The Exchanges

Q Okay. Uh, and, and Delian justify what, why, why do you like these businesses? Is that, is that even a fair characterization?

A Um, fair characterization. I think, um, you know, my sort of one line would be, I'm not sure that, you know, gross margin is actually like the right thing to sort of focus on in a business, especially, you know, sort of early on. What you want to be thinking about is obviously EBITDA margin, in particular terminal, you know, EBITDA margin. And so when I think about the, like, at least founders feeling ethos to, you know, sort of investing, we think that that terminal EBITDA margin mostly is determined by ultimately how much of a, you know, monopoly your company can be in the long term. And so if you look at, you know, sort of mag seven today, obviously there's a decent chunk of them that, you know, have Some phenomenal, you know, sort of gross margins, and those tend to be the ones that are a little more software oriented. If you look at the one that is at the biggest scale and has the best EBITDA margins, it's the one that is the most, you know, basically hardware oriented. For sure, some of it propped up by like CUDA and they're like, you know, sort of software side of the house, but like NVIDIA is the one that is performing the best of all of those. And then even if you study within those, you know, which of those, um, you know, uh, companies on the hardware side have monopolies versus, you know, sort of not, you see it's the one that with the monopoly, you know, clearly out…

AI assessment note: “terminal EBITDA margin mostly is determined by ultimately how much of a, you know, monopoly”

Q So anyway, uh, can we move on to the Cygnus spacecraft? Can you break down? I, I'd never even heard this word term before. Can you give me a little bit of history and then what's going on with the news?

A Yeah, I mean, I brought it up because I think it was like two weeks ago that we chatted about like the, you know, astronauts being stranded, and then, you know, sort of SpaceX going to, you know, bring them back down. Um, this past week, it was revealed that the Cygnus spacecraft, which is a spacecraft, I'm pretty sure, made by Northrop Grumman, um, that originally was awarded basically commercial, uh, cargo contract, the ISAC. So this was like back in like, 2010, 11. It was basically, you had Cargo Dragon, which was done by SpaceX, and then the Cygnus spacecraft done by Northrop Grumman. Um, to basically deliver cargo, so like food, water, et cetera, to the International Space Station. It generally performed, you know, well, it's kind of a crazy vehicle in that it's only one-time use. Like, it doesn't even have, like, a shield or any way to, like, come back to it, so you literally, like, ship it up to the ISS, it drops off its things, and then it just, like, burns up in orbit, so it's, like, the epitome of just old-school, you know, sort of aerospace. Um, they didn't even, like, attempt to make it economical from the, like, fundamental design phase, but, like, it's, you know, delivered plenty of cargo to the ISS at this point. Um, this past week, um, They dropped it. Um, and so NASA was like, look like, yes, this has been tested, et cetera, but like, we don't know what happene…

AI assessment note: “Cygnus spacecraft, which is a spacecraft, I'm pretty sure, made by Northrop Grumman”

Q you know, we, we've seen plenty of, you know, undersea cables being cut, uh, How worried is the average space founder generally, uh, like how worried are they about sort of sabotage? Is that something that's, that's sort of like a risk factor in a, in a series C deck where they're, where they're like, you know, uh, you know, is that, is that even the right question to ask?

A I would say like not too worried. And it's not to say that it could happen or anything and we should underwrite this, but it's like the, the, the thing that would be really bad is if like Russia basically, you know, nuked, uh, uh, low earth orbit, you know, detonated through nuclear weapon. And you had a bunch of like highly charged ion particles, you know, basically orbiting around, uh, earth at a much lower level than where you like the Van Allen belt is. Cause it would basically destroy everybody's Leo business right now. Part of why Starlink works is they're low enough. Um, in orbit that, uh, the earth's magnetosphere basically deflects the solar winds. Um, so you're, you're still relatively protected. If that all of a sudden becomes a very unprotected zone, you have a ton of radiation, man, everybody's economics basically just blow up. Actually, one of the few that probably doesn't blow up is BARDA because radiation basically screws you on a day by day basis. And we don't need to be up there for very long, but anybody who's business case is built off of like being in space for a longer period of time. Man, if the Russians launch a nuke up there, that'd be really hard. And I haven't seen any, like, how one would fix that problem if they did. Like, I don't, I don't think that, like, there's even, like, a hypothesis for how to do that. Like, you know, maybe some, like, really…

AI assessment note: “I would say like not too worried.”

Q they're speaking freely on the ski lifts together. They know no one else is listening. They share stock tips and then the market crashes. And so if you look at like Theranos, it happened during ski season. FTX happened during ski season. Enron was discovered during ski season. Uh, what do you think of that? Or why do you think the market's going down right now? What, what's gone wrong?

A Um, you know, there is a, like, uh, historical seasonality to, like, the stock market. I remember, you know, sort of seeing something similar where it was basically the past, like, you know, sort of 50 years of the steepest drawdowns of the S&P 500, something like 80% of them happened between, like, October and February. There's a component of that that I'm sure is also, like, tax season related, where, like, people want a lot, you know, sort of gains versus losses at the end of the year, but not too closely, you know, sort of coupled to it. I'm sure there's a component of it is, you know, people sharing, you know, stock tips in Aspen. There is also the presidential transfer, whether it's, you know, sort of this year or any prior year always happens at this time of year, which also introduces volatility and people don't like volatility. The one bull sign that I'll say is I was just looking at this. I don't know if you guys know this website, Truflation, uh, which basically tries to do like a week to week, um, analysis of inflation, just tracking grocery store prices that are, and as it is actually showing like a pretty steep drop. That's great. Yeah. So I'm, I'm a little bit of a believer of like the Scott Besant, um, you know, There is going to be a detox period.

AI assessment note: “there is a, like, uh, historical seasonality to, like, the stock market.”

Q Rippling as well. There's a couple, Modern Health, I believe, as well. There's a few others. Um, but yeah, well, to, to Jordy's point, where else is the common ground and where, where else is the divide? Or, or the consensus in, in the disagreement.

A Yeah, was gonna say, you know every night we texting before this of like, you know, what are, you know sort of two companies that I think, um, you know, both of us were enthusiastic about in, know, sort of,,, in,,, in, in, in in in, in in in, in, in,, in in in,, in in in in,,,, in, You know, rippling like many other, you know, sort of SaaS companies does end up having, you know, an initial, you know, very high gross margin, but does still have to spend a lot on sales and marketing to bring in, you know, sort of net new customers. Hadrian on the flip side, deeply, you know, sort of negative gross margin to start, but now as they've gotten to scale, they actually have like super limited, you know, sort of sales and marketing spend because there's only like, you know, 10, 15 customers that matter, and the moment that you're delivering for them, they just proactively start, you know, sort of throwing revenue, you know, at you. And so, um, yeah, I think There are times where, um, you know, both of our, you know, stories obviously can play out. The thing that I'd be curious to hear from, you know, sort of average is to actually, like, compare and contrast, you know, you're bringing up, you know, some of these digital businesses, you know, that, um, end up having these, you know, network effects. I would kind of argue that, like, you know, the, like, twenty-tens, um, negative gross ma…

AI assessment note: “Rippling like many other, you know, sort of SaaS companies... Hadrian on the flip side”

Q my way. Can't say I read it all, but, uh, I, I said I will ask Delian about it again next week. So can you restate your thesis on what's going on with the continuing resolution and just the overall DOD budget and what it means for defense tech companies? And then what's been the pushback? What's, what have the good responses been and what has been like the cope?

A Yeah. What's funny is like, I see so much of it is like pure copium. Like if you look at the people that are closing the biggest use of defense contracts, you know, Tim Hughes at, you know, sort of SpaceX, uh, you know, Matt Graham, Trey Stevens, et cetera, that whole crew at, you know, uh, and roll, you know, Shamsankar Pound here. Somehow none of those people, um, you know, some critiqued, you know, sort of my framing of it. I admit my tweet was a little more pithy, but it was funny seeing some of the critiques where I'm like, you just didn't watch the clip. Like, yes, my tweet was like an attempted summary of it. I basically like, you know, was a bit hyperbolic in saying that like, there are no net new starts. There are going to be some that are potentially allowed, but it also, you know, it needs to be, um, uh, paralleled to the original, basically, you know, Congress, congressional, um, you know, and, uh, House and Senate, you know, sort of bills that were passed in, you know, sort of late February. So, you know, some of the critiques came in from some of these, I think, more junior companies that have a little bit, you know, sort of rose-colored glasses on how they think this process is going to go, in that, yes, it points to, you know, allowing that type of reprogramming, And at the same time, you're seeing like in a continuing resolution year going when that four to sev…

AI assessment note: “What's funny is like, I see so much of it is like pure copium.”

Q What, what, what, what, what's your reaction? Are, are you long, I, I, I'm personally, I'm short the word slop But I'm long the underlying trend, but I'd love to hear your take.

A Uh, you know, I'm going to relate it back to defense, which is, you know, sort of marker maps are no good. Focus on a long tail winner. There's like a whole fucking set of like a hundred like AI image generation companies that all just got, you know, fucking Sherlock by open AI and are going to be totally irrelevant because like they've got the biggest brand and know they have the best technology. Good luck catching up when you're like, you know, sort of losing on both angles. Um, I think you're going to see this stuff got implemented into Hollywood like ASAP. I mean, there's like a whole set of things where you can like, Look, there's gonna, for sure, still be like human fine details. There's things that it's not perfect at. It probably never will be like quite perfect at it. But if you want to start like throwing together like rough draft, vision boards, et cetera. And then what you end up seeing is like the equivalent of like, you know, that there's, you know, sort of now, you know, sort of two, um, you know, two engineers can build like a billion dollar, you know, AI company, like two animators and a director can like make the next Pixar film basically. Cause like, you know, they have so much, you know, sort of leverage.

AI assessment note: “I think you're going to see this stuff got implemented into Hollywood like ASAP.”

Q What would you do if you were actually running a fifty million dollar series B stage image generation company?

A Yeah. I mean, look, this is very tough of mind. Like I literally met up with Mike, I think it was like two weeks ago to like talk about, you know, what he was sort of working on. And I'm like, I'm a huge fan of Mike's. We've worked together on a, you know, sort of handful of things. Obviously he's like crushed it with snowflake. He's like clearly one of the valleys, you know, sort of best incubator entrepreneurs, investors, you know, you know, execs leaders, et cetera. I'm like, yeah, like I don't envy being in that position, but you know, I think you're seeing this in a bunch of different fields where it's like, You know, you've got the, you know, sort of, you know, mice that are trying to dart around the, you know, sort of elephants and like these like big tech companies are both very sophisticated, like have great engineering, but also massive, right? Like, I mean, again, just look at like what SpaceX is doing with Starship and like, you know, stomping out a bunch of, you know, other, you know, sort of mice in there, the elephant, what Andrew is doing, stomping out a bunch of mice. It's like, it's not an easy time to be like a mid-stage company that's trying to dart around all these major players that are like, not like old school incumbents that are moving slowly, but like are led by Sam Altman. And like, you know, are really pushing the fold. And so yeah, tactically, like …

AI assessment note: “tactically, like if I was in Mike's shoes, I think it's like”

Q And then also a capital war for, for, for military boats and UAS and, and UAP, like all these different sub segments are going to wind up. If, if capital wars start popping up there, that could potentially, uh, be a headwind to Dellian's model. Is that, is that roughly correct? How would you, how would you, uh, how would you fight back against that?

A Look, I think it's, it's always, you know, sort of, uh, important to talk about, you know, sort of specifics here, right? Um, you know, one of, you know, sort of major investments in the last year is this, uh, you know, company called Captions that basically does AI captioning of, you know, various, you know, sort of videos on social media. Um, when I think about, you know, handing, you know, sort of two Stanford grads and a hundred million dollars to go try and, you know, sort of replicate that, Yeah. Feels like, you know, they could, you know, go do something like that. There's like, you know, clear, you know, voice recognition models. They can go, you know, sort of pay on ads on Tik Tok, et cetera. Um, and you could probably go and replicate that. And so, you know, you know, our one-liner at Founders Fund is competition is for losers. And so, you know, I think I was a loser for investing.

AI assessment note: “one of, you know, sort of major investments in the last year is this company called Captions”