end well, that, that is pretty easy to document, right? We can, we've seen that plenty of cases and, you know, I just love, I mean, Matt Levine at Bloomberg is, is a genius and, you know, he's got this thing called the boring market hypothesis, which I've always loved. And I think there's something to that, right? Which is, you know, 18 months ago, we sort of locked people up. They had nothing to do. Uh, they had no sports to bet on. W…

AI assessment note: “Bill's take is a bit more to me, like this idea of market timing”

Q How? Also, none of us know this guy's name.

A Yeah. And so then, then you realize it's like, he says in the book, he's like, his estate outside of Chicago was so big, he had 40 full-time employees. I'm like, what? Like, what are you talking about? Like, make these words make sense in my mind. That doesn't make any sense to me. So you read Albert Lasker, and then he tells you about Claude Hopkins. He's like, yeah, the information was so good that, like, I stored that in my vault for 20 years. And then once he sold his, uh, advertising, uh, or I think he gave it away, like, a token, like, 100,000 dollar, you know, to the people working, uh, there. And then they released it. And Claude went off on his own and everything else. So these are not like.

AI assessment note: “So you read Albert Lasker, and then he tells you about Claude Hopkins.”

Q the customers to manufacture their chips, and it's a very intentional strategy, and they believe that that's sort of a long-term view that they have in order to do that. I'm curious as investors how you think about, from the perspective of maximizing enterprise value for a firm, What should a company do? Should they be maximally extractive to their ecosystem, or should they leave some surplus on the table?

A Yeah, it's a great question. Before commenting specifically on TSMC, one of their primary competitive interfaces, obviously, in terms of fab technology and getting ahead in that is Intel, and I just, just a caveat about both those businesses are amazing and well-managed and successful, and the fact that TSMC seems to be gaining ground is also a A reminder to everybody that power is not forever, because I use Intel in my book, and that's the way life is, you know, technology's changing, competition changes, and for me, you know, one of the longest term power things I've ever observed is that of elite universities and being able to maintain, and which is ironic that it's not even in the private sector. So I think on a pricing question like that, Pricing may well be tied to a strategic goal, but it's tactically available to anyone. So it's justification has to be tied to underlying fundamentals. And essentially what you're doing is in this case of TSMC, what you've cited is they're sort of giving up current profits for something in the future, right? And presumably it's sort of future revenues. So they either get retention through customer loyalty or acquiring new customers. So that leads you to ask, will more customers, more revenue in the future give you more differential returns? And that gets you down to ask about scale economies. Do they have it? And I would argue, yes, but i…

AI assessment note: “Pricing may well be tied to a strategic goal, but it's tactically available to anyone.”

Q Okay, so ride sharing is an example platform where you get to the end of the questions, and maybe there's still kind of a question mark about the industry and the companies within it. Could we walk through an example of a company or an industry where you get to the end and you conclude, oh wow, this company, this platform has a lot of power?

A So David, before we leave ride share, I Think of the moving parts here. One of the moving parts is what does that ride efficiency curve look like? So as you scale, how quickly does it start to slope down? Because that's going to be critical. If it's a straight line and you're two times relative market share, you're home free. If it tails off pretty quickly at an early stage with two times relative market share, you could be an attractive relative cost position. And once the business is scaled, it's no longer true because you're into the flat part of the curve, right? So it's the shape of that curve. It's your size relative to somebody else. Let's say you have that advantage. What's to keep it from not being arbitraged out. So you want to turn to people like Ben and say, don't offer that app.

AI assessment note: “So David, before we leave ride share, I Think of the moving parts here.”

Q Yeah, I was gonna ask. Do you think mobile would have played out differently if you'd taken this approach with mobile?

A We did break it out, but we constrained it with Windows. We broke Windows NT out and constrained it with Windows. It worked fine because Windows belong. So, you know, how you do Those incubations. And in this case, I just said, look, it'll, it'll get probably subsumed. I don't know. Partly Ray wanted, you know, Ray was Ray wanted some operating control over the thing and putting it under Muglia would have made it harder for Ray. And, you know, obviously it was less palatable and I'm not sure Cutler would have gone to If it was all, you know, all in server and tools, but, um, it was the right, it was the right thing to do, even though it was, quote, part of the future of servers, you know, it was the future of server and tools, essentially.

AI assessment note: “We did break it out, but we constrained it with Windows.”

Q Uh, but back to the timing, can you explain what is going on? Like what, why is this such an amazing time in the car industry?

A You know, we launched this business in June of 20, which was not like the height of COVID, but it was close. We were planning to launch April first of 20, and we pushed due to COVID. We launched in June. Again, not the height, but like still people were Terrified. I thought it was going to fail immediately because no one wanted to like spend money or do anything, you know, like it was like, but what ended up happening was the car market absolutely blew up. And this is something that nobody could have predicted. I'd love to take credit for this. I talk about how I'm an idiot in t-shirt and shorts and people underestimate me, but actually I'm smarter than I look. This was not a good example of that. This was pure luck.

AI assessment note: “what ended up happening was the car market absolutely blew up.”

Q talk about what I think is probably now another huge megatrend to come for the decades ahead, the exporting of Silicon Valley to the rest of the country and the rest of the world. You've been talking about it. You're there in Miami. You're not, you know, here in California anymore or Seattle or the West Coast. How has your personal experience been over the past two years with that?

A This is a core part of the American dynamism thesis. Maybe talking through a couple of companies that explain this trend will make it clear because I think we, you know, we've talked about kind of your atypical founder, someone who came from different industries who felt like they weren't able to build a company, you know, that's happened. And a lot of those people felt like they were forced to move to Silicon Valley or, or maybe in some cases, New York. What I'm now seeing and what we're seeing in our own portfolio is that those people can build from anywhere and what that means for the country. It is an extraordinary thing that Silicon Valley could be exported to the rest of the country. I mean, that will be game changing when you think of just post-war, how there was sort of this myth that if you were someone who was high achieving, someone who wanted to have a career, you had to go to certain universities, you had to leave your state, and then you had to go to one of a handful of cities. And the impact that has had on the country has been very detrimental, that there is brain drain from certain states That has benefited places like San Francisco and New York. And if we're telling the story, 50 years from now, and we're looking back on what happened, the thing that will come out of COVID is that people have now said, I do not need to be in San Francisco. I can be anywhere in…

AI assessment note: “This is a core part of the American dynamism thesis.”

Q Chen Yi, can you walk us through your work on how to assess platform power?

A I guess even before that we're not trying to understate. I think we just said, you know, platform is not tied to a particular form technology, but there's an important thing to notice that technology is really important. And there's a particular form that gets reflected in the platform, which is technology lowers transaction costs and it lowers it so radically that what you see is entirely new markets get created. That was not the system before. So Our way of framing the relationship between platform technology is that platform is not bounded to a form of technology, but technology is the driver for new platforms to emerge. And that's something I guess all the entrepreneurs and inventors out there would have a very clear sense of what is the technology trend they're writing and creating new markets with their platforms.

AI assessment note: “I guess even before that we're not trying to understate.”

Q What did your family think of this? Like?

A It was pretty heady stuff, because I wound up being on the cover of the New York Times on Charlie Rose, and they wrote a feature story about me for 8000 words in the New Yorker. So anyway, it's a really cool time in New York because at that time you were either in media or finance or art publishing. It was like a finite set and I was in publishing, but I was also in this new thing technology. And so everybody wanted in on that. It would be like the equivalent of crypto is today, like at its peak where like, and you were the equivalent of like Satoshi or something. Like it was crazy to be the New York internet guy.

AI assessment note: “It was pretty heady stuff, because I wound up being on the cover”

Q the first step, which is product market fit. You make better matches, right? If you've got mobile phones, all of a sudden it's possible to do a lot of stuff that you couldn't do back in the day. But that question is different than the question of, okay, you've created all this value. How do you get to keep some of it for yourself? Which is what power is about.

A What you're essentially teeing up here is, just to make sure I understand, platforms under this definition of an intermediary of transactions encompasses a lot of business models that we would otherwise refer to more narrowly as like marketplaces or platforms like what, you know, Windows offered for application developers to build on top of in the nineties that gave it so much power could encompass aggregators of sorts because they're all In a way, an intermediary of transactions. And I think what you're saying is there's a whole lot of work that you've done and there is to do out in the world of applying the seven powers framework specifically to platform businesses because they're different than businesses that aren't platforms. Do I have that right?

AI assessment note: “just to make sure I understand... Do I have that right?”

Q in the, you know, mid late eighties, David, especially as you're alluding in startup investing. I mean, it was a shooting fish in a barrel at that point. And now it's, you know, you, you, you, uh, you need to do a lot of things to be the best. And Michael, I'm curious if you were 18 years old today, what do you think you would do with your career?

A Yeah. Well, I don't know. That's a, that's a little bit too hard to answer, but if you're talking about investing, the first thing I should just say is that at any point, you know, it doesn't seem like it's easy, right? Like it only seems easy when you think back on it, you know? So when I started, I mentioned when I started teaching at Columbia Business School, You know, I, I just want people to conjure up in their mind. There was no internet. Right. When I want to do financial, like I, when I, when I want to do financial statement analysis, I would request from our library, a mimeograph of the 10 K, you know? So like, this is just a different world than what we're used to today. Right. So, so just, and you know, we used to fax our reports and mail our reports to clients, mail them.

AI assessment note: “That's a, that's a little bit too hard to answer, but if you're talking”

Q builders in the audience tonight, a lot of founders. Uh, we're in probably the most interesting technology environment since the early mobile days in terms of opportunity. It's been 20 years, you might have to go back a little bit, but what advice do you have for founders today on something that's different than trying to pattern match Mark Zuckerberg from 2004, given we live in a different world today?

A Yeah, I don't know, I mean, just do something that you care about, and, and, I mean, if, if you're trying to run our strategy, try to learn as quickly as you can, but, but, I mean, if there's, like, I think part of what I'm trying to say is, I think there are different ways to build stuff, right? It's like, our way worked for me, and our team, you know, it's, uh, different things have clearly worked for other companies. I don't know. One day, one day my daughter went to, we went to, took her to a Taylor Swift concert, and she, she was like, you know, Dad, I kind of want to be like Taylor Swift when I grow up.

AI assessment note: “just do something that you care about, and, and... try to learn as quickly”

Q Do you have a secret life as a fiction ghostwriter?

A I, no, I do not. But I do have a secret life as a coach to writers and, ah, other writers. And it's, it, this thing was, it was so compelling. I couldn't believe how good it was. And I couldn't believe how good it was that he hasn't, he's just gotten stalled. But the name of the wind, Patrick Roth was right at the beginning of the year. Very beginning of the year. At the end of the thing I just finished, it's not like it's a great book, but I think it's like, it's so short, and it's of, it's something that is speaking to our moment in our, especially how we govern ourselves. It's, um, I always mispronounce his name, it's Vannevar Bush.

AI assessment note: “I, no, I do not. But I do have a secret life as a coach”

Q You can't really imagine that, whereas that happens here. Are there other companies, either current or historically, that you look up to, admire, maybe took some of this inspiration from?

A In the last 30 years, I've read my fair share of business books, and as in everything you read, you, you're supposed to, you're supposed to, to first of all, enjoy it, right? Enjoy it, be inspired by it, but not to adopt it. That's not the whole point of these books. The whole point of these books is to share their experiences, and, and you, you're supposed to ask, you know, what does it mean to me in my world, and what does it mean to me in the context of what I'm going through? What does this mean to me and the environment that I'm in? And what does this mean to me and what I'm trying to achieve? And what does this mean to NVIDIA and the age of our company and the capability of our company? And so you're supposed to ask yourself, what does it mean to you? And then from that point, being informed by all these different things that we're learning, uh, we're supposed to come up with our own strategies. You know, what I just described is kind of how I go about everything. You're supposed to be inspired and learn from every, everybody else. And, and the education's free, you know? When somebody talks about a new product, you're supposed to go listen to it. You're not supposed to ignore it. You're supposed to go learn from it. And it could be a competitor. It could be a adjacent industry. It could be nothing to do with us. The more we learn from what's happening out in the world, t…

AI assessment note: “You're supposed to be inspired and learn from every, everybody else.”

Q standard for startup bookkeeping. Now over to our conversation with Pilot co-founders Wasim Dahir and Jessica McKellar. All right, so we've talked a lot now about how Pilot works technically and the combination of humans and software and Ironman suits for your finance professionals. What does your actual tech stack look like and what types of technical talent are you looking to recruit to come join the team at Pilot?

A Pilot has a really stacked engineering team, and that's because what we're doing is quite difficult. So how do you build the right systems to scalably deliver high-quality books and other financial services to a wide range of customers in a wide range of circumstances? That's actually a really nuanced set of systems design and technical challenges that require a lot of finesse from people who are very, very good at what they do. So as a consequence, we've really assembled quite the team to pursue this. I've spent basically my entire adult life quite rooted in the Python community, and that served us well for bringing together a great team with that expertise in that ecosystem. I think the thing I would emphasize is the sophisticated systems that we're building, sort of the workflow and systems design is where there's a lot of finesse, and we've really built the right team to do that.

AI assessment note: “rooted in the Python community, and that served us well for bringing together a great team”

Q So as we start to wind down here, that's, that's the question on my mind is, I know it's only been four days, but, um, of the three restaurants you talked about and, and fourth that we'll keep under wraps for now, um, what do you think might make its way into Canlis when we live in a normal world again?

A Um, here's what I hope makes its way into Canlis. I hope that what comes out of this is a visceral reminder of how alike we all are, and if there's anything that I think we've learned so far, it's that our understanding of the human spirit is limited at best, and it's only when When you come to me and say, Mark, I think you got this, man, and I reflect that back to you and say, look, Ben, um, you got this, right? Like, that's, that's what happened. Something really powerful happens there, and the whole mission of this company, which is, I know, a really weird mission, but it's, it's to inspire people to turn toward one another, and when we saw the disease spreading, and I am not talking about COVID 19. I'm talking about, um, the amount of fear, um, the amount of discouragement, um, when we saw that spreading, um, and often for really good reason. This is not, these are not insignificant days. This is a good, overused, but good word. This is unprecedented for the entire world to go through something together, where no one gets to say, yeah, it doesn't apply to me, right? Um, When something like that happens, I think we have a responsibility to remind ourselves of the truth. And the truth is, we don't know, um, what we're capable of. We, the Canlis team. We, the city of Seattle. We, the United States of America. We, the citizens of this rock that we're floating around on. Um, and…

AI assessment note: “I hope that what comes out of this is a visceral reminder of how alike”

Q And Eric, when, how, how fast should it pay back?

A As I would say, it's, ah, as big as possible, right? It's got, every brain is different, but you got to optimize, and keep optimizing every day. Do not feel satisfied. Oh, give one dollar, get one dollar 50 cents back. No. Optimize, go to get one, two dollars, you know, three dollars, right? You have to optimize. This is one example, right? For every marketing dollars. However, if it works, you'll have to double down. I remember, you know, first time I had, you know, the billboard in one on one. You know, many customers shared a very positive feedback with us. They feel like, ah, early on, we decided to deploy Zoom. I, I saw the billboard. I feel like you guys are a bigger company. We made the right decision, right? To better on Zoom. It was about validating the decision then. Exactly. And plus, the employees, they feel very happy, right? They say, oh my god, Zoom has a billboard now. After that, I realized, why not double down on that? I told our team, how many billboards we have in one, one. I said, no, three. It works.

AI assessment note: “As I would say, it's, ah, as big as possible, right?”

Q Can you talk about average ticket price for each of these three concepts?

A Yeah, burger price is 14 dollars. So, you know what? Like, we, uh, have designed this thing not to make Money. I think it's a little bit weird to be pro, ah, let's see, this is a tricky, this is a tricky thing. I don't think there's any unethic, anything unethical about, um, making money in this time. I, I, in a certain sense, we have a duty to do so. Um, but mostly as a, as a means of, um, protecting the staff. And to be clear, I don't, I, we're only four days in. I don't know if we are. That's to say the bagel concepts clearly does not make money. Um, it's labor intensive. We don't have the equipment to scale that in any way such that we could, we could move that to be a profitable business. Um, we could raise the prices, but that just feels dirty. So the point again is to keep people employed. So, um, with burgers, we probably make a little extra with bagels. We're definitely losing, um, with dinner, as we scale that up, that'll be profitable. And somehow if we can get to break even, um, Um, even from the onset, that's what, that's what the goal was, was like, it'd be amazing if for the next three months, Canlis could not lose money. I think that'll posture us really well coming out of this thing on the other side, and I do think of it as a few months, not just a few weeks. So, um, yeah, Bagels came out of the idea of, well, we're gonna be really busy for lunch. Um, our expe…

AI assessment note: “burger price is 14 dollars. So, you know what? Like, we, uh”

Q So I think around this point you're doing one 61 seventy million in revenue. Business has grown nicely, you're profitable. Um, there's a fun story from 20 12 that I'd like you to tell. You've always been somewhat of a scrappy company, uh, doing more with less than anyone else. Can you share the story of when you personally got kicked out of the U.S. track and field Olympic trials?

A So, I think in, in real life, digital is digital, but in real life marketing, um, we activate, right? A lot of the running shops do runs out of their stores, and they're involved with the five K's, and, you know, we're bringing energy and, and positivity to that, really trying to make it fun for other people, and many that are running for the first time. And then there's the sport, which is so fun, um, to be at, whether it's the Olympic trials for the marathon, Or the Olympic trials, which is often at, at Hayward Field down in Eugene. Um, and the challenge there for all the brands is we rent a house, we bring in all of our partners and VIPs, we run, ah, group runs out of the house every morning, we bring in a chef, and we watch these incredibly athletes, athletes compete for Team USA. It always happens in June. Olympics are, you know, July, August. And, and it's just a fabulous event.

AI assessment note: “And then there's the sport, which is so fun, um, to be at”

Q They're not, yeah. That guy like left you an opening, and how did you not take that opening?

A They're not, so, but Tyler, you have to do, Let's tie this to Jay-Z and J. Cole and answer your question also about like, I'm glad you guys are so much nicer where you're like, do you have any feedback? Cause like, I, I can't stand feedback. We're like, not in the sense of, like, like I told you, I texted you guys this one time where like, uh, one guy, it was fucking hilarious. The guy was like, hey, um, I don't like that you reference, like, the superpower of the show is that I tie, it's not like, the episode on Ralph Lauren is gonna tell you how Ralph thinks, like, Andrew Carnegie, and Rockefeller, and Bezos, and it's like.

AI assessment note: “Let's tie this to Jay-Z and J. Cole and answer your question also”