Guillermo Rauch: Why Great Companies are Defined by How Many Things They Say No To | E1069

1. 0:00 – 0:33

   Intro

   1. GRGuillermo Rauch0:00

      The job of a good VC will be to find a handful of the best companies in the world. We don't need to fight every battle. And this actually matters more as the company becomes more mature. You don't always have to be first, you have to be right.

   2. HSHarry Stebbings0:14

      (instrumental music) Guillermo, I'm so excited for this. As we said, I've wanted to make this happen for quite a while. So first, thank you so much for joining me today.

   3. GRGuillermo Rauch0:22

      Yeah, great to be here. Thank you so much.

   4. HSHarry Stebbings0:25

      Not at all, but I would love to start, you started developing at 10. Can you just walk me through, how did you first get into computers and what were you building at

2. 0:33 – 9:23

   Early Life and Career Origins

   1. HSHarry Stebbings0:33

      10?

   2. GRGuillermo Rauch0:33

      By the time I was 10, I already had a few false starts at programming. I would tell people like, "Getting into software engineering is really, really hard, and it takes a lot of trial and error to like really get into the groove." The first thing I ever did was creating websites, uh, for my passions and, and my interests when I was a kid. So, uh, at the time I think it was like Dragon Ball Z, and I was learning just enough HTML to be able to put up a, a website online. I would use a tool called Frontpage. You can say that my passion has always drawn me towards the web and publishing things online, and that's how the world has gotten to know me.

   3. HSHarry Stebbings1:09

      Uh, same for me. I mean, 3,000 podcasts in, I think we can definitely say that's the same. Y- you then dropped out of high school and moved to SF super young. How was this process? That's got to be a defining process for you, I guess.

   4. GRGuillermo Rauch1:22

      (laughs) Yeah, yeah, that's a funny story because I would have never imagined that I would drop out of the high school that I spent so much blood, sweat, and tears getting into. I'm from Argentina, and, uh, there's two high schools in Argentina that are well-known. They're public high schools with an entry exam, which acts like a contest, and there's thousands of signups, lots of kids that, you know, have this dream of getting into these high schools because they're so prestigious. And I really worked my ass off t- to get into one of the two. I entered number 10 out of, you know, uh, everybody that signed up, and I had a, an amazing start. Uh, I was, I was a, you know, diligent student, but then my passion for studying math and linguistics basically got into odds with my work that I was already doing online and my reputation for software engineering in the open source community. So, I would basically, like, stay up all night, uh, during my early high school days (laughs) like, I had these two lives. I was trying to be the good student, and I was trying to also be the, you know, entrepreneur, freelance developer, open source contributor at night. And these things get more, and more, and more into conflict as the years, uh, went by. The high school had a, a pretty difficult entry exam, but then it got even harder as the years went by with like physics, chemistry, all these things. It had less and less time, and my work, my, my side hustles of open source and, and work were doing better as well, and I was also starting to help my parents financially with... I would like work online, get bounties for, uh, solving different, like, problems in like existing open source or, or, or private projects. So by the time I was almost ready to finish high school, one of the open source projects that I was developing at the time called MooTools, this you can call like my, my five minutes of fame was I got accepted to become a core contributor to this project, MooTools, which is quite foundational in the early days of JavaScript on the web. And a company in Switzerland picked it as their like primary framework to build a very innovative UI at the time. And then, as you can probably tell, like, my software engineering journey really took me toward the world of front end development, open source, and all these things, so I had to make a very tough choice at the time. I'm in Argentina, I'm 17, this company from Switzerland has invited me to do a kickoff for a project on site in Lausa in Switzerland, and out here I'm also trying to like... I had two subjects in high school that I needed to complete. One was, uh, Portuguese. For whatever reason, I could have chosen English as my supplemental subject. I chose Portuguese and then Argentinean history. And, uh, yeah, the, the, the... My path took me to, uh, actually lean more towards work. I flew to Switzerland, then that company opened an office here in SF, and once, once I got to know the, uh, startup world here in San Francisco, it was just a one-way street. I left everything behind, moved here, and here I am now.

   5. HSHarry Stebbings4:32

      Can I ask, at this age, you're very young and you're at this prestigious high school, and you could go to university and get the blue chip education-

   6. GRGuillermo Rauch4:40

      Totally.

   7. HSHarry Stebbings4:40

      ...that is so hailed. Were you nervous to eschew traditional education in favor of, uh, bluntly, a much more entrepreneurial but less secure life in many ways?

   8. GRGuillermo Rauch4:52

      Uh, it's really interesting. Yes and no. So the, the very first time I made money from the internet, I was 12 years old. The eBay of Latin America, MercadoLibre, had kicked off-

   9. HSHarry Stebbings5:03

      Yeah.

   10. GRGuillermo Rauch5:03

       ... a revenue sharing program. It, it was called Mercado Socios, so like Mercado Associates. I was building all these websites that were actually driving traffic because my interests were other, you know, as you could imagine, other kids and, and, uh, other people's interests as well. And I figured out how to send them enough referrals that I, I remember at the time I made like 100 pesos. Um, so that was the very first time I showed my mom that my skills could be monetized in some fashion. And over the years, that the evidence accumulated that on the internet you could do amazing things. And by the time I was, I think I was like 13 or 14, I was already contributing to my family's finances because... And now, now it's gone viral on Twitter, the Argentinean economy has always been in shambles, and there's been this huge discrepancy between the purchasing power of the US dollar and the Argentinean peso that is subject to hyperinflation. So without getting too much into the weeds of like the new like, uh, presidential candidate that's making the news here in the US-People in Argentina have always succumbed to hyperinflation. I would bring in, I don't know, even like $20 from solving, like, CSS bugs on a, on a, on a freelancing website, and that would mean the world to my parents to make a bill or make ends meet here and there. Or even just, like, a s- ass- some help, some tailwind, in whatever they needed to buy or, or were short on. So over the years, I, I helped them out more and more. So by the time I was 17, me saying, "Oh, by the way, you need to sign, uh, this paper," or some like, "And leave the country for this one trip," like, it wasn't that strange. So on one hand, it was difficult to, like, abandon that really curated yellow brick road to traditional education, but on the other hand, over the years, like, everything was, like, showing us that this path of software engineering and the internet w- could change our lives. So at the end of the day, even for, for my parents, it was easy.

   11. HSHarry Stebbings7:03

       Did you feel a weight of responsibility? It's a lot to be contributing financially at 13 or 14.

   12. GRGuillermo Rauch7:08

       (laughs) Yeah.

   13. HSHarry Stebbings7:08

       Like, would that be really meaningful? Did, did-

   14. GRGuillermo Rauch7:10

       (laughs)

   15. HSHarry Stebbings7:10

       ... you feel that weight?

   16. GRGuillermo Rauch7:11

       Yeah, yeah, f- hundred percent. Uh, it's, like, the mo' money, mo' problems, uh, because I, I think the one time that it showed up the most was my revenue stream was strong, but unreliable. Like, I would have this project, and it would, like, make a lot of money all at once, but then I would have to, like, find the next one. So what it created was a certain sense of, like, "We really can't depend on this, but it's really nice when it's there." A- and it was also so much fun. Uh, that- that's the oth- the other thing, right? Like, there's this, uh, intersection between, like, what you love and wha- what you can make money with, and for a lot of us, I think a- software engineering was that thing. And so overall, even though it came with its own stressors o- over the years, I think it was an amazing choice.

   17. HSHarry Stebbings7:56

       You should be very proud of yourself. That's pretty amazing-

   18. GRGuillermo Rauch7:58

       (laughs)

   19. HSHarry Stebbings7:58

       ... to, to have had that, uh-

   20. GRGuillermo Rauch8:00

       Yeah, it's-

   21. HSHarry Stebbings8:00

       ... ability to help your parents in that way. It really is quite

   22. NANarrator8:03

       Thank you.

   23. GRGuillermo Rauch8:03

       It's definitely, uh, it's definitely a nu- an, uh, uh, an unusual story. I also give a lot of credit to my parents because they really believed in this, right? Like, it ... By all accounts, it's crazy, especially ... And I really haven't told this story much, because getting the grades that I had to get to get into that high school was also really difficult, time-consuming. It's a little bit like the SAT race here, I guess. Although, I, I, I never studied it in depth, but I do know that people, like, really go out of their ways to, like, do supplemental education. Uh, you do, like, dry, dry runs of all their tests 'cause you don't know what math puzzle they're gonna give you, so you have to go through, like, all the old tests to try to develop some sense of familiarity what, with, what the test is gonna be. So it was this, um ... The whole family had to almost bet on, like, "Let's leave that behind, even though we worked so hard on it, to do this other crazy thing."

   24. HSHarry Stebbings8:59

       Dude, what drives you? I spoke to many of your ambassadors, your team members, and they said about the incredibly high bar that you have of yourself. What, what drives you, from, like, earning money at 13 to pay for the family to staying up late beyond belief while-

   25. GRGuillermo Rauch9:12

       (laughs)

   26. HSHarry Stebbings9:13

       ... doing side jobs when you were, you know, teenager to get into schools, to moving to SF, uh, on your own with no friends? What drives you, and has, has it always been the same?

3. 9:23 – 15:57

   Motivations and Immigrant Perspective

   1. HSHarry Stebbings9:23

   2. GRGuillermo Rauch9:23

      Yeah, good question. I think it, I think it's been consistent in that there is a few personality traits, like any time I see something great come to fruition, I think I don't dwell as much on it. I'm just, like, thinking about, like, "What is the next thing that we can do?" So it's really exciting to be able to unlock the next thing, which acts as a launchpad of the next thing, which a- acts as a launchpad of the next thing. Yeah, like, there is all this that we can do and accomplish, and then there is another thing that that sets you up to do. And part of me coming here was ... It really expanded the horizon of what's possible, the access to capital, the access to the network, the access to, frankly, a lot of people that are, have the same passions and interests. That's, I think, the, the big unlock for me. I felt that in my previous path, I, I just had a lot fewer people that I could relate to, um, in terms of this i- obsessions.

   3. HSHarry Stebbings10:21

      Can I ask a hard one? Do you think that decision would be the same today, given the state of SF back then being such a hub-

   4. GRGuillermo Rauch10:28

      Ooh, that's (laughs) -

   5. HSHarry Stebbings10:29

      ... such a great place, versus today whe- uh, forgetting all the political, it's just less of a hub-

   6. GRGuillermo Rauch10:35

      Yeah.

   7. HSHarry Stebbings10:35

      ... let's put it in that way. Like, it's just more decentralized. Do you think it would still be that needle mover, or do you think actually less so?

   8. GRGuillermo Rauch10:42

      I think there's two components to it. I think part of me being from Argentina, the step up ... And I don't really believe in the labels, like, third world, first world, whatever, but I read an article about this. It's, it's you can't forego efficiency. The, the step up from going from a very inefficient system to a very efficient one is very significant in your quality of life and what do you, what are s- what you're set up and enabled to accomplish. And I notice this when I travel to countries where I have a great time because of all the novelty and all the places that I can visit, but two weeks in, I'm like, "Ugh, I miss this efficiency and this efficiency and this efficiency of the new life that I have." Meaning in order to be in an environment constantly where I can execute at my best, that's really what I miss. To your point about decentralization, I don't think SF is the only environment in which people can now develop companies and ideas and things like that. In fact, I'm not even from the city of Buenos Aires. I'm from the outskirts of the city of Buenos Aires, which is even less, let's call it, like, efficient, to give it a, like, a good label. It was, like, very bare bones of a, of a place where I grew up, and, and, uh, and there were a lot of safety issues and a lot of other things that, that we d- uh, had to deal with. So I think there's something about the baseline of what you can equip a person with in terms of access to information, connections, wellbeing, things like that. I think the US is s-... so much better in that sense. Uh, but in the specific place, I, I still think that SF has a significant advantage, but, uh, it's not the only place in which you can do things like this.

   9. HSHarry Stebbings12:17

      You speak about kind of the baseline there being, being tough. There's problems of safety, there's problems of bas- basic infrastructure.

   10. GRGuillermo Rauch12:24

       Yeah. That's

   11. NANarrator12:24

       Yep.

   12. HSHarry Stebbings12:24

       I'd love to know your thoughts on immigrant founders and why we have a disproportionate number that are successful and why you believe immigrant founders are more likely to be successful than not.

   13. GRGuillermo Rauch12:36

       That's excellent because I truly believe that only immigrants can have a very in-depth appreciation for the unique qualities of the place they immigrate into, and that's my overarching hypothesis. And I do think that appreciation for what's unique, different, special, awesome about a place or even a company is something that really empowers the individual. In fact, when I think about who would I recruit to be a part of, uh, this journey of building a startup, I really think that the people that appreciate what you're building and the mission even before they join the company are the ones that are most motivated and driven to make that company succeed. Let's think of a country as a super company. In fact, folks like to call the US an experiment because it's so young, it's still as a system, right? So it's like this massive startup that draws people in that there's still a high bar to even get in, first of all. Like it was really hard for me to even immigrate. So you'd really have to have this appreciation for what's already here and what that can set you up to do, so you called it infrastructure. And that starts tying it into more of the story of Vercel and, like, I really do believe that building the infrastructure on top of what people can do amazing things is what sets companies and countries apart. What you can do in your lifetime will be a function of the underlying infrastructure that you're given, and if you're not given that infrastructure, the best thing that you can do is move to where you can find that.

   14. HSHarry Stebbings14:12

       Do you believe you have that in the US today with all the political changes?

   15. GRGuillermo Rauch14:16

       (laughs) I think so, and I think that despite the turmoil, there's something very compelling about having the right framework that sort of governs the... A- and, and sort of keeps the system in balance over long periods of time. So really what I'm betting on is not the present state of a local micro measurement that you can make about the system. I'm a bigger believer in the rules, checks, and balances of the overarching system. Something that a lot of folks will point out about Argentina that's broken is the justice system, and I noticed that even though, like, things can be in the short term unjust, I think the system coalesces into fairness and justice much more frequently here than where I come from. So I think really you're not betting on, like, what you read on the news or on the front page, uh, of a newspaper on a given day. You're betting on how does the system evolve over time and which system seems to be more likely to honor its foundations and its checks and balances. Those are the things that I look for when evaluating systems in general, let alone engineering systems, but also countries.

   16. HSHarry Stebbings15:27

       Can I ask you, i- if, like, immigrant founders have this high propensity to be successful... I s- I spoke to some of your team and they said that across the board the talent within the company, and, and Jeff said this too, but the talent within the company is just consistently exceptionally high. And they asked in particular, what are some uncommon or unexpected signals that you see in the talent that you hire given that you may hire people who society, or, like, traditional tech companies may overlook from the Stanfords or the Harvard or

4. 15:57 – 26:13

   Hiring Philosophy and Identifying Talent

   1. HSHarry Stebbings15:57

      the MITs?

   2. GRGuillermo Rauch15:58

      I think a lot about our mission as working backwards from what outstanding products look like and work like, right? So you come to Vercel because you want to build a great product and you want our infrastructure and our tools to enable that. So I'm constantly thinking, "Okay, what does incredible look like?" And work backwards into the implementation, and that's why actually we're positive at market that front-end is so important e- even though it was overlooked for years and years and years. It goes back to, like, when I even started. My dad was like, "Why are you wasting time with, like, JavaScript? You should be learning hardcore, back-end languages and things like that." But in reality, to me, that's so upside down, it's so inverted because the thing that matters the most is the look and feel and the capability of the application, the device, and then how you make that happen, I couldn't care less as a, as an end user, right? So le- let's bring that back to how I evaluate folks that wanna join the company or companies that we acquire or folks that we reach out to is that what are they putting out into the world that is tangible? What can they use? What, what hyperlinks have you shared with the world about your creations? And this is a beautiful thing about the internet, right? Like, you could be anywhere in the world and a hyperlink travels to me within 100 milliseconds, e- especially with, with the tools and, and platforms that we're creating. So it really ends up being that you're communicating your capability through your creations, and so I start, I start with that. Of course, it's not a silver bullet. There are folks that are, uh, more... They have more theoretical basis, uh, under which they contribute to the world and they can't use my, you know, Swiss Army knife of t- trying to, uh, ascertain what products they've built and things like that, but that helps a lot and, uh, and I want to see more of that in the world.

   3. HSHarry Stebbings17:52

      Uh, it also solves the big problem with attribution, which is like when they're publishing personal projects. Attribution is quite clear than when you're like, "I was five years at brand name company" and you're like, "Well-"

   4. GRGuillermo Rauch18:02

      Yeah. (laughs)

   5. HSHarry Stebbings18:03

      "... what did you do?" (laughs)

   6. GRGuillermo Rauch18:05

      Totally. That's, that's why I said it's not a silver bullet. Although, you, you know, there is something even about, like...Your writing. Your writing could be that front end to your mind, so the ability for you to convey your thoughts. You know, do you have the discipline to actually follow through with your writing? Like, do you consistently write? Like, w- what is the quality with which you present yourself and your experience? I mean, your front end could even be the way that you talk and the stories that you tell. I actually en- encourage a lot of folks to ... wa- with the attribution problem in particular, right? Like, I was at Apple for 25 years. I can't even say what I worked on, but there's still a narrative of where did you move the needle? Uh, is it measurable? How did, how are you able to relate the business impact that you're ... and, and express the business impact that a certain contribution you made to even maybe some internal of a distributed system or compiler. Like, how did that actually permeate? And if you can connect the dots all the way to how you made someone's experience better, because I think this is the other thing is at the end of this rainbow, there is either you're making some end user experience better, uh, whether it's, uh, a visitor or user of your app or some internal process, like I made the life of a developer better. So, you have to be able to connect the dots from technology to sentiment and, and even the way you talk about it.

   7. HSHarry Stebbings19:35

      Okay, I'm with you. But the trouble that I have, and I'm loving this conversation, but where I fuck up is on the front end when they're so good at selling and articulating that and they can say all the brilliant words and stories-

   8. GRGuillermo Rauch19:48

      Yes.

   9. HSHarry Stebbings19:49

      ... and I'm taken in, and it turns out that the founder is much better at articulating the story than actually doing the work.

   10. GRGuillermo Rauch19:56

       There's no depth. Okay. So like, that's a great pushback. Uh, what I do sometimes is I, I, I mean this is probably, uh, an advantage that we have at Vercel, right? Like, we, we ... You wanna talk details? Let's get into the details, right? Like, let's, let's go into the specific down to the sys call of how you implemented and solved a certain problem. Let's talk about what cloud infrastructure you use. Let's talk about what options you weighed on the table. Let's hear your awareness about what vendors and what alternatives existed. If you, if you read a certain paper, let's get into that. What were the other, the other papers that you looked at? Like, I think being able to dive into, like, the absolute depth of the problem, um, is, is something that everyone should be able to, to do. That doesn't mean that you have the complete texture, but you have the ability to ... I think, I think really what you need is the conceptual understanding. You might not know exactly how, like, writing a custom module for the Linux kernel works, but you should be able to understand how the parts fit together if you're evaluating a systems engineer that's joining your company. That texture is what allows you to discern better whether someone is just telling a good story or there's actually depth to the story.

   11. HSHarry Stebbings21:14

       Can I ask, what have been your biggest mistakes on talent identification? Like there, I really can fall for a sales (00:06:30) .

   12. GRGuillermo Rauch21:21

       (laughs) I have, I have an easy one. I have an easy one because I have betrayed that rule in the past. Sometimes I've placed more weight than I should have on this stellar linked list of awesome brands that you worked at. Uh, I did X at ... Let's just name random companies for the sake of it. Apple, Google, uh, Amazon, uh, Netflix. And you look at that, and you're like, "Well, four companies in a row couldn't have been wrong (laughs) on this candidate," right? And I'm gonna just call it ex- skepticism, but there's, there has to be a lot of curiosity about what that candidate can bring to the table, and, and when I've overweighted the, uh, brands on the resume, and I think this ... For other folks, this could happen with universities, I think. I think I've never placed too much weight on that one in particular. Um, I think that's, that's one way where, um, looking back, I think I could have done better with, with a few candidates. But yeah, I think at the end of the day, it comes back to can you evaluate the opportunity in its more objective and measurable merits than the approximations of merit, uh, if you can.

   13. HSHarry Stebbings22:37

       Okay. So, I totally agree with you. I fucked up in that way, too. I think it is the biggest mistake that first-time and young founders make, where they place more weight on external credentials because they-

   14. GRGuillermo Rauch22:49

       Yes.

   15. HSHarry Stebbings22:49

       ... view that as a kind of validatory source of, you know-

   16. GRGuillermo Rauch22:52

       Yes.

   17. HSHarry Stebbings22:52

       ... what they maybe don't know (00:07:55) or whatever (00:07:55) . So, my question to you is, I as a result favor second time or serial entrepreneurs because I believe that there are so many things that you fuck up the first time-

   18. GRGuillermo Rauch23:04

       Yeah.

   19. HSHarry Stebbings23:04

       ... that you will not do the second and third, and I then-

   20. GRGuillermo Rauch23:07

       I like that.

   21. HSHarry Stebbings23:07

       ... won't have to pay for those learnings. So, I basically only like second and third time founders.

   22. GRGuillermo Rauch23:13

       I like that a lot.

   23. HSHarry Stebbings23:14

       Do you think (00:08:15) take ... You ... Am I right or wrong?

   24. GRGuillermo Rauch23:16

       No, I think you're right. I think the only risk there is that the pool could be constrained, but you don't have to get every single opportunity right. You just have to get a few great ones, and I think as a way of constraining the state space, the search space, I think that's a very good technique. I would add to that from my own personal experience, like, someone that had an experience being an early member of, of a startup and was able to learn a lot about, like, if their story is not just, "Oh, I had this idea, and I happened to work there," but my story was with one of the earliest jobs that I had was, I had seen decisions A, B, and C get made where I would have chosen the exact opposite, and I was like, "Okay, I wanna start something because these non-obvious decisions that I would have taken a different path, I can now"... take the right path, and it felt like that was almost like an unfair advantage in the marketplace. It really is all about finding whatever alpha you can across a number of dimensions, right? And to me, I was like, "Okay, like I wanna do hiring very differently. I wanna do product development very differently. I wanna just move faster," period. And I- I felt that even without even getting into the weeds of the technology, I would set up different foundations for success, for what I would start. But yeah, I think to your point, um, I had my first startup which h- had a moderately successful exit, and my second startup built on the learnings of the first startup. So it is, it is a good heuristic.

   25. HSHarry Stebbings24:59

       I, I totally agree with you. You said there about product development done differently, um, and we spoke about front-ends earlier.

   26. GRGuillermo Rauch25:05

       Yeah.

   27. HSHarry Stebbings25:06

       I have this question always which is like, is simple always better in product? It feels like we always just aim for the least number of clicks, the least number of buttons.

   28. GRGuillermo Rauch25:16

       (laughs) Yeah.

   29. HSHarry Stebbings25:17

       Is simple always better, Guillermo?

   30. GRGuillermo Rauch25:20

       No, a- and, and it's for the same reason I said, I think, the, uh, the approach you described is good because it won't get you 100% of the great companies, but that's not your job. Your job is to even just find a few of the greatest companies, right? And I think that's also true for product development. Like, the inspiration for me is, like, Google Search, where, like, there is nothing to do except for an input and, like, everything is so simple, and, like, the magic is in the implementation, and there is all this unfair advantages of access to data that gets constantly refined and all that. If your job is, okay, I want to find a few of the greatest products that will be produced in this generation, I do think that a lot of those will be this deceptively simple things, where the interface of the user is just magical, and the company took on the burden, right?

5. 26:13 – 36:29

   Insights on Technology and Design

   1. GRGuillermo Rauch26:13

      So one of my earliest investments was Auth0, and it was one of those things where I was incredibly skeptical, and yet I was like, "I'll do it." Like, this is all about (laughs) asymmetric upside, right? But I remember the thing that I rooted myself in, and this is true for Stripe, which I didn't do but I, I admired at the time, a simple API call that hides a tremendous amount of complexity behind. So I never want to deal with, like, Mastercard and Visa and, and, like, all these payment gateways and all this nonsense, retries and workflows. On the other side you have, like, this awesome simplicity of, like, here's the API call, here's the curl command that you can run to get started. So I do think that a lot of companies will follow that. Now, where it gets more complicated is the famous, like, what got you here, what gets you there? What got you to Series A or what got you to Series B- Series B is not necessarily what gets you from Series D to- Series B to IPO. So I think we, and I mean, like, in the entire, like, tech industry, we can become so formulaic to our own detriment. I think in the early stages, a company is trying to find its wedge into the universe.

   2. HSHarry Stebbings27:33

      Okay.

   3. GRGuillermo Rauch27:34

      I actually remember a fascinating conversation that I had with the original, uh, CEO of Snowflake whose point of view was that open source was overrated, and by the way, I'm super open source-filled, Next.js, even before Next.js, I ha- I built Socket.IO, I contributed a lot of Node.js since, like, 0.1, Mongo is the most popular ORM for MongoDB. So I'm like, drinking the Kool-Aid of open source, I'm drunk on it, and I have this guy saying, "Well, you know what? Like, to me, open source solves a concrete problem, which is market positioning and developing market awareness." It solves a zero to one problem. But open source (...) solve the one to one million problem, right? And if you look around, this is certainly true for every successful open source company, right? Like, the reason that GitLab, Mongo, Hashi, you know, a lot of these companies are successful, it's not just because they did only open source. So I think it's really important to understand that we are operating in a sequencing... In the beginning of my career, I tended to look at, like, series, seed, A, B, C, D as so silly, like, so arbitrary, but I do think we have to think more in terms of sequencing, and there is a long journey ahead, and you have to be very adapted at each step of the sequence.

   4. HSHarry Stebbings28:52

      What do you mean by sequencing? Sequencing by funding round? Sequencing by, like, stage of product-market fit? By-

   5. GRGuillermo Rauch28:58

      The reason I like this A, B, C and D things, they are arbitrary, but they help us anchor, and they help give us a common language to evaluate and pressure test different frameworks. The simplicity of your product from zero to one might not be the simplicity of your product from one to two and two to three, or let's call it series seed to A to B to C to D. This is very clear in that companies become multi-product over time, and it's really easy to look at AWS and say, "Whoa, what a cluster F they have going there with, like, they have all these products and, like, they have all this complexity." Yeah, but, like, that's where they're at now, and certainly if you're trying to compete with them, you're not going to replicate their approach. You're gonna try to bring a simplification to the market, but over time, you have to re-evaluate your priors, because the challenge, the market, the growth, like, things are changing over time, so you ask me the question of, is what I should be looking for only really simple products? And to me is, the answer is very much stage dependent, very much market dependent, and there is no universal truth to the question.

   6. HSHarry Stebbings30:16

      Is that not the biggest challenge though, which is, like, bluntly everyone struggles to retain simplicity with products over time, and feature creep is so real, and now we, we also serve enterprise as well as SMB-

   7. GRGuillermo Rauch30:25

      Yes.

   8. HSHarry Stebbings30:26

      ... and so we did this and this, and now we serve this, and suddenly the product looks like fucking, you know, Workday.

   9. GRGuillermo Rauch30:32

      We don't need to fight every battle.... ultimately, right? It's, it goes back to, like, the job of a good VC will be to find two or per fund, right? A handful of the best companies in the world. My job will be to f- create a few of the best products that it can bring to my category. I don't need to solve every single problem my customer has. I can harder, I can push solutions to user space. I can not enter every market. I can wait and hold, meaning whenever there is a temptation to solve a problem with urgency, sometimes you're better off waiting, right? Like, this is something that Apple does remarkably well, because they don't react to every trend that emerges. They pick their battles. Yes, sometimes there is a opportunity that you have to catalyze at, at a given moment, but sometimes you're better off letting the truth emerge from all of the experiments that are constantly being run, and then you pick your solution, and this actually matters more as the company becomes more mature. Because, again, you don't always have to be first. You have to be right, and, and that's-

   10. HSHarry Stebbings31:49

       Okay.

   11. GRGuillermo Rauch31:49

       ... what I think companies over time optimize more around.

   12. HSHarry Stebbings31:53

       How do you pick your battles?

   13. GRGuillermo Rauch31:54

       So number one, um, culturally, there's an expectation at Vercel that we will go deeper into what we consider to be complete or ready for a product than I think most people are willing to go. We spend a lot of time on what we would call the internal testing of a product before we feel it's ready to mar- t- to get to market, so setting up a really, really high bar for what gets to the customer's hands. And now, this is really tricky, because I think some people might confuse having high bar from being s- with being slow, and I really think this is the, the crux of the problem. I actually had a, an entrepreneur reach out the other day, and he was saying, like, "The number one problem that I have is I wanna move really fast, but my customers are telling me that I'm breaking their stuff too frequently." So, my advice was you can find the ways of reducing the blast radius of your experimentation, such that when it's the time that you bring the product to everybody, you've accumulated enough evidence of success that you have an overwhelming amount of confidence in what you're bringing to the market. So, it's easy to dismiss when, like, these keynotes happen and, and say, like, "This is the best phone we've ever made," and, like, you can dismiss some of those statements as just a, an effective product marketing team that has written out a few formulas or you can actually arm that confidence yourself. And when you've done all of that pressure testing... Sometimes I talk about this awesome video that I come back to on YouTube, I send it to a lot of people, of Boeing bending the wings of the airplane inside the factory, beyond the point that is actually realistically possible that a turbulence event will bend the wings. They will bend them so much that it looks like the plane has, like, molded into, like, a, a cylinder. But that gives them the confidence that, you know, you can do millions of flights a year, and tolerate any storm, and tolerate any weather event. And yeah, the, the wings will bend, but you've, you've gone above and beyond to certify and sign off, this is the plane that I want, that I want people to fly and feel safe inside.

   14. HSHarry Stebbings34:28

       I, I get you, but when you have that level of validation of testing, it does just mean you can't ship tomorrow.

   15. GRGuillermo Rauch34:36

       (laughs)

   16. HSHarry Stebbings34:37

       Do you worry that you'll lose an inch on speed? If you are, "I didn't say this, your team said it and your investors said it," maybe a slight perfectionist (laughs) when it comes to the level of quality that you need to ship.

   17. GRGuillermo Rauch34:50

       I think that if you're rigorous in your process, and you do it very frequently, and you make it a part of the culture, you'd be surprised, because, like, in a way, your, your best outcome is that people are carrying it, carrying that idea and that approach in their work. I'm not the one that is, like, going after every single project and applying this rigorous testing. You know what I mean? I'm the one that is saying, "This is the bar. These are some of the techniques. These are some of the stories." So I think there's a, there's a lot of power to storytelling, to sharing to people, like, how do we even get here? What are the things that we've learned have worked well? How have we been successful in the past in moving fast and shipping with quality? I think if you don't have those stories that you can actually give people, like, it almost sounds like, i- it sounds like, it sounds so contradictory that you could move fast and ship with high quality, that (laughs) if you cannot offer people those stories of like, "This is how we do i- did it for Next JS 1.0," or, "This is how we did it for when we launched, uh, the new deployment infrastructure," it almost sounds impossible.

   18. HSHarry Stebbings36:04

       Can I ask you a bit of a weird one? But I've been thinking more and more, kind of about the integrational, kind of the relationship between front-end and AI, and I, I, I think more and more, UI will matter less and less with the increasing prominence of AI, creating this kind of chasm between consumer and UI. Doesn't remove the importance of UX, but UI for sure. Do you agree? Or do you think I'm missing it?

6. 36:29 – 52:26

   AI's Evolution and Impact

   1. HSHarry Stebbings36:29

   2. GRGuillermo Rauch36:29

      I think UIs will change. I think, I think you're right in, in, on, on a certain level, right? Like, if we can go to a chatbot, and that chatbot is, again, acting as a simplification...... of what used to be a very complex dashboard, let's say, of lots of menus and sub-menus and, like, you're like, "Where do they go to find this and that?" But at the end of the day, the information has to be surfaced to you. I'll give you an example. I just saw this incredible approach to surfacing data, uh, with AI that y- y- you just interface with the system with natural language, and then the system is basically guiding you to where the data is, right? Like, it's, it's, it's surfacing what otherwise would have been maybe, like, 20, 30 different clicks. Now the AI is just, like, serving on demand. With some of our products, we're basically going in that direction, right? Like, what used to be dragging and dropping and, like, spending, like, hours or going into a text editor and, like, going through, like, all these auto-completions and, like, errors and... Now it's just, you go (laughs) into a UI that expects that you type in English. But our point of view is that now people will be creating a lot more of those UIs. It's a new tool in your toolbox, so our job is to actually empower you to create those new kinds of interfaces.

   3. HSHarry Stebbings37:59

      Do you worry about the commoditization of UI when you guys, as you said, have the, have the explosion on the supply side of new user interfaces created, which means actually you lose the creativity, you create a discovery problem of sorts, and actually the explosion of supply means a reduction in, in price, so to speak? (laughs)

   4. GRGuillermo Rauch38:18

      I think it'll be the opposite because my, my hypothesis of how I look at the entire AI space right now is very simple. There are a lot of jobs to be done that people will have to perform no matter what, right? Like, there is decisions that need to be made, there's data that needs to get visualized, there is communication that needs to be made, like, I need to send you an email, I need to make a phone call, like, a lot of those things won't go away, but how we do them is going to be profoundly transformed. So let's say that I, I want to create a new email client. I want to make my, like, basically what Superhuman did, I want to do again, right? (laughs) Like, what's really fascinating about what's happening today is that when we were creating software over the past 10 years, part of our input into the design space, meaning part of what I thought was possible when conceiving a piece of software, didn't involve AI in the past, didn't involve the fact that we can have this reasoning machines that we can invoke on demand. Call them the large language models or the AI as a service. Now that I have those, how profoundly different will my design be? So if I have to create the next Notion, the next Superhuman, the next Figma, my bet is that it certainly is gonna look completely different, because before I would reach for what I would call, like, software 1.0 solutions. And what makes someone really good at product design, frankly, is that they looked a l- a lot (laughs) of designs over their lifetime, they looked at a lot of data, they have a good instinct, it's almost like a good Go player. What made Lee Sedol a formidable adversary to AlphaGo is that there was this instant, this pattern-matching. But now it's almost like the board has shifted. What made you a good software 1.0 designer, it needs to be actualized. It's not that you're not gonna be good at a software 2.0 design, but you need to say, "Okay, now when I sit down with my conceptually empty canvas, now I have this other set of tools that I can use to solve the problem." And it's exciting because startups don't have any priors, they don't have any legacy software in which they have to retrofit AI onto. So it's a great opportunity for incumbents potentially, because they can now say, "I added AI, ship it," and they can increase their TAM, they can say, "I'm A ri- A ri- AI ready," but it's also a really, uh, scary situation to be in when someone can come in and produce a completely different design, if that makes sense.

   5. HSHarry Stebbings41:00

      Can I push back on you and say I think, I think that's, like, a transitory phase. Like, a- a- a- Miles Grimshaw said it on the show from Benchmark very well, he said, "Co-pilot's an incumbent strategy." And, and actually, you know, the things that you think we will need to do, b- that new marketing copy, that new accounts, that phone call that needs to be made, actually won't need to be made. You'll say, "I want, uh, this CAC to LTV across Facebook, Instagram, and Twitter. Here's $1,000, go do it."

   6. GRGuillermo Rauch41:30

      Yes.

   7. HSHarry Stebbings41:30

      And there will be no decisions on where it's spent, which m- micro-influencer, and it'll just do it. And actually selling the work and not the tools is what the true transition will be, and incumbents will win in the intermediary.

   8. GRGuillermo Rauch41:46

      I think we agree over a long enough timeline, but that doesn't actually result in practical advice for what to do over the next 3/4 or even couple years, right? I think the most successful innovations tend to meet the world where the world is. So when you think about the iPhone, I was actually recounting this, this story with my team that I found fascinating, which is that famously, there were two concurrent experiments for what would become the operating system of the iPhone. iPod OS evolves and it was a fresh new code base, it was already on, like, mobile devices in the sense of, like, it was already being deployed to, like, smaller miniaturized hardware that was portable, and concurrently was the strategy of, "Let's retrofit macOS to fit it into the iPhone." And obviously, macOS being forked into O- iOS is a strategy that won, and it meant the world where it was, the first killer app was being able to...... downsized websites and put them into a smaller screen, and then find new evolutions within that, which became responsive design and so on and so forth. And then new native things happened within the context of that platform, namely new applications that weren't possible by just retrofitting, new applications that took advantage of the medium, and new capabilities that were unique to the medium. But even fast-forwarding to today, like 20 years later, we're still in that world of there's this hybrid of the DNA of what already existed, with all of this new DNA of what's now possible because you're on a mobile device, and they continue to co-evolve. I think this will be the co-evolution of AI and traditional software as well, uh, but again going to, like, what makes practical advice possible, I think a lot of those chat-type interfaces will have to meet the customer where they are. If you say to the AI, "Please help me make an advertising that's going to be deployed onto X in, in Meta, in Instagram," or, "Facebook and Instagram," it'll have to give you some UI as feedback of what it's proposing back to you, and then you'll have to interface with the system further. So I think it's still all UIs all the way down. Now, the key magical part of this is that they are UIs that are unique to the AI problem space, and those UIs will definitely be different.

   9. HSHarry Stebbings44:07

      How do we think about great UI in an AI-first world versus not in an AI-first world? I've never thought about that before, but if we think about that where it's, like, it sells the work, it completes the, the project, and it delivers it back to you, is that a world of visual-first, chart-first (laughs) aesthetic beauty by data and data versus simplicity and beauty? I'm just trying to understand, like-

   10. GRGuillermo Rauch44:35

       Yeah.

   11. HSHarry Stebbings44:35

       ... does it change the way we think about great UI?

   12. GRGuillermo Rauch44:38

       One of my hypotheses is, uh, that we actually in some ways have to give people more UI. I'll explain why. So there's two things that I, two references that I give my teams a lot. One is Minority Report and Tom Cruise, you know, uh, historically and, like, famously being in this, uh, AR interface of the future where in order to detect crime is, like, he- he's, like, in charge of, like, the pre-crime forensics. He can predict crime, and he gets all this data in front of his visual cortex in this 3D space, and he's like, "I'm going to zoom in here and get this, this data point, and this data point," et cetera. Like, forget science fiction for a second. We don't have AR that works at scale yet, and we're not Tom Cruise. Let's actually look at what's succeeding in the AI world today. We have Midjourney. Midjourney gives you this text interface, but as a, as a result of your text prompt, gives you four choices of what you could possibly like. This is really interesting, right? Like, that's what I mean by it's actually giving you more UI, not less, because it's uncertain about what it is that you actually want, so it needs to give you more choices. This is very different from Software 1.0, which is the world of determinism, the world of rule following, the world of predictable, predictable algorithms. You give me a form and I put A, B, and C, I give you result D 100% of the time, and if it's not D, someone gets paged because we monitor it, right? Now, Software 1.2.0, AI, I don't know if I'm, what I'm giving you you're actually gonna like. I don't even know if it's offensive, 'cause, like, there's all this, like, craziness that happens when, like, you, you give this AI that is, like, not supervised and you gave it a lot of data and you can't even, can't even comprehend the amount of data that it has, so you actually have to create UIs that tame the craziness of the machine. You have to create UIs that give the creator feedback. Another easy-to-dismiss thing about the brilliance of, of some of those products is that because they are giving you choices, they are now feeding data back into the system to make it better in the next iteration by, once again, relying on new kind of capabilities that are more in this realm of probability rather than certainty. So I think that's a very important departure, is that now we're entering the realm of, "I can assist you in the creative process." Again, that means that you have to think about software differently.

   13. HSHarry Stebbings47:16

       My question to you, I, I, I loved the book, you know, The Paradox of Choice. I believe that too many options make, uh, an enemy of us all. Does, how do we think about kind of actually simple and telling users what they need versus this kind of explosion of op- options that any consumer can choose between one of eight?

   14. GRGuillermo Rauch47:37

       (laughs) yeah.

   15. HSHarry Stebbings47:38

       Fuck, is that really a better user experience?

   16. GRGuillermo Rauch47:41

       I don't think it, I don't think it... It depends on what stage of the, of the problem-solving sort of workflow you're in, right? If it's in, in a very creative, uh, side of the process, I do think having more options is better. The other reference I mentioned, I, I like to give the, the Minority Report reference. I like to give the Rick Rubin reference of, like, his contribution to the world is telling the artists if they like something or not, right? (laughs) Like, he, he says in that interview, like, "I'm not an expert in the specific music techniques. I don't know how to play an instrument. The feedback that I give to the artist is what's valuable. What I like and what I don't like is what's, is what's valuable." So if the tool is very much in the creative sort of stage, I do think having options to go through is really good because I, I was mentioning in my experience what's made a designer of a certain piece of software or UI really good is just how much they've rejected over time. What makes a company good is how much they reject over time, how many things they say no to, how many attract- seemingly attractive on the surface ideas they rule out-... before they decide, yes, that's the one that goes to market, yes, that's the one that earns the position of being in our product lineup. So, it's really going through lots of iterations of yes and no that gets you to, to the point where you can say confidently, "This is what I like." So, I do think that, uh, accelerating the iteration loop and turning down things could be really healthy, provided that the trajectory is, is good. Like, what's really, what really matters in these AI systems is that you're, that the system is learning when you're turning things down. Because, to your point, I like the pushback because at the end of the day, the best assistant in the world will have rich context about what you already like, and will, over time, propose better variations of the solution that tailor to your preferences and tailor to the context that you're in. But we can't be too absolutist in, in, in that process, because otherwise we're just gonna, we're just gonna give you garbage. And, and notice that a lot of the successful AI systems so far have been in the realm of being suggestive rather than authoritative. Copilot suggest- suggests a completion to your text. Gmail's Smart Compose suggested what to reply to the email. Notion AI is saying I can go ahead and, like, complete or give you ideas, or finish the bullet points for you. When it gets into the realm of authoritative, like agents, like, I'm just gonna let an agent go into the world and act on my behalf without supervision, we haven't seen a lot of products that are successful in that, uh, in that space.

   17. HSHarry Stebbings50:37

       What do you think it takes to make that transition to agent, and do you think we will?

   18. GRGuillermo Rauch50:42

       I think we absolutely will, but it requires the close feedback loop with the person that that agent is acting on behalf of. It requires that the, the person is, is still in charge. The metaphor that I like to use is being the editor in the newsroom, and you're, you're having the agents bring you the ideas, and you're saying, "Nope, uh, go back to the drawing board. This is the feedback. Nope, this doesn't make the cut." And you're the one that's also setting the creative direction. This week, we have to go after AI safety. That's a hot topic that people are interested in. Next week, we have to go into this, we have to go into that. So, you're still in charge, and this is why, you know, ultimately this is the healthiest version of an AI future after all, right? Because we don't want an AI future that inverses and puts us ... (laughs) ... into where we are the agent, the AI is calling the shots. That's what people actually get scared about. So, I very much like this idea of AI in the assistance of the creative process, and AI just making processes more efficient.

   19. HSHarry Stebbings51:47

       I don't. (laughs) I don't because it plays into incumbents, I feel. You have the distribution, you have the existing product suite, and it can service that incredibly well. And as a venture investor looking for value creation-

   20. GRGuillermo Rauch52:00

       (laughs)

   21. HSHarry Stebbings52:00

       ... it makes startups with limited data pools, limited moats fucking impossible to fund. That's my problem.

   22. GRGuillermo Rauch52:08

       But I'll give you, I'll give you a good example, right? Like, incumbents are in a very, uh, problematic position when, as I mentioned earlier, the new AI alternative is just really disruptive to their historical approach to solving the problem. The best example

7. 52:26 – 1:06:26

   Future Predictions in AI and Tech

   1. GRGuillermo Rauch52:26

      would be, I have a competitor to Microsoft Word coming to market, right? And instead of having to build... I don't know if you remember the infamous bad design, or I don't know if it was what ended up happening to the design, but, like, uh, Word shipped with a really thick toolbar that exposed every option that used to be nested within menus, they made it visual. So, as a result, like, 30% of the screen real estate was tools. Copy, edit, highlight, background, foreground. And I remember a lot of the reactions to it, I was like, "Holy crap," like, "I didn't even know you had all these options, Word." The way that a company like that was looking at the problem of making the best processor, best possible word processor was very additive. It meant it was a more is more approach to the world. What does this mean? That adding more utilities gets you promoted. Adding another way of, uh, changing the color of the text, or add- or even adding more colors. Now, look at Notion, for example. It doesn't actually even give you every color on the spectrum. It doesn't even let you input a custom hexadecimal. The designers of Notion said there is eight or 16 colors that mostly work well for the purpose of writing this wiki, wiki-style documents and whatnot, so they actually said, "We're gonna do less. We're gonna have a lot fewer text editing and text formatting options, and that's gonna give people agility, that's gonna make them feel, uh, more focused on what they're writing." Like, I don't know what assumptions they had, but, like, I'm just, uh, I'm making some up. Now, there's an extreme version of this, which is that, can they actually not implement any of that? Because AI exists now, and my software 1.0 simplification strategy, which was creating fewer options or creating options that are more general pales in comparison to an AI that can actually just, like, do exactly what you want even without having the options. Like, I, I actually didn't software engineer any of those utilities and icons, and, and blocks and whatever. This is completely hypothetical, I'm not saying there is such a product that can be conceived, but what I'm saying is that the entry players can win because they do a lot less, and because it's so disruptive, then the incumbent has to say, "Holy crap, we have to delete everything? I feel so invested. I, I crafted every icon, I crafted every menu, I crafted every piece of documentation for how to use this. I recorded all the videos that taught you how to use those."... uh, so I think that's the generational disruption that happens in software that is extremely problematic for incumbents.

   2. HSHarry Stebbings55:08

      I agree, I agree normally, but I feel this set of incumbents are better than ever, stronger than ever, and faster than ever, and we look at your... You know, I think Notion would be considered an incumbent now. Let's put them in that category. But your Notions of the world, your Adobes of the world have moved faster than ever on integrating AI very well, and actually disregarded a lot of, uh, I'm sure existing product strategy, I'm sure existing roadmap, in favor of moving fast, getting shit done, and have killed a generation of companies in- in- in between. I'm like, "Shit, w- we don't w-" wh- when everyone was, like, comparing it to mobile, well we had Apple, Blackberry which was an accidental pager that worked, and Nokia which was a failed division of a Swedish, you know, Scandinavian company and, you know (laughs) -

   3. GRGuillermo Rauch55:50

      (laughs)

   4. HSHarry Stebbings55:50

      ... a division and a corporate. This is fucking FANG, right? They're gonna come and kill you.

   5. GRGuillermo Rauch55:55

      Yeah. I do think that, uh, a lot of these companies can be underestimated. Uh, one thing I'll- I'll give some kudos to Microsoft for is that they told the company they had to work and focus and- and have a look toward AI much earlier than a lot of other people. So, they have years of strategically thinking in the direction of AI. Now, a lot of these companies have the right strategy, the right foresight, the right internal talking points, the right investments, and they still get disrupted because the new way of doing things is so radically different that initially they don't even look at the alternatives as a competitor. The best example would be potentially Midjourney to Photoshop or to something like that. Like, I'm actually very impressed with Adobe's incremental addition of AI, like Firefly and Tool or, like, you select and whatever. It seems high quality, well-considered, uh, it gets the job done. Like, it's strictly in a measurable basis, like, better. But there's a chance that, like, again, there's such a platform shift towards now the interface is go to Midjourney, where all of the other tools just don't exist. They literally don't exist. Like, all of the drag and drop and magic wand and selection tool and color switcher, people just go and spend their time elsewhere. I think this is how desktop software, uh, sort of became less important than mobile apps when that transition happened. It's not that the s- the- the- the right tactical determination was stop improving the desktop software, delete the desktop software. It was that... And this is tr- uh, this is what, uh, Meta ended up doing well. It was that the user minutes and the attention and the growth was gonna go to a different way of expressing their mission, in the case of Meta, which was, like, connect the world. They needed to go and s- almost just start over. You needed to go to mobile and start over, because everything that you've built for desktop, it still exists to this day, very much like AM and FM radio still exist, but the growth is elsewhere. The growth is in this new approach. You can have an incumbent that does that really well, but historically most don't, which is when the platform shifts and they need to do things very, very differently.

   6. HSHarry Stebbings58:24

      Can I ask, so, uh, thinking about needing to do things very, very differently, uh, and then we will move into a quick fire 'cause I could talk to you all day, but business models have not changed at all in many, many years, largely on a per-seat basis. Does AI, like, solidify the shift away from per-seat pricing and entirely change the business model of software?

   7. GRGuillermo Rauch58:43

      I really like what's happening with AI because I think it's an acceleration of what was already happening with cloud. If you look at Vercel, Vercel offers you two very powerful things for your organization. Number one is the most obvious and the most visceral to a lot of developers, which is that you give us your front end project, Next.js, Nuxt, whatever, and we host it, we give you infrastructure to scale it autonomously. And that's traditionally a consumption, you pay for what you use business model, like Snowflake. But what Vercel also gives you is the iteration, velocity, and agility, very much like what, uh, Google Docs or Figma give you, which is like now I can collaborate really fast with hyperlinks, and I can share around my entire organization what everybody's working on. It's almost like a JIRA type thing. My maybe, uh, narrative violation is that businesses that only do one half of the equation are gonna become less and less popular over time. Because when I buy software, I expect to buy a comprehensive platform that solves business problems, and solving business problems is never about just procuring a very specific material, a cog. I want this to do more for me. I want it to be like an operating system for my organization. Especially as you hit scale, you're like, "Oh, I'm using Vercel for this little thing here to, like, host this, but I'm using Azure here and Google here." Give me the foundation to level up my product development organization. That's what most of my customers actually want. So, w- the way that we've built against that is that we've done a combination of, like, SaaS that is by seat in purchasing platform capabilities with infrastructure that grows when your visitors use the software. I think AI from the outset is doing this, because AI is about getting some workflow or some tool, but it's also spending GPU cycles on very expensive outsourced intelligence, so to speak. And the more I use it, the more it costs, right? Like, if I use a lot of GPT-4, it doesn't matter that you're charging me, like, 20, 30 bucks a month. You have to, like, somehow model the fact that I'm piggybacking on your infrastructure for intelligence a lot.So, I think we're gonna see a lot more of these hybrid models where you give me a baseline of utility, but it can also burst to utilize more of what it can automate for me, if that makes sense.

   8. HSHarry Stebbings1:01:23

      Dude, you said about open there, and you're the master of open source. You have been for years and years and years. The question is though, if you just say there about kind of buying that kind of platform, that kind of validated product set, who wins in the next 10 years in terms of kind of AI development? Is it open or closed systems? 'Cause closed systems are the ones that can-

   9. GRGuillermo Rauch1:01:44

      (laughs)

   10. HSHarry Stebbings1:01:44

       ... deliver that packaged Microsoft tick bundle with a ribbon, and closed and open is like, ah. I mean, it's great in many ways, but we both know it's not the packaged product that Microsoft is.

   11. GRGuillermo Rauch1:01:56

       Yeah, I need more data to be able to make an accurate prediction, which is a total cop-out.

   12. HSHarry Stebbings1:02:01

       You're not a VC then. If you were a VC-

   13. GRGuillermo Rauch1:02:03

       (laughs)

   14. HSHarry Stebbings1:02:03

       ... you'd say, "I have no data, but I have a thesis." (laughs)

   15. GRGuillermo Rauch1:02:07

       I can tell you the frame... I'm a frameworks guy, so like, my whole life I've been all about creating frameworks that give people the right foundations to scale. So, I can tell you what my framework is with this problem. When Kubernetes was coming out, there were a lot of alternatives, some proprietary, some open source. What ended up winning was what every company in the world decided was the standard on top of which they were gonna build an ecosystem. This happened again with React. So, React is the... it's the most fun conversation that developers will have today, almost like tabs versus spaces. People love to talk about if React is difficult, if it's easy, if, if it re-renders too much, if it doesn't re-render too much, if it wastes cycles because of the virtual DOM, if it doesn't. But React won the hearts and minds of the ecosystem. In fact, a lot of people, there's an internal meme in the community called like, React Brain. It makes you think a certain way, and detractors call... accuse other folks of having React brain, because once you get used to the tool, it's even harder to adopt other tools. In a way, even going further back than Kubernetes, it's almost like having Linux brain. When I learned Linux, like, even though it could have been inferior in some benchmark to the proprietary alternative, over time, the ecosystem value in all of the people that got Linux brain was so powerful that the proprietary, uh, alternatives all collapsed one after the other, after the other. And, and the most famous capitulation is Azure is a Linux versus cloud as opposed to Windows server first cloud, right? The proprietary alternative. So, one part of my framework is saying Llama becomes Linux. Right now, Llama is not as good as GPT-4, not even close. But with the ecosystem saying, "We're... this is what we're gonna bet on. This is where we're going to throw all of our AI researchers, this is where we're going to throw all our hardware, AA- AI chip accelerator budgets, this is where we're going to throw in all our software acceleration budgets, this is where we're going to throw all our documentation, this is where we're going to throw all the user space frameworks, like Llama Index and LangChain," and this and that. Like, now you have this entire community that's saying, "We're gonna bet on this thing becoming better." But the counterthesis to that is that, and this is the fa- famous Jeff Bezos quote on why AWS got so far ahead of the competition, even though the competition knew full well that cloud was a strategic place to go, is that even a two-year advantage in technology can be lethal. Meaning, like, two years in tech is very hard to overcome. Five years in tech, it's just exponential. 10 years, like, good luck catching up to that company if they got... for whatever reason, you ignore their advantage for 10 years. This has certainly been true in our space. When we were betting on dynamic front end rendering technology, a lot of folks were betting on static. I feel like a lot of folks have now said like, "Oh, like, Vercel, you, you're, you, you're growing so fast. You did this and that," and like, they think like it's some act of magic, but going back, we just were willing to, like, bet on what was a little less popular, especially among VCs in, in the Valley at a few crucial points. So, yeah, like I don't, I don't, I don't... I can't tell you, like, Llama will win or GPT-4 will win because I, I have evidence in the, in favor of both, but I can tell you that every day we're getting more data and it's, it's one of the most fascinating open questions to me right now.

   16. HSHarry Stebbings1:05:58

       I totally agree. I also love that in terms of going against popular narrative. Um, I, I, I always ask companies like, you know, "With the problem that you're solving, what do you believe that, that no one else believes that you have?"

   17. GRGuillermo Rauch1:06:09

       Correct.

   18. HSHarry Stebbings1:06:10

       Um-

   19. GRGuillermo Rauch1:06:10

       Most important thing.

   20. HSHarry Stebbings1:06:11

       Yeah, I, I really think it is. Um, listen, I wanna move into a quick fire round. So I say a short statement and you give me your immediate thoughts.

   21. GRGuillermo Rauch1:06:18

       Okay. (laughs)

   22. HSHarry Stebbings1:06:18

       Does that sound okay?

   23. GRGuillermo Rauch1:06:20

       Fine, let's do it.

   24. HSHarry Stebbings1:06:21

       Okay. So is 99% of the cash going into AI companies today gonna

8. 1:06:26 – 1:14:19

   Quick-Fire Round

   1. HSHarry Stebbings1:06:26

      go to zero?

   2. GRGuillermo Rauch1:06:27

      False.

   3. HSHarry Stebbings1:06:28

      Wow. Why?

   4. GRGuillermo Rauch1:06:30

      My prediction is just like what happened with Web 2.0 where you have... because of the platform shift toward mobile and social, you have countless successful IPOs from that generation. You have the Ubers, you have the Airbnbs, you have the Facebooks. We're gonna see the exact same thing happen with AI. I can't tell you exactly like what the ratio will be, but I, I, I would be willing to bet that 20% of investments will, uh, will be productive ones. Uh, now, productive means companies that then get merged and acquired, like we might buy an AI company. That doesn't mean 20% will be unicorns, but I think we will be... see a lot of positive ROI.

   5. HSHarry Stebbings1:07:07

      I hope so. (laughs) Um, I... okay, tell me, um, what's your biggest lessons from angel investing? You're secretly one of the most successful angel investors, I think, in the Valley.

   6. GRGuillermo Rauch1:07:17

      (laughs)

   7. HSHarry Stebbings1:07:17

      What's your biggest lessons from doing so?

   8. GRGuillermo Rauch1:07:19

      I think people underestimate just how much their own time...... goes into thinking about important problems that need to be solved, but you just don't have the bandwidth to solve them. If I look back on some of the most interesting investments that I've ever made, there are things that I would have loved to do myself, I just didn't have the time, uh, and it wasn't the right place. Maybe I was working on another project, maybe I was working at a different company to actually execute on those. So, I'll, uh, just to give you some examples, I s- I invested in this company called Scale.AI. I really va- badly wanted to work on a product like Scale.AI. I don't know if I would have been the person to build it, and I think I got really lucky by, you know, I chose the right horse in that particular space. But I do think that your own experiences are very validating, especially, and I think this is what's making a lot of founder CEOs successful in angel investing, is that the things that you see, the things that you perceive, and this is also why I'm so bullish on AI as well, like, there's so many AI products I want our company to, to buy. There's so many AI products that I want the world to benefit from. There's so many inefficiencies, there's so much repetition that's happening, there's this mismatch between supply and demand, uh, and, and that's how a lot of great investments happen.

   9. HSHarry Stebbings1:08:43

      Uh, so I worry when I think I could do that. Like, I, you know, I saw a company the other day, and I was like, "I'm better positioned to do this than the founder is." Do you not feel that it's a requirement when investing in a company that the founder's uniquely positioned to the extent that no one else is?

   10. GRGuillermo Rauch1:09:01

       The founder needs to be uniquely positioned in a number of dimensions, uniquely willing to go through the grind, uniquely positioned to either have the background or learn really fast what it takes to solve the problem. That's one that's kinda messed up about angel investing, like, you can lose a lot of deals if you just look for expertise. Sometimes, and this is also true for my hiring philosophy, it's about the slope. It's about how fast people can learn. Here's, here's a universal truth, is that ultimately, it's all about the market, right? It's all about people's willingness to buy a certain thing that determines winners and losers. That's why I wouldn't underestimate your own ability to judge what it is that you want to buy, what it is that you ultimately need. Now, you might be actually really bad at judging the solution, so you have to be extremely open-minded. I made a quick comment earlier that the thing where I got lucky with Auth0 is that I just didn't feel like 100% confident about their solution, frankly. And if the founders are listening, they're gonna hate me, like, I felt at the time, "Holy shit, outsourcing auth? Like, to a startup?" How does that make sense from a chicken and egg point of view? How does it make sense that who your home's and your company's door and their lock, you outsource to, what, the lowest bidder? Like, a startup that has three people? So I was like, "Okay, it's kinda crazy that you wanna turn auth into a microservice, but at the same time, I do know that implementing auth is a freaking, it's freaking hell." So this is the other advice I would give people is that, unfortunately, people overestimate their own c- capacity to solve in a, in an excellent way. What do I mean by this? Uh, every company I would advise, every startup I would start, I used to set up a chat server in IRC. I would set up an IRC server so that people could collaborate. I knew of the right problem to be solved. I knew that in order for software engineers to be more productive and collaborate with the rest of the company, they needed a chat, chat medium to collaborate with others. I had the wrong solution. The solution was not to set up an IRC server. Very few p- people know this, but when Slack was coming up, a few competitors to Slack were actually giving you IRC as a service, with some UI. So the market knew that there was a great opportunity around collaboration with chat for organizations. But the spectrum of solutions was incredibly bizarre. Some involved IRC hosting, some involved a hybrid of Slack with IRC. Slack, even for a minute, had an IRC proxy to help people move from the old world to the new world, and then they discontinued that. It's the solution that I think becomes kinda, like, the tricky thing to, to, like, wh- where do you place your bet? Um, but it's fascinating to, like, look back on, on those examples, because I have so many where, like, uh, I remember when, when Matt from WordPress, I sold my company to WordPress, said, "We have to install Slack and deprecate IRC." And at the time I was like, "Whoa, like, are we really gonna trust this company with all of our communication?" Same visceral reaction that I had with my own investment in Auth0. "Are we gonna trust this company with all of our X?" So you can almost see a pattern there. When you know that the problem is so painful, but your only hesitation is whether you can offload it to somebody, there might be a huge opportunity there.

   11. HSHarry Stebbings1:12:47

       I love Mullenweg. What a fucking hero. I mean, what a dude. Um, listen, final one, Guillermo, I've so enjoyed this. Uh, final one, if everything works out with Vercel, where are we in 10 years time?

   12. GRGuillermo Rauch1:13:01

       The way we talk about this is, we still live in a world where there are a lot of bad products. There are a lot of bad experiences that you have on a, on a given day. Our dream and our vision is that Vercel has raised the bar of every experience that people have with software, with applications, with products. It has to permeate all the way down to the average person doesn't have applications they hate, processes that bog them down. Why? Because we empowered every creator, every developer to fulfill their creative dreams and, and, and we gave them the tools to turn those, those dreams into, into the best products that they can. And I think AI will play a huge role in this. Um, I think part of what we're doing now is, uh, creating a bigger funnel, bringing this technology to more and more people, and, and putting the creative process in, in charge.

   13. HSHarry Stebbings1:14:01

       Guillermo, listen, I've loved it. I mean, the, the breadth of this conversation from, you know, uh, infrastructure in Argentina, to the future business model of artificial intelligence, I, uh, credit to both of us on this one. This was real brass. I've loved it. Uh, thank you so much for doing it, and you've been fantastic.

   14. GRGuillermo Rauch1:14:17

       It was fun. Thank you so much.

Episode duration: 1:14:19