The Exchanges

Q What's a recent example of one of those?

A So a recent example is we're looking into logistics and we're trying to understand Amazon when they ship something, when you order it, it's about 70 miles away from you on average from the time you click it to the time it comes to you. Amazon's 40% of the market. The other 60% of the market When you click it, and you ask how far away from you it is, it's 1100 miles. So it's much worse. Amazon's much, much, much better at this problem, which is why they can ship things guaranteed one day, sometimes two days, whereas everyone else is three to five. We practiced with this, and we looked all around. We figured it out. We've tried to figure out what we're going to build. We found a guy who had done it in Amazon, who'd done something related. We said, wow, this is the guy who's already thinking about this problem. We were able to help him think about it even better, thanks to what we were doing. So therefore, we were able to kind of lead his first round of financing on much better terms. We never found this guy from Seattle if we hadn't Been thinking about this idea. Now it's a really fast growing company called Deliver. It's, it's raised big up rounds, about to raise another really big up round. We put it on Walmart for a bunch of their merchants and rather than three to five day shipping, they distinct guarantee one or two day shipping and those merchants sales doubled once we told…

AI assessment note: “So a recent example is we're looking into logistics”

Q And at what point in time did you say, okay, this thing's off on its own and time to step away?

A Well, it was about five or six years of working on it pretty intensely and hiring a team and building a culture. And what happened was, is that we built out the government side and about three or four years into it, it wasn't clear how long the government side was going to take to ramp up. So I decided to build a finance side of the company as well. So, so Pounder ended up building out a commercial division where we started with the finance side and we had a few early customers like Bridgewater and others who Ended up using the system for over 10 years as a way that their analysts did their work. So really, really built out a commercial side of it as well. And as that was scaling, I'd fully vested my shares in the company about four or five years in. And I was, I was gonna do another division in the company, but I realized maybe I should do something on my own that I own more of. And I was really passionate about this idea for Adapar. So I stepped aside about five and a half years in and started working on Adapar instead.

AI assessment note: “I stepped aside about five and a half years in and started working on Adapar”

Q How do you balance out? You've got a deal, a company you like, presumably a founder you like, someone who's coming down is going to price it up. How do you think about at what point in time you just say, no, that's too expensive?

A It's really hard. We have different costs of capital. So even though our funds are six hundred, forty million dollar funds, because we're a venture capital firm, our bars, we're looking for 10 X on the low end. And that's what you have to do. You know, our first firm's over 40% IRR, you know, it's 50, We're going for the thirties though, at least, whereas a lot of these guys are perfectly happy with the low twenties, which is nothing wrong with that. It's just different. So I've told the team we're going to lose the deal by not bidding high enough. If it's going to be something where someone else is happy to get 20% IRR, we're not happy with that. So it's just, you know, it's 10 X minimum and thirties IRR minimum. The other thing is basically we want to work with people who are giving us a deal because they want to work with us. Venture capital is very different than a hedge fund. We're not like a hedge fund that's just going to like be in a bidding war. Most of the time when we're getting involved in these things, People could have gone, and they could have raised from somebody else in the market who's not top founders, not insiders, and they could have raised at a higher valuation, but then they're not going to get our help in a variety of ways.

AI assessment note: “So it's just, you know, it's 10 X minimum and thirties IRR minimum.”

Q How do you establish competitive advantage for yourself today?

A Well, there's a few different things I'd say. One is that the people who are running the top venture firms right now are almost all founders of successful companies. And so as someone who's founded a few quite successful companies, that's a big advantage. Founders want to work with other founders. And if you look at the very big names of venture capital, obviously Mark Andreessen is very well known, or Peter Thiel, who I work with and learned a lot from, or Mark's actually also on the board of one of my companies I've started. So I've learned from both those guys. Or if you look at Vinod Khosla, Or even Reid Hoffman, who did LinkedIn, who was with us at PayPal. The list goes on and on. Like all these famous names people have heard of, they're all founders of big companies. And so there are very rare exceptions from the previous generation. I think Mike Moritz is like a great exception of someone who never found that a company. And I think you could do that in the eighties or nineties and be a great venture capitalist. It's very rare these days. So first of all, being a founder is a big advantage. I think second of all, being in touch and being close to lots of other founders is very important. So that's one thing we've spent a lot of time doing is we happen to have a lot of friends who build companies and we've Enjoy spending time with them. And so that is my social life is her…

AI assessment note: “One is that the people who are running the top venture firms right now”

Q Right. So what's your assessment of the venture landscape today?

A Venture capital is obviously a much larger asset class than it was 10 or 15 years ago, which, which makes a lot of intuitive sense. It's a much bigger part of the economy, right? So it used to be in venture capital that maybe you'd have people coming to Silicon Valley who are the CTOs or who run different special initiatives for big companies. Now the people coming to Silicon Valley are the CEOs of Fortune 500 companies. It's the people who are actually making the decisions. And actually figuring out the core business strategy for the biggest companies in the world, and that's for obvious reasons, right, because the technology is now redefining what's possible in these industries, and so the venture world has become a lot broader, encompassing a lot more things, and having to do a lot more money at stake.

AI assessment note: “Venture capital is obviously a much larger asset class than it was 10 or 15 years ago”

Q And once you've got that alignment with the people running it, how difficult are the deal dynamics given the competitive environment today?

A They're definitely getting a lot more difficult in some cases than they were in the past. There's still this thing where we have our network of people we spend our most time with, and there's, there's several hundred of them, and we're going to have an advantage with a lot of these entrepreneurs and these people, and so I think it's very, very hard to build A new firm, unless you happen to have a group of people who've built a bunch of companies and have their own big network already, that's willing to kind of make you one of their first choices. But because we have that, we're able to be on the inside track for a lot of these things. But yeah, things are a lot more competitive at the later stage. Again, it's getting to a point where I'd be very, very careful if I'm doing too much late stage venture right now.

AI assessment note: “They're definitely getting a lot more difficult in some cases than they were in the past.”

Q And then, so how did it take off from there? At what point in time did you sort of leave Clarium and just dedicate to Palantir?

A We got a little office away on Sand Hill Road. It was one of Peter's old offices, and we started using that and started building it out, and Peter helped us bring on one of the senior guys from PayPal, became another co-founder, Nathan, and we just started working on it. At first, I was just working on it part-time. We were testing it out and trying it out, but it was about a year and two. It was, Claire, we're starting to get really exciting, and I ended up moving there full-time to start really hiring out the team. I ended up hiring most of the first hundred people, and I helped run the product and built it out.

AI assessment note: “it was about a year and two... I ended up moving there full-time”

Q Look at your website. You've got this advisory board that spans lots of entrepreneurs, very senior, big company executives, people in entertainment. How do you think about that specific network and how you use them?

A Each one's different, right? So we have over 30 people on our firm, and really, I guess, 12 key people on the investment team. And each person on the investment team is working with and managing different advisors for different goals. And so, you know, you have some people who you really just want to, like, bring to certain things because they bring other people around them, and people want to be around them, especially a couple of the entertainment guys have They're going to be at something. It's easier to get people to come, right? And it's easier to get the good access to things where, whereas others are specifically really, really helpful for getting deals done in a certain part of healthcare or a certain, certain part of finance or whatever.

AI assessment note: “each person on the investment team is working with and managing different advisors for different goals”

Q At what point in time did you say, okay, I'm gonna start a venture capital firm? That created, I guess it was Formation Eight at the time.

A Yeah, Formation Eight was the first real serious firm. I had a small fund, we called it Anduin before, and that the fund was just with family and friends and my own money, and we did a bunch of angel investing, and that was actually really good, because even though that fund was over, it actually did great. I also did a lot of dumb things, and so I think you just learn by doing things, right? So you want to make more mistakes before you do it with larger amounts of money. But after doing that, seeing some of it working well, starting to have really strong opinions, I decided to start a fund. It was in 2011, I guess, when we decided to start it. We close our first fund, I guess, the very end of 20 12.

AI assessment note: “It was in 2011, I guess, when we decided to start it.”

Q What was your angle? Did you come at it from the technology side, from the business side?

A I'm a computer scientist originally, so I studied computer science when I was, gosh, 10 or 11. My friends taught me to program, and we built games, and we built programs that would do our math homework for us and that sort of thing. Yeah, and then at PayPal, I just saw a lot of really smart people going there, so I actually got turned down the very first time I applied there as a programmer when I was quite young, Max Loachin. Who's now a friend. I mean, do stuff on the whiteboard and we debated things and I never got an offer from that, but then Peter brought me back the next summer and I started working at PayPal.

AI assessment note: “I'm a computer scientist originally, so I studied computer science”

Q And at what point in time did you shift from being an operator to a venture capitalist?

A So the thing I was really proud about at Palantir and then later at Adapar is we had some of the very top talent. So Palantir was rated number one in Silicon Valley for the engineers we were attracting. And what happens to a lot of the top talent, they'll come to place for three, four, five years. Some of them will stay the whole time. There's still people at Palantir who have been there for 15 years now, but a lot of them after a while, they'll go and they'll want to build something on their own. And so I had Probably about 10 or 11 different friends who I'd worked with in some capacity at Pounds here, or even out of power early on, were then building things on their own, and I was making small investments in them for my office, I was advising them, and I realized that that's something I really enjoyed doing even more than I enjoyed running the company day to day.

AI assessment note: “I realized that that's something I really enjoyed doing even more than I enjoyed running”

Q And when you dive into one of these ideas, you mentioned a couple of times your friend for your roommate from Stanford, a bunch of your friends. How do you start to build one of these off of the idea?

A Well, I think the number one thing is getting the very top talent. You want the top computer scientists. You want a culture where people are really, really obsessed. You want to agree on what the mission is and why the mission is important. And yet you have to have a mission and a set of people that attract other people and it becomes a positive something. So it's just, it's a very intense few years getting them going and, and convincing others to help you and making sure others are going to own enough of it. And then I'm a product guy. So I'd sketch up the product. And then you of course have to have the marketing and sales analysis and you have to go iterate and talk to a lot of people and get a lot of feedback and Evolve the product over time based on that. One of the key things for the early engineers is they have to be, be able to mock things up quickly because you need to get feedback and you need to iterate.

AI assessment note: “Well, I think the number one thing is getting the very top talent.”

Q What are those special pieces of kind of the pitch to the entrepreneur about what you're going to do for them that other people can't?

A There's some of the pitch. It's almost not even really a pitch, though, because most of these guys, like one of my friends, he started two companies. They each have over a hundred million ARR, a very famous kind of enterprise company builder, and he's building this new company, and he had an idea, and I had ideas around it, and we shared a bunch of notes. And he came and he let us put money in a fifteen million dollar pre money valuation. And it wasn't me pitching him. I said, he knows who I am. He wants to be involved. We've talked about it a bunch of times before. I know who he is. I'm really honored to be able to get to invest at 15 pre because I know he could have gone out, made a bunch of noise and raised at 50, 60 pre very easily given his track record. So it's more people who already know who you are. I think what they're looking for is looking for people who are going to give them the best advice, whose involvement is going to be a signal to other top talent. This is a worthwhile thing. We have time to build networks. These entrepreneurs don't. So our job is to know the top people in these different fields. In this case, he's selling a product to information officers at these big fortune by founder companies. We know tons of those because they're working with all of our companies. So if you want to use our network for that and venture capital is a very interesting asset…

AI assessment note: “our job is to know the top people in these different fields.”

Q And what was the original idea for Palantir?

A Well, you know, there were actually a lot of things being started at the time at Clarion, the hedge fund. And some of them were quite crazy. There's this thing that was like trying to do mental stimulation that was supposed to do things good for your brain that ended up giving people nightmares and other effects to talk about. There was like a spam company. There was A restaurant. People are spending millions of dollars on there. There's this long list of things, and of course, Peter was also at the time a big investor in Facebook, so I got to know the Facebook founders really well. So just, there's all sorts of interesting things going on, some of them crazy, some of them not as crazy, obviously, although it was really hard to tell at the time what were the best things. And I hired a bunch of my friends at the hedge fund to help us with programming and building things, and some of them really didn't like finance very much, and so I said, what are we going to work on? And we'd had this idea that initially Peter's idea from PayPal, like, These people we're talking to at the Secret Service at the FBI who are helping us when we try to arrest these bad guys. Can we be building better technology for them? Can we be doing something to take what we've learned and apply it to DC?

AI assessment note: “Can we be building better technology for them? Can we be doing something to take”