The Exchanges

Q Do you think we're going to end up with like one model that just sort of like dominates, or do you think we're going to end up with niche models and they're effectively going to be commodities in some way?

A I think it's highly dependent on how things play out. There are certain examples in the verticals, especially in the coding one, which is probably the largest vertical right now where people have swapped out models. You know, cursor even lets the, The user picked the model that they're using, and as we move towards optimization and price optimization, which isn't really the objective function right now, but it will be in a few years, um, you may see more people try and do those swaps. I think the thing, you know, that could cut against that, if the regulation gets extremely difficult and mundane and expensive, that could actually lead to more oligopoly. And I think some of the players know that and are begging for regulation.

AI assessment note: “I think it's highly dependent on how things play out.”

Q What does it mean to know the bedrock of the industry? We live in a world where people scam, they want the gist of things, they want, give me the summary, give me the executive summary.

A I'm gonna tell you a story. So, um, my partner at Benchmark, Alex Balkansky, would go to this charity auction that I think Andre Agassi would run. In, in Vegas. And one year he bought a dinner with John Lasseter, the creative genius behind Pixar. And we go to John's house and he serves us in his movie studio. He serves us in his viewing room, a 10 course meal. And each piece of the meal is tied to a classic cartoon that he believed was, was super important to understanding animation. And he would show it and he would talk through it and explain it. And you see that and you're like, holy crap. Like he knows more about the history, you know, and, and then here's another data point that I just love. There's a, you know, world chess tournament and they take a break and run a trivia contest and Magnus Carlson wins the trivia contest. And it's all about the history of chess. We do live in a world where information is really cut up, but we also live in a world where you can have access to more information than you ever could, and that's even more true now with LLMs. I mean, you could just sit there, you could have an hour drive, and you could sit there and talk to OpenAI and learn about anything you want to, and I think more people would benefit by studying the history of whatever field they're in. There, there's another one that we mentioned is, uh, Picasso Was a wildly successful re…

AI assessment note: “more people would benefit by studying the history of whatever field they're in”

Q So you've spent your life working with outliers, all these founders, are there, Is that a common trait? And I mean, not just the, the history of the field, but the details as well.

A I don't know if the history is a common trait. I would say that, that a more common trait that's related in the entrepreneurial world is obsessive learning, like constant learning, because the disruptions that allow for the technology waves that allow for companies to be disruptive and take market share from an incumbent Are all tied to something dynamic that's happening on the edge. And every entrepreneur that's exploiting that, it's AI right now, they're, they're going home at night and reading everything they possibly can because the edge is moving and they need to be right there and they need to be a top one percentile person that understands this new thing that's happening. And today it's AI, but that was true of the mobile wave. Yeah. Like when the mobile phone came out, there were no engineers that had written apps for mobile phones. And a few people got on that edge and figured out what that meant. And that requires obsessive learning on the edge.

AI assessment note: “I don't know if the history is a common trait.”

Q If I was to observe you use AI for a week, what would surprise me about the ways that you're using it?

A You often underestimate how much it can do. So you might ask it, um, to identify the top 10 of something, and then you're going to take those 10 and go study them. But you can say, identify the top 10, list their pros and cons, and then rank order them based on this dimension, and then rank order them again based on another dimension. Like stuff you would have done later, you can just build into the prompt. And it can, it can do more of the work earlier for you. Early on, I would often ask it for numbers, and then I would go add them up, and I'm like, oh, shit, you can just tell it to do that part, too.

AI assessment note: “stuff you would have done later, you can just build into the prompt.”

Q What was the process you took to go about learning the craft of investing, and who are the mentors and peers that played a role in that?

A So, because I started on Wall Street, you know, and not in venture directly, I got caught up in all the people you would expect, you know, around Wall Street and stocks. And so, you know, that starts with Peter Lynch, one up on Wall Street, you know, best-selling book, probably the first book I read about investing, a random walk down Wall Street, Burton McKay, all the Buffett letters, you know, uh, Ben Graham. Once you read Buffett, you have to read Ben Graham. And so, and then Howard Marks, uh, who's just incredible. And you were talking about the purpose of your podcast. Those, those people have spent their whole career assembling their thoughts and publishing them. You know, along the way. So, so that, those were the ones that I read everything. I, I think I had a very strong kind of bedrock of financial understanding.

AI assessment note: “starts with Peter Lynch, one up on Wall Street... Burton McKay, all the Buffett letters”

Q How do you think about it from a systems point of view, just from like, China seems they have four open source models now that are really good. Is that?

A By the way, this is a great, a great question just to talk more about systems thinking. So, um, they have like 10 open source models, and so you have a situation where the competitive dynamic in China is more intense. Because it's more intense, everyone's chosen to go open source, and that creates a system that, in my mind, is capable of innovating far faster Then the competitive system we have here. All the models learn from one another. You can actually have a model train another model or test another model. I'll use a simple metaphor, but imagine you have two societies and both agricultural societies and one of them, when all the farmers come to market, they just sell each other goods and then they go back. And the other society, when the farmers come to market, they're forced to share best practices with all the other farmers. Which, which one of those is gonna, gonna evolve faster.

AI assessment note: “Because it's more intense, everyone's chosen to go open source, and that creates a system”

Q In a world awash with capital, what makes a founder choose Benchmark or somebody else? Like what goes into that?

A First of all, at a high level, if you're successful as a venture capitalist, people want to work with you. You know, when I came in, you know, the Mike Moritz, you know, John Doerr, like they've had so much success that, that not only, you know, is it likely that they, Are great at what they do and know people that will help your company succeed, but their stamp of approval of you will carry weight in and of itself. And so there, some people have said it's the only investing category where there are network effects because once you have a reputation, it, it, you have an unfair advantage in deal flow. Underneath that, I would, I would say founders are particularly, um, Motivated To be around people who understand what they're doing and are excited by it and excited about it. And one of the reasons young people can break into venture and be wildly successful is they're much more likely to be the age of the founder. They're much more likely to feel someone that understands what they're doing. With, with many of these technologies that are new, they're much more likely to understand them. You know, I, I've used examples describing this in the past, but let's say you're, uh, really into esports or something, you, you, it would be very easy to know more than the successful generalist venture capitalists in that category.

AI assessment note: “their stamp of approval of you will carry weight in and of itself”

Q It's, it's interesting because as you're saying that I'm thinking like value investing and then you went into non-value investing in a way, right? Like how did that translate? How did what Buffett said translate into seed investing and sort of venture investing?

A I think having a firm understanding of the bedrock Is super valuable, and then when you recognize the need to innovate on top of it, it's just really good to have that foundation. I have an incredible peer in this guy, Mike Mobison. I don't know if you've heard of him, but he's a writer of financial books. We started at First Boston. He had probably been there a year or two ahead of me, so it's, you know, just super fortunate that I landed in the same place as him, and we've been lifelong friends since then. He introduced me to a gentleman named Bill Miller, who ran Leg Mason and had this, like, 15 year run of beating the S&P, one of the most famous investors of all time. And he claimed to be a value investor, and he was the largest shareholder of Amazon for a very long period of time. And what he would say, I'm getting back to your question, he would say that, you know, value just means that the asset is underpriced relative to what you think it will be worth in the future. I spent a lot of time talking with Bill about network effects, and if you believe in that, then Amazon might be able to grow at a unreasonable growth rate for a very long period of time, which he believed. And so that, that's how you get there. But yeah, I, I, I've often thought that many of the VCs in Silicon Valley would benefit from having a better understanding of finance. And one other answer to your q…

AI assessment note: “value just means that the asset is underpriced relative to what you think it will be”

Q granola.ai slash Shane and get three months free with the code Shane. That's granola.ai slash Shane. If AI is really going to change everything or, you know, have such a big impact, how does it change how you invest? When you look at a company, are you looking like this is a wrapper on AI? You're effectively like a calculator app on the iPhone or like, how do you think?

A I, I, I think that question is up for grabs and it's a hot discussion between everyone. So, you know, if, if you believe that these models become near sentient, Then there will be no need for a vertical model, because this one model will just do everything. I'd probably come down on the other side of that. I think that there are workflows and data moats that if you get, and also just understanding, like, there's three or four legal startups in the AI space. They're just spending so much more time making sure they ingest all the case law and And really understand, you know, the processes and principles there, and, and then you implement with them, and they're writing stuff on your behalf, and you're building new databases out of there. I just don't know that you then switch that to ChatGPT as they climb up the stack, but, and I'll take, I'll flip back to the other side, you know, they have talked about in their product groups, You know, going after verticals. So it's, I think it's a TBD. People point to Microsoft, you know, starting with the OS, and then, you know, there were, there was Lotus one, two, three, and there was, I forget, I can't even, oh, there was a WordPerfect. Like, I can't remember the specific apps, but, you know, they eventually moved up the stack. That could happen. We're going to see how it goes.

AI assessment note: “I think that there are workflows and data moats that if you get”

Q ingredients, just a real dose of sodium, potassium, and magnesium. I know you're all thinking electrolytes are for athletes, but you don't have to be an athlete to benefit from it. And it tastes great. Stay sharp in the afternoon and grab a free eight-count sample pack with any purchase at drinkelement.com slash TKP. That's drinkelement.com slash TKP. How do you think about the competitive mode of Visa and MasterCard?

A I think they will be heavily threatened by this, and historically what they've done, and, and by the way, those two companies have two of the highest operating margins in the history of business. They have, like, 60% operating margins, and they're, they're duopolies, and, and they were created by the banks, so, and the banks have a stake in it, so it's like the, the whole industry is It's kind of stuck in this world where they make a lot of money because it is this way, but there's zero reason why it should cost two or three percent, just zero, and it will change. In China, because they had this digital immediate transfer, um, Alibaba and Tencent were able to very quickly build digital wallets that people carry around, and so if you walk around China, If you want to buy a hat from a street vendor or, or a car, you know, in a Huawei store, you, you use WeChat Pay and Alipay for everything. You scan a QR code, like edit, you check out of a restaurant, like you can just pay at your table. There's a QR code on the table. You just take your WeChat Pay or Alipay and scan it and you're done like one click. Like, so they've, they've innovated their entire payment system Way further than we have, because, because of this The decision by the government to make money transfer easy.

AI assessment note: “I think they will be heavily threatened by this”

Q Are there, do you think we're overfunding this build-out? How do you think about that? I saw that smile on your face.

A I mean, it's such a hard question to note. If you told me five years ago that the, that these, uh, mag seven would become worth three trillion dollars and then turn around and take their free cash flow from 50 to a hundred billion a year down near zero because they were going to spend it all on CapEx. I'd have been like, no way. Like I wouldn't have believed it. So from a certain standpoint, I'm shocked that the money's this big. I will tell you that the venture capital community, you know, I mean, we talked earlier about increasing returns and, and that concept and other people call it power laws. Like when startups have become important In an ecosystem, and then they've been able to prove that they can grow, and that that growth might be a function of their size already, or their footprint, or their users, and that would include everyone from Google to Amazon to Meta, that they end up being worth way more than anyone thought, and I think the investor community writ large has slowly become Aware of and believes it strongly in increasing returns and power loss. And so over time, if they all believe that they're going to be more willing to invest on the come and take risks. Right. That makes sense. That follows. And so, you know, someone forwarded me a chart this morning of the losses of the leading company in the field prior to going cashflow positive. And you look at, you know…

AI assessment note: “So from a certain standpoint, I'm shocked that the money's this big.”

Q know, if I'm young and upcoming, I'm on that edge and I'm going to dive into it. But if I'm an incumbent, it's much harder to dive into that because it might mean it's the innovator's dilemma in a way, but it might mean giving up a Previous decision I've made or saying that I've been wrong and going backwards. How do you think about that in terms of competition?

A I mean, I think that anybody in any field should want to be on, like, curious about the bleeding edge and what happens. And, you know, as a venture capitalist, you know, we're always definitely afraid that some new app's gonna pop in the app store that we haven't seen. And so everything that comes up I play with, I roll around. Right now, I have, like, five premium AI accounts because I just don't want to miss something, and you get trained that way. I think everyone should operate that way. I mean, it's kind of an interesting contrast. I'm suggesting you should understand the really old stuff, the history, because it's differentiating and shows a passion, and it gives you a great frame of mind, but you also want to really understand the new edge. If you do both of those things, like, you're, I think you're a power player in your field. You know, and the second one is a great way for young people. That's another thing that could really differentiate you in an interview. If you're applying for that marketing job, and you understand all the legends and the history, but you also really get TikTok, like, that's super, like, that's going to be a very differentiated skill going into those companies, and it matters. Like, it really matters. It gives you a chance to shine.

AI assessment note: “anybody in any field should want to be on, like, curious about the bleeding edge”