Biggest LBO Ever, SPAC 2.0, Open Source AI Models, State AI Regulation Frenzy

Jason Calacanis 0:00 All right, everybody. Welcome back to the number one podcast in the world. Of course, that's the All-In Podcast. I'm your host, Jason Calacanis. With me again, your chairman dictator, Chamath Palihapitiya, and the sultan of science, David Freiberg. David Sacks will be calling in from the skift. He's in some deep negotiations, uh, for the-

David Friedberg 0:18 Skiff, skiff.

Jason Calacanis 0:18 ... United States of America.

David Friedberg 0:19 Skiff.

Jason Calacanis 0:19 From the skiff.

David Friedberg 0:20 Skiff.

Jason Calacanis 0:21 It's not... There's no T at the end? It's just skiff?

David Friedberg 0:22 No T. No T. (laughs)

Jason Calacanis 0:23 Oh, skiff to my left. Okay.

David Friedberg 0:24 (laughs)

Jason Calacanis 0:24 He's in a skiff-

David Friedberg 0:25 Skiff. (laughs)

Jason Calacanis 0:25 ... doing something with his BlackBerry-

David Friedberg 0:28 (laughs)

Jason Calacanis 0:28 ... and a bunch of generals. Nobody knows what's going on in Sacks' life, but he'll, he'll, he'll crack in from the skiff any moment now. But we'll start with-

David Friedberg 0:35 You guys see that

Chamath Palihapitiya 0:36 announced a PT and a fitness test for the generals? Could you imagine if Sacks had to pass a PT (laughs) test?

Jason Calacanis 0:42 Oh my God. (laughs)

David Friedberg 0:43 (laughs)

Jason Calacanis 0:43 They should totally make it for the administration. "Sacks, we need you to do, uh, one pushup, Sacks. One."

Chamath Palihapitiya 0:48 What do they do if you don't pass? They remove you from your...

David Sacks 0:51 You probably get a cure period.

Jason Calacanis 0:53 We should do a pushup contest. That would be great. Winner take all. How many pushups can you do, Freiberg?

David Friedberg 0:58 You have to adjust for people's heights. I'm, I'm the tallest of all of you. I have a much longer limb system.

Jason Calacanis 1:03 What does that mean?

David Friedberg 1:04 So, 20 for me is much harder than 20 for you, Jason.

Jason Calacanis 1:06 (laughs) I mean, 20 is easy for me at this point, but yeah.

David Friedberg 1:10 Yeah, you're like Bilbo Baggins. It'll take you, like, eight seconds to put on 20.

Jason Calacanis 1:13 (laughs)

Chamath Palihapitiya 1:13 Bilbo Baggins. (laughs)

David Friedberg 1:13 I'm a tank, man.

Jason Calacanis 1:14 Bilbo Baggins? How about Thor? I'm going Thor after this.

David Friedberg 1:17 (laughs)

Jason Calacanis 1:17 I'm going into my Daniel Craig era.

Chamath Palihapitiya 1:18 (laughs)

David Friedberg 1:18 Jake L has a elbow length-

Jason Calacanis 1:20 I'm going into my Daniel Craig era. (laughs)

David Friedberg 1:21 ... calist- cal weight, cal weight ratio that's highly advantaged.

Jason Calacanis 1:23 All right. Let's get started. (laughs) Enough shenanigans. EA is being taken-

Chamath Palihapitiya 1:27 What is your arm length, Jake L? Do you have a good arm length to say?

Jason Calacanis 1:29 My wingspan?

Chamath Palihapitiya 1:30 Yeah.

Jason Calacanis 1:30 My wingspan, uh, technically is enough to kick your (beep) with one hand tied behind my back.

Chamath Palihapitiya 1:35 (laughs)

David Sacks 1:35 (laughs)

David Friedberg 1:35 (laughs)

Jason Calacanis 1:35 That's actually what it is.

David Sacks 1:36 Don't let your winner slide.

Jason Calacanis 1:41 Rain Man David Sachs.

David Sacks 1:43 I'm going all in. And I said we open source it to the fans and they've just gone crazy with it.

David Friedberg 1:49 Love you, Wes.

Jason Calacanis 1:49 I mean-

David Sacks 1:50 Queen of quinoa. I'm going all in.

Jason Calacanis 1:53 Okay. EA is being taken private in the largest take private deal in history, $55 billion. Man, that just stacks up to, let's see, Texas Power Company in 2007, HCA Healthcare at 33 billion. This is a large deal. Investors in the take private include Saudis PIF, Silverlake, and friend of the pod, Jared Kushner's Affinity Partners. 210 bucks a share, 25 premium on the stock. Kushner's largest LP and Affinity, as you know, Saudi PIF as well. The PIF has, uh, invested over $900 billion in, you know, many of the things, Lucid Motors, LIV Golf, the SoftBank Vision Fund, Uber back in the day, Newcastle, the Premier League. Electronic Arts obviously is in the video game business. They were founded at, uh, Sequoia's office in 1982 in San Mateo. Shout out to our guy, Roelof Botha, who joined us for the All-In Summit. Their headquarters still in Redwood City. Madden NFL, the Sims. Oh, that's why you have the background in the Sims this week. Need For Speed. Pretty insane deal here, Chamath. And this is a high watermark for private equity any way you look at it. And the PIF loves games. They are the biggest shareholder in Nintendo, Savvy Games, Scopely. I mean, they just keep buying games. Uh, what are your thoughts here on this deal happening right now?

David Friedberg 3:23 I really like it. Let me give you the bull case, and then let me give you what the bear case would have to believe. The thing to remember is that video games is the anchor pillar of usage across the entire internet. Last week at our poker game, we had Matt Bromberg join in just for dinner, who's the CEO of Unity, and Alex Blum, who's the COO of Unity. And one of the stats that they shared with us at dinner was, it's about three billion DAO play games.

Jason Calacanis 3:53 Wow.

David Friedberg 3:53 Which is just an inc- in- exactly. It's an incredible, incredible stat. So, in many ways, it's much bigger than social networking and social media, or as big. And in that, EA is sort of this 800-pound gorilla. But I think the problem is, is that they've always been these gatekeepers. And I think that there's a risk and a chance that these gatekeepers get eroded away. Specifically who I'm talking about are folks like Microsoft and Xbox. And at the point that this company is going private, there's some really interesting things that are happening. So, Xbox, I think the day after the EA deal got announced, decided to hike prices 50% to their subscription service. And what happened over the subsequent few days is that so many people tried to cancel that the site went down. So, what are you seeing happening? You have distribution gatekeepers trying to raise prices and take share, and then you have the original IP owners who have not had a, a well-funded way of fighting back in a category that is basically as important, and frankly more important than social media. So, I think if you take an asset like this private, it allows you to take your time to clean up the OpEx model, right? Figure out who does what. Be able to use the best of all these next gen tools, and then be able to find ways of finding distribution outside the scope of Xbox and PlayStation so that you can take more of your share. If you do those things, this is a multi-hundred billion dollar asset. And in that, I think it could be just an enormous win. So, I think it's very smart. What's the bear case? I think the bear case is extending a theme that I've talked about here a few times, which is, I think the value of patents, and by extension IP and copyrights, are going to go away. And in that, there's going to be a spectrum where certain content IP holders lose and other ones win. I think gaming is on the winning side, to be honest. And I think content studios in general, like traditional content, the Disneys, the Hulus, the Netflixes are on the losing side. But the bear case would be that these tool chains...... allow the number of games to be built to increase by two, three, four orders of magnitude, and that they are distributed by other places like the social media sites. I just think that that's a pretty low probability. So on balance, I think that Jared and Egon did a killer deal. I really like it.

Jason Calacanis 6:32 And for people who don't know, Unity makes the 3D software that people build games in. It's a public company, 60 billion, also backed (laughs) by Roelof and Sequoia back in the day, a credible company. Freyberg, what are your thoughts on the gaming industry versus, say, social media versus traditional media? We're seeing massive amounts of money being put into each of these, but this is time, and for this next generation, let's say Millennials and younger, we're seeing a big mix. Obviously, they don't have cable TV, so that's been plummeting, but they do play games. They do like the YouTube, the TikTok, et cetera, and they do love social, social media. What, what's the future here as you see it?

Chamath Palihapitiya 7:15 One way to answer that question is to think about how people spend their time. Do you spend more minutes on social media or on traditional media or playing games, and how is that trending? But importantly, which of those will accrue more benefit, and as a result, drive more hours spent from AI? Is AI gonna create more social media engagement? Is AI gonna create more traditional media engagement, or is AI gonna create more video game engagement? And I think that one way to kind of think about this thesis is that AI is gonna ultimately accrue to video game entertainment far more than social media entertainment or traditional content.

Jason Calacanis 7:53 Why is that? Why? Explain to me.

Chamath Palihapitiya 7:55 Because I think you can create dynamic, more engaging experiences that will benefit from kind of a back and forth sort of relationship than you can with traditional content or with social media. And what we see now in a lot of gaming systems that didn't exist, call it, 12 years ago, is AI-driven players embedded in the games that act and feel a lot more like real human engagement that is very hard to kind of mimic from traditional programming methods that were used in gaming. And so that makes a, a big difference. Like, for example, if you're playing Fortnite... I don't know if you guys play Fortnite or have played Fortnite. But if you're a noob in Fortnite, like, you're an early player in Fortnite, you're mostly playing, even though you go online and play against what are supposed to be kind of other players, you're mostly playing against AI. Because what they do is they tune the AI to be easier to beat so that you can slowly develop your skills. 'Cause what was happening early was they were seeing a high degree of churn in Fortnite because kids would go on and play for the first time, and they'd get paired up with kids that were better than them, and so they would never win, and they would get frustrated, and they would quit the game and stop. So the churn rate was high. So AI unlocked higher engagement and higher retention on the Fortnite platform, and I think we're seeing that in a lot of different gaming platforms now. So AI can be used, for example, to maximally increase time, engagement, satisfaction, happiness. I think the- the Saudis saw this and they're trying to diversify away from their oil holdings, entertainment and how people spend their free time, which, by the way, I think is a general macro bet that everyone should consider making. Because if you believe in AI and you believe in the improvements in productivity, generally speaking, people in the industrialized world will generally have more free time on their hands and be able to support themselves with the deflationary effects of AI over time. So if there's more time on people's hands, the general market for entertainment is growing, and if the general market for entertainment is growing, gaming is the future of entertainment, and the future of gaming is AI. Now, the- the Saudis owned 10% of this prior, this company prior to the deal, and I don't know if you guys have tracked the investments they've made, but they've been extremely aggressive with gaming. So they have this, like, investment division called Savvy Games, and within Savvy Games, they bought Scopely for 4.9 billion in 2023.

Jason Calacanis 10:12 Yep.

Chamath Palihapitiya 10:12 And then earlier this year, they spent 3.5 billion to buy Niantic, the com- company that makes Pokemon Go. And then they also own 4% of Nintendo. They own 6% of Take-Two. They own a sizable percent of Activision Blizzard. So they've put quite a bit of capital in small investments in other gaming platforms. They own a few gaming platforms. So this is clearly, like, a big thesis and a big investment that they see as the future of entertainment over time. Jared's firm, Affinity, is gonna own about 5% of the company post-transaction. The Saudis are gonna be the majority owners. So I think that this is gonna end up being the next big platform play for them, and, and it allows them to make the important long-term investment in furthering the transition to AI and not have to worry about quarter-to-quarter earnings, but really making a 10-year bet. And they do talk a lot about this 2030 vision. So yeah.

Jason Calacanis 11:02 Yeah, and if you look at across those three categories we've been discussing here, video game usage, about 60% of US adults do it every week. Social media, about 75% of Americans use it every week. And, uh, streaming, traditional media, the Netflixes, Disney+'s of the world, that's still 83%. So these are the three buckets of, of people's time. Uh, books and going to the movies, those are obviously the big losers in this mix.

David Friedberg 11:24 By the way, you know that the market was totally getting this wrong because the tick-tock of the deal is super interesting. When they were looking for the debt financing, it was about 36 billion of equity, 20 billion of debt. They called Jamie Dimon, and Jamie basically ripped the 20 billion in on the same day. Just 'cause I think, I think he also could underwrite this pretty fast.

Chamath Palihapitiya 11:49 Yeah.

David Friedberg 11:49 I mean, some of the biggest deals are frankly so obvious that it just takes the courage to put it together, and then everybody's like, "Oh, this just makes so much sense." And then Andrew Wilson, who's the CEO, is gonna stay on, he's a great guy. Super, super compelling :... leader that was-

Jason Calacanis 12:04 It's worth talking a little bit about the impact, I think, of private equity. If, um, you spend any time in the region, I'm gonna be in Saudi and Dubai in the first week of November.... doing my final university and I'm, I'm been out there twice a year, maybe, for the last three years. They will tell you, whether you're in Doha, Abu Dhabi, or Riyadh, "We've got six or seven industries we really care about. Technology's at the top of the list. Private equity is at the top of the list. Live entertainment and sports at the top of the list. And then, actually, hospitality also at the top of the list. Real estate, building new places for people to go." And if you look at private equity... Pull up that chart I had there. This is just stunning how big this industry is getting. You know, $5 trillion dollars is, uh, what we're up to here, and it just keeps growing.

David Friedberg 12:52 I, I think private equity is totally screwed. I, I don't think Silver Lake or Affinity or this deal are screwed, but I think private equity in general is totally hosed.

Jason Calacanis 13:03 All right. Well, it's, it's gotten huge just since 2015 and, uh, tripling in size. So why is this ... I guess, my question for the gentleman here and for the audience, why is private equity becoming so large and what impact does that have on society if people can't put EA into their retirement account, they can't put Stripe into their retirement account? If we take all the great companies, and we start to privatize them, SpaceX, let's say-

David Friedberg 13:31 So look, I think, um-

Jason Calacanis 13:31 ... never goes public, what impact does that have on people's retirement accounts?

David Friedberg 13:34 Okay. Look, I think, I think the history of this is important. There was a longstanding belief that the best way to generate the best risk-adjusted return ... What does that mean? That means to manage through periods where the stock markets go down and to manage through periods of volatility. The best way to do that was to have what's called a 60/40 allocation, 60% to bonds and 40% to equities. Over many years, especially when we artificially suppressed rates at zero, through Obama, a lot of people started to move their allocations away from 60/40 and they started to make more and more investments further out on the risk curve. The biggest beneficiaries of that were venture capital, private equity and hedge funds. The thing with private equity is that because rates were zero, they had an infinite amount of borrowing capacity, had very little downside to them, and so they were able to manufacture returns much faster than venture capital and hedge funds could. So as a result, you had an initial group of people that were defining the asset class making a ton of money, and then you had all these fast followers that said, "Well, if they're doing it, I can do it too." So far, so good. But then always what happens is then you have this flood of laggards that just flood the zone, and it's these laggards that make it very difficult to generate returns because they start overpaying for assets, they start mismanaging and under-managing the assets that they do own. And so where we are is that private equity has seen a very consistent way of returning money to help improve that 60/40 portfolio. As a result, they got a lot of money, but then that created a lot of competition, and so that's why you see this hockey stick graph, Jason. And when you see that kind of graph-

Jason Calacanis 15:27 Yeah.

David Friedberg 15:27 ... it doesn't matter what asset class it is, the returns go to zero. And so we've seen this in venture capital.

Jason Calacanis 15:33 Yep.

David Friedberg 15:33 We've seen this in hedge funds. And we're now gonna see this in private equity. And-

Jason Calacanis 15:38 Too much money going in, to be clear what you're saying, Chamath-

David Friedberg 15:40 Yeah, and, and-

Jason Calacanis 15:41 ... means you kind of-

David Friedberg 15:42 Well, there's just, there's no-

Jason Calacanis 15:43 ... index it, right?

David Friedberg 15:44 There's no, there's no returns.

Jason Calacanis 15:45 And then-

David Friedberg 15:45 And so again-

Jason Calacanis 15:46 Yeah.

David Friedberg 15:46 ... I've said in any of these alternative asset classes, there is only one thing you should always ask. If you had to have one critical question, what are your distributions? Don't show me your IRR. What is your DPI?

Jason Calacanis 16:02 Yes.

David Friedberg 16:02 The distributions on your paid in capital. And if the answer is zero, then it is a very challenged asset class. And what I will tell you in private equity is that over the last four or five years, distributions have been few and far between. So I think what's gonna happen is that the money is gonna come out of private equity and it's gonna get concentrated into the few companies that know what they're doing. Of which Silver Lake has generated over, you know, the last 15, 20 years, tens and tens of billions of dollars of distributions. They are just an exceptionally well-run organization. They've done these huge buyout deals successfully before. So we need to go through that in PE. Where does the money go? The money's already leaked into private credit, which is the next big bubble that's building. It looks like this chart that you just showed.

Jason Calacanis 16:57 Which is loaning businesses money. You know, it's super interesting because you make such a good point. What we're seeing in private equity is these continuation funds. Now continuation funds are coming, Chamath, to venture. (laughs) So I've been getting pitched on these continuation funds. We're like, "Hey, take all your assets, sell it to a new group of people, and then reset the clock," and then there's never an exit. The good news is, I will say the last year, we've seen a lot more activity for shares of our companies that are still private. So the secondary market, Friedberg, is coming back in a major way. But I do get worried about these continuation funds because now you're just moving an asset from one class to the other, and we need to have a functioning IPO market. How functioning is

Jason Calacanis 17:42 the IPO market today would we say?

David Friedberg 17:45 It's completely dysfunctional.

Jason Calacanis 17:46 How dysfunctional is the IPO market? (laughs) Let me say it another way. And, and, and, and-

David Friedberg 17:50 Well, we have to-

Jason Calacanis 17:50 How do we correct that? And this, this leads into your new SPAC.

David Friedberg 17:54 Look, there are three ways to go public. There's the traditional way, IPO. There's the direct listing, and then there's the reverse merger or the SPAC. Up until I floated IPO A in 2018, I think it was, the first way was really the only way. I was involved in two direct listings, Slack and Coinbase.And in both of those, what I learned is that, you know, it has the same vagaries as a traditional IPO. So in the traditional IPO, you go to a bank, they underwrite you, they act as a gatekeeper, and they take 6, 7, 8% fees as a result. And then they allocate what is essentially underpriced stock to their best customers. Then you see a one-day pop, maybe a two or three-day pop, all of those customers tend to unload, and then the stock tends to drift down. So the IPO is expensive and it typically is mispriced. The direct listing, you have a different dynamic, which is the first trade is always the highest trade, and then it just goes straight down. That happened with Slack and it happened with Coinbase. So when Slack-

Chamath Palihapitiya 19:04 Spotify would be in that group as well, yeah.

David Friedberg 19:05 Yeah, with Slack, I remember, like, I-I was like offside a billion dollars and I was like, "Well, I'm never letting this happen again." And so when I had the Coinbase thing, I sold it the first day. And I texted Brian, I said, "This is not a directional indication of your company, it's the dynamics of the direct listing," because I learned it the hard way that the time to sell is on day one. So where does the SPAC come in? You know, especially now in version two, version two being the-the thing that I had been tinkering and refining with and am trying to push in-in this new version, I think that it's creating an incredibly competitive vehicle where you can have a ton of money go into these private companies, take them public at a very, very low cost of capital. And I think that that's, uh, should be very enticing.

Chamath Palihapitiya 19:54 So you closed your financing. Can you just tell us what the capital raise was like as you went out and met with folks? What did you hear?

David Friedberg 20:01 Yeah. So, you know, Nick, maybe you can find it. You know that image of the Raptor engines?

Chamath Palihapitiya 20:06 Yes.

David Friedberg 20:07 N-

Chamath Palihapitiya 20:07 Super complex to being elegantly simple.

David Friedberg 20:09 Yeah. Nick, can you, can you maybe just throw that up? What I would say is, like, SPAC 1.0, of which I was, you know, right in the front of the parade, had a bunch of misfires and it was complicated, but it worked. There were some hot fires at work, but then there were some clear misfires. And the whole point was to prove that you could create a competitive alternative to the IPO. The thing that I'm the most proud of, quite honestly, is for all intents and purposes, I started a normalization of this vehicle that's now raised more than $150, $200 billion for American companies. I am very proud of them. That's an important thing for the American capital markets. I think what we did in American Exceptionalism is Raptor 2.0. It's not yet perfect, but I do think it tries to improve on the things that I noticed was not working in Raptor 1.0. And in that is a lot of the compensation and incentives. And so when I showed that to investors, they were quite excited. I think that they want a competitive IPO market that brings many, many American businesses to the public market so that they can be owned by everybody, the transparency they like, and the fact that the incentives are such now where there's absolutely no compensation unless this thing really works.

Chamath Palihapitiya 21:26 And historically, they received warrants in the company, typically with a strike price of 11.50, so it's 15% above the issue price of the stock.

David Friedberg 21:35 And founder shares that were basically-

Chamath Palihapitiya 21:37 And, and, and there was founder shares, but, like-

David Friedberg 21:38 ... zero.

Chamath Palihapitiya 21:38 ... did you have a reaction from them saying, "Hey, we want some warrants. We need a little extra kicker here," like there's some sort of-

David Friedberg 21:46 No.

Chamath Palihapitiya 21:46 ... desire for that?

David Friedberg 21:47 No. In fact, it was the opposite. I think that the institutional investors and, you know, my investors in this, 98.7 of the capital was allocated to these guys, are the best of the best. You, you know who they are, so they're every single blue chip, A+ institutional investor. And what they wanted was great companies. They want great companies to be public. And the reason is the thing that, Friedberg, I think you mentioned this before. When a good company gets public, the amount of money that they can raise in the publics, and then the amount of growth that they have in the publics far outclasses what they'll ever do as a private company. And so they want the simplest and cheapest way of great businesses to get out.

Chamath Palihapitiya 22:34 Chamath, do you think that the transaction, when you find a merger partner, the traditional SPAC has been announced as a merger concurrent with a PIPE being done where new investors are underwriting the valuation of the deal and saying, "We like this company at this price because we are now gonna write money in the form of a PIPE." And historically, the PIPE was for common shares, so it kind of was like, "This is a good price," and everyone felt good about it. Number one, do you anticipate that there will still be a PIPE being done in concurrent with the merger in this transaction? And then number two is, do you think it'll look like a common PIPE? Because after the SPAC frenzy died down, in order to get deals done, the PIPEs started to get done with convertible preferred security, so they were senior to common and they almost were like debt. How do you think this is gonna play out? Because a clean deal has not happened in quite some time where a SPAC has announced a merger and simply raised money via common in the form of a PIPE.

David Friedberg 23:34 It's a great question. I think it comes down to the underlying asset, but there are some incredible companies that are private that if they go public will be able to demand common PIPE capital. I think that the future, maybe just prognosticating and guessing, what does Raptor 3.0 look like in the SPAC? I think the Raptor 3.0 will look like where somebody, a sponsor like me, rolls everything up into one thing so that it's already pre-wired from the beginning, where I'll just speak to a billion, two billion, three billion, whatever it is, flexible capital that can come in as common so that it's a totally pre-baked IPO-

Chamath Palihapitiya 24:15 Hmm.

David Friedberg 24:15 ... at a very fair price.

Chamath Palihapitiya 24:17 And you-

David Friedberg 24:17 I think that, I think that that's what the Raptor 3.0 version of a SPAC will look like.

Chamath Palihapitiya 24:20 So more capital, and then they, they put their full trust and faith in the sponsor to run the deal. And there's no part.

David Friedberg 24:25 Well, no, then- then- then meaning then there's no conversion risk, that all the money comes over right from day one.

Chamath Palihapitiya 24:30 It comes over, right. And so then you have to fully commit in.

David Friedberg 24:32 Yeah.

Jason Calacanis 24:33 You set your compensation to be a- a bit Elon-like in terms of your compensation as the sponsor comes, if I read it correctly, Chamath, when it hits certain milestones in terms of share price.

David Friedberg 24:45 Yeah, nothing can be earned unless the stock is up 50%.

Chamath Palihapitiya 24:49 Yeah.

David Friedberg 24:49 And then there's a tranche at 50. Then when the stock goes up-

Jason Calacanis 24:51 That's great.

David Friedberg 24:51 ... 75%, there's another tranche, and when the stock is up 100%-

Chamath Palihapitiya 24:54 And there's no founder warrants in the deal? Or there are founder-

David Friedberg 24:57 Nothing.

Chamath Palihapitiya 24:57 There's no founder warrants?

David Friedberg 24:58 Nothing.

Jason Calacanis 24:58 I think this is great. You know, I- I was asked by a lot of R's-

David Friedberg 25:01 By the way, the reason, the reason why this is important is all of those things that you guys mentioned increases the cost of capital to the founder and to the private-

Jason Calacanis 25:10 Of course.

David Friedberg 25:10 ... company board-

Jason Calacanis 25:11 Of course.

David Friedberg 25:11 ... and to the employees. All that's unnecessary dilution. So now we take it all off the table.

Jason Calacanis 25:15 Yeah, smart. The thing I, you know, the observation I had at the time, not just for your collection of SPACs in the 1.0 era, but just all of them in general, and I tried to explain this to our syndicate members and investors as well as the CEOs, because a lot of my CEOs were like, "Should we do a SPAC?" And one of them, Desktop Metal, did. This felt like venture investing. And, you know, if you look at Opendoor, Virgin Galactic, um, Joby, which I don't think was one of yours, SoFi, MP Materials, all of these companies, you ha- y- you have to look at it, if it is a venture-type investment, 80% of venture goes to zero, 20% pays up for the other 80%. I think people were looking at this like it was Netflix, and they were not thinking of these companies and the stages they were at.

Chamath Palihapitiya 26:02 Well, can I just say something?

Jason Calacanis 26:03 So my question-

Chamath Palihapitiya 26:04 The-

David Friedberg 26:04 Yeah, I just, and then I- I'll drop it to a question because SoFi and MP Materials, they did extraordinary. So in this class of companies you're going to be taking out, is it going to be the same early stage, or are you thinking more robust, more predictable revenue, let's call it, um, resilient revenue, maybe? Rugged revenue? I think it's the latter, but I think it's also important to note that this time around, I've tried to really minimize retail exposure to this.

Jason Calacanis 26:30 Yes.

David Friedberg 26:30 I don't think that retail is well-suited right now to have these things. And what my- my honest advice is avoid, maybe not all SPACs, but definitely my SPAC, just avoid it. I think that there is more than enough liquidity on the institutional side for us to do an interesting deal, but it fits in our portfolio and our construction, which is a very different risk model. And so I would hate that, you know, people are out on the risk curve without really understanding the risks because, Jason, you can't predict the market. You don't know where these things are going to go.

Jason Calacanis 27:02 Yeah, I mean, Desktop Metal and 3D printing, this is like a very cutting edge, nascent technology. Company should have stayed private a couple more years. For people investing, you need to understand, you're- you're now acting like a venture capitalist, which means the return profile and how the portfolio management works is distinctly different than doing Netflix and Nvidia and whatever other publicly traded companies.

David Friedberg 27:24 I would just say do n- do not invest in these things.

Jason Calacanis 27:26 Don't do it.

David Friedberg 27:26 Don't, at lea- at least, you know, just don't.

Jason Calacanis 27:27 I think you're just inspiring people to do it. (laughs) I know that's not your intent, but when you- when you say don't do it, I think people are like...

David Friedberg 27:33 Well, that's stupid.

Jason Calacanis 27:34 Yeah.

David Friedberg 27:34 I- I'm being very honest. Don't do it.

Jason Calacanis 27:35 No, no, I know. (laughs) Don't buy SPACs unless it's like less than 1% of your portfolio, would be

Jason Calacanis 27:41 my advice.

Chamath Palihapitiya 27:42 Before we move on-

David Friedberg 27:43 Sure.

Chamath Palihapitiya 27:43 ... can I just make one comment? And I'd like you guys-

Jason Calacanis 27:45 About SPACs?

Chamath Palihapitiya 27:46 ... to know about the private equity stuff, because Chamath made a comment that private equity is big. But I think one of the things to take note of in this take private of EA, and we talked about it as the theme of AI empowering EA to kind of transform the business, and Jared's brother Josh has at Thrive been executing a roll up of CPA accounting firms that he's then applying AI to to reinvent that business.

Jason Calacanis 28:11 Oh, is he really?

Chamath Palihapitiya 28:13 Yeah.

Jason Calacanis 28:13 Oh, I should talk to him because we have an investment in a company called TaxGPT.com that is basically like copilots with AI for accountants that's doing spectacular.

Chamath Palihapitiya 28:21 So what he's done is he's bought these kind of traditional accounting firms at some multiple of EBITDA, and then he can transform the business with AI and really create a new opportunity. And I've said, like, I think this is one of those few moments in history where there really is an opportunity to beat the market and make money in the public markets if you can be thoughtful and selective about the companies that stand to benefit from an AI execution strategy.

Jason Calacanis 28:45 Mm.

Chamath Palihapitiya 28:45 Because in all of these traditional kind of markets where you have competition, everything's commoditized, and the market is mature, it's very hard for any of these players to differentiate product, service, and obviously, you know, unit economics. But with AI, it's completely transformative and has transformative potential in nearly every industry. So as a public market investor, if you can identify those opportunities, select them where the management team has the right leadership in place to execute against this, you could make real money. The problem is most of these companies are not led by folks that understand AI or software first.

Jason Calacanis 29:18 Hmm.

Chamath Palihapitiya 29:18 And so I think there's an opportunity for more buyouts. They're not going to be of the $55 billion scale.

David Friedberg 29:24 It's worse than that.

Chamath Palihapitiya 29:25 In what sense?

David Friedberg 29:28 So we at 8090 have done the dance with all the big major private equity firms. And here's how it goes. It always goes the same way. The partners love it because they're looking at minimal distributions, companies that are like good but not great in many cases, and they want to see improvements to EBITDA and performance so that they can either sell them or move them out.

Chamath Palihapitiya 29:56 And you're s- sorry, and you're saying you've looked at this-

Jason Calacanis 29:58 So the first meeting-

Chamath Palihapitiya 29:58 ... you've looked at this with their portfolio companies, Chamath?

David Friedberg 30:00 No, I've talked to all of them.

Chamath Palihapitiya 30:00 Yeah.

David Friedberg 30:00 All of them.

Chamath Palihapitiya 30:01 With their- with their port- existing portfolio companies?

David Friedberg 30:02 Yes. Yes.

Chamath Palihapitiya 30:03 Okay. Yep.

David Friedberg 30:03 So the GPs are like, "This is genius, we should do it." Then they're like, "Here's a handful of companies to go talk to." And I'll be really honest with you, what you find in most private equity portfolios are B and C companies run by C and D folks.

Chamath Palihapitiya 30:18 Yes.

David Friedberg 30:19 And so the ability for them to go and embrace this is basically next to none. So if I look at my customer distribution and concentration...... at 80, 90, okay? Run rating into nine figures already, working on a $300, $400 million deal, okay? Not a single dollar comes from a private equity firm, although we spent, initially, a lot of time trying to sell it, trying to sell our software factory and trying to sell work into them. It's really hard. And it's what you said before, Friedberg, which is the people incentives at these businesses are misaligned to the AI outcome.

Chamath Palihapitiya 30:55 Right.

David Friedberg 30:55 And you can't fire these people. And I don't think the right answer is to fire them. So I don't know what the right answer is. This is why I think private equity is very challenging. You have to find-

Chamath Palihapitiya 31:05 Do you think there's a, do you think there's a power loss situation where perhaps a handful of investors in the public markets and perhaps a handful of investors in the private markets can identify and then put the right people in place and execute against these strategies, like Josh is trying to do with his CPA role?

David Friedberg 31:19 Well, I think Josh is smart, so I think Josh will figure it out no matter what. What I'm saying is, if I can show you 20, 30 customers, a ton of revenue, all these white papers that show upside, and I still can't get it done inside one of these companies, I think it's not us, it's them.

Chamath Palihapitiya 31:36 Right, so it's not inherent in traditional a- uh, private equity to do this either, which maybe begs the question, is there a new kind of private equity that can execute this? Maybe that's an opportunity, like, like Josh is showing, right? Like he's, he's a venture investor that's executing a private equity strategy, and maybe that becomes the play.

David Friedberg 31:52 I think if this works well, two of our biggest customers are individual deca-billionaires who own businesses and they're like, "You're doing this."

Chamath Palihapitiya 32:01 Mm-hmm. Hmm.

David Friedberg 32:02 So to the extent that Josh looks more like that, which is an owner of 100% of the business-

Chamath Palihapitiya 32:06 Right.

David Friedberg 32:06 ... where it's like, "You're gonna do it," then I think it can work. So I think the-

Chamath Palihapitiya 32:11 That's like the Saudis, right?

David Friedberg 32:12 I think the owner-operated model is the only way the AI transformation really works. And then the oth- the other end of the spectrum, it's the public's market CEO who realizes that they have to do something real because they'll otherwise lose their job or they'll be disrupted. Those are the two cohorts that I feel today-

Chamath Palihapitiya 32:30 Mm-hmm.

David Friedberg 32:31 ... are on their forward foot. Everybody else is, like, sticking their head in the sand.

Jason Calacanis 32:34 Just on the EA front, I, I forgot to ask you, Sir Demis, uh, my Greek brother, didn't, uh, he show a-

Chamath Palihapitiya 32:41 (laughs) My Greek brother.

Jason Calacanis 32:41 It's all the, always the Greeks who get these things done.

Chamath Palihapitiya 32:43 Yeah.

Jason Calacanis 32:45 Didn't he show, like, the, uh, 3D engine that would make, like, infinite games?

Chamath Palihapitiya 32:49 Yeah, so it's not actually a 3D engine, it's a class of these AI models that can render what ex- what the experience is, looks like and feels like a 3D world, but it doesn't have an underlying kind of traditional object, um, rendering engine. It doesn't have a traditional 3D physics engine. So it's a new way of experiencing these kind of world interaction systems, and there's several startups. I think, um, Fei-Fei, uh, is her name, the Stanford AI professor-

David Friedberg 33:17 Yeah, Fei-Fei has one, yeah.

Chamath Palihapitiya 33:18 And she has one of these. It's a virtual worlds company that has the same principle.

David Friedberg 33:20 But you know, I asked, I asked Bromberg and Alex about exactly this at dinner.

Jason Calacanis 33:26 What was their take? Yeah.

David Friedberg 33:27 He said it's just really, really hard to get these things to actually be legitimate engines at the scale of what Unity offers for the quality of game that needs to be made for it to work.

Jason Calacanis 33:38 The interim step is gonna be the assets in it are created by AI, that's what I've seen a lot of startups doing. So you wanna make a character, you know, you dropping characters-

Chamath Palihapitiya 33:47 That's exactly right.

Jason Calacanis 33:47 ... and they could be done in real time-

Chamath Palihapitiya 33:49 I think, I think you're exactly right.

Jason Calacanis 33:50 ... but the whole world can't.

Chamath Palihapitiya 33:51 The, the whole thing is Unify and Unity as the rendering engine, and the AI sits on top, and the AI basically can render objects, can render concepts, can render structure, can render the direction that you as an engineer would typically provide to the en- to the Unity or Unified 3D engine. And that's gonna unlock not just in video games, but also in film and other content.

David Friedberg 34:11 You're 100% right.

Chamath Palihapitiya 34:11 Yeah.

David Friedberg 34:11 Can I tell you an example? Yesterday there was, um, you know, in our group chat, a bunch of people sent around the Sora-

Jason Calacanis 34:17 The SLOP app, yeah.

David Friedberg 34:19 And I downloaded it just to play with Sora yesterday.

Jason Calacanis 34:21 Hmm.

David Friedberg 34:22 And the first video that came up was exactly this. It was like a ATP tennis match-

Jason Calacanis 34:27 Yeah.

David Friedberg 34:27 ... where it was a guy's face, the guy, like imagine you, and then playing against, like, a Federer. And then I thought, "Well, what if he was playing against his friend and that was the actual video game?" To your point, you, you get away from all this IP licensing, gatekeeping stuff, and you can just get to good games faster, good content faster. I think it's-

Jason Calacanis 34:48 Well, and they're adaptive in terms of the competition, so you're not playing somebody who's gonna just dominate you and just get 5% better every time you play it. You'll get-

Chamath Palihapitiya 34:55 Yeah.

Jason Calacanis 34:55 ... 4% better and it'll just make it perfectly challenging, so you don't quit and you'll learn as you go. It's-

Chamath Palihapitiya 35:01 Yeah.

Jason Calacanis 35:01 ... really gonna be an interesting new world.

Chamath Palihapitiya 35:02 And the same, the same will exist in, like, content, J Cal, like you'll make shorts and films-

Jason Calacanis 35:07 Yeah.

Chamath Palihapitiya 35:07 ... and then the ones that have the most engagement, the AI prompting system will get better and better, and ultimately it will yield like, uh, you know, bits of content that people are gonna say like, "Oh my God."

Jason Calacanis 35:18 But you can see that happening with Star Wars or Marvel if all of a sudden Silver Surfer's an interesting character to you or Ashowkatano is interesting to you, it'll sort of make that world or enhance that character and tell you more of their backstory, and that can be really interesting-

Chamath Palihapitiya 35:32 Can I just ask-

Jason Calacanis 35:32 ... as a-

Chamath Palihapitiya 35:33 ... how you can sit in your seat and, like, make fun of me, call me a nerd, and you actually know the name of this Star Wars character. I don't even know who you're talking about.

Jason Calacanis 35:40 Because he's a very important character. Ashoka is Anakin Skywalker's padawan. She's a very important character. If you watch the Clone Wars, you would know this.

Chamath Palihapitiya 35:49 Right, so I'm not.

Jason Calacanis 35:49 The animated series-

David Friedberg 35:50 (laughs)

Jason Calacanis 35:50 ... that threads through the first-

Chamath Palihapitiya 35:51 What do you say? What do you... Oh-ho-ho-ho?

David Friedberg 35:52 Oh-ho-ho-ho?

Chamath Palihapitiya 35:54 Well, actually-

Jason Calacanis 35:54 If you had watched the Clone Wars... (laughs)

David Friedberg 35:58 Actually... Actually...

Chamath Palihapitiya 35:59 Billy... Actually...

Jason Calacanis 35:59 Oh, look who dropped in?

Jason Calacanis 36:01 Oh, David Sacks is here. Did you get out of your, uh ... were you in a skiff or something? What's going on, uh, czar?

36:08 I was in some meetings. But actually, no, I was just, uh, buying some domain names.

36:13 Oh, you are? Did you get-

36:14 Yeah.

36:14 ... mahalo.com? It's available for $1 million.

36:15 I got, I got the Mahalo for the bargain price of $1 million.

36:18 I mean, that's what it's worth.

36:19 Just $1 million.

36:19 Go to mahalo.com, I'm selling it for a million. I mean, it's-

Chamath Palihapitiya 36:22 Are you really?

Jason Calacanis 36:22 It's, it's an addiction. Yeah, I have some old assets. Somebody else should use them. I just, I have begin.com and I'm gonna be working on that.... in partnership probably with one of the largest language model companies.

David Friedberg 36:31 It rhymes with mahalo. I might give you an equity swap for that. I'll give you, uh... Yeah.

Jason Calacanis 36:35 Mahalo is the second most important name in the... it's the second most important word after aloha in the, um, Hawaiian language. And then begin-

David Friedberg 36:44 Wait, I'm sure, I'm surprised Benioff hasn't tried to ask you for it.

Chamath Palihapitiya 36:47 Yeah, totally. He always says that.

Jason Calacanis 36:48 You know I should do, I was just texting with Benioff.

Chamath Palihapitiya 36:49 Give it to him as a gift, dude. He's a great guy, just give it to him.

Jason Calacanis 36:52 I will give him the, I will give Benioff mahalo.com if he gives me four weeks in one of his Hawaii resorts per year for the next 20.

Chamath Palihapitiya 37:01 Oh, he would, he would, he would do that. Oh, for the next 20? (laughs) Oh my gosh.

Jason Calacanis 37:04 Yes. That's 80 weeks.

Chamath Palihapitiya 37:04 Imagine having J Cal for 80 weeks, oh my God, as a houseguest.

Jason Calacanis 37:07 J Cal for 80 weeks as a houseguest.

Chamath Palihapitiya 37:09 (laughs)

Jason Calacanis 37:09 He can be there. He can be there. It doesn't matter.

Chamath Palihapitiya 37:12 I know.

David Friedberg 37:12 I'll give him the money so he buys it. Don't worry.

Chamath Palihapitiya 37:14 He'll buy it, he'll buy it.

Jason Calacanis 37:14 Don't it to a non-profit foundation, then you can take a tax write-off.

David Friedberg 37:18 That's right.

Jason Calacanis 37:18 Lookit, everybody's... When I have something to sell-

37:20 A million dollars.

37:20 ... the guy with the lowest net worth on the program, when I'm trying to pay off my jet, you guys all have criticisms.

Chamath Palihapitiya 37:27 (laughs) Yes.

Jason Calacanis 37:27 How come I can't wet my beak? I got jet bills to pay off.

David Friedberg 37:29 What jet, what jet are you paying off?

Jason Calacanis 37:30 Hey, let me ask you a serious question.

37:31 Go ahead.

37:31 So you had investors in Mahalo, right?

37:33 Yes.

37:34 And I assume they need to be-

37:34 This is their domain. This is their domain.

37:36 Oh, it's theirs.

37:36 It would go to them.

37:37 Oh, so it will? Oh, okay. So you're paying off-

37:38 It will, it will go to those investors, yes.

37:39 You're paying off liquidation preference.

37:41 Correct, correct, yes.

37:42 Oh, okay.

David Friedberg 37:42 (laughs)

Jason Calacanis 37:42 Just sitting there.

37:43 That's, that's stand up, stand up move.

David Friedberg 37:43 So now instead of losing 100%, I'll lose 99.8%.

Chamath Palihapitiya 37:47 (laughs)

Jason Calacanis 37:47 (laughs)

David Friedberg 37:47 (laughs) Yeah, something like that. Uh, it's just startups are hard, folks. But I have the begin.com, and I've been talking to folks. I, you know, I... Mahalo was originally a human powered search engine like Wikipedia, which we're about to get to, and I, my concept was to do comprehensive search like naver.com or Daum in Korea had seen those services. Yeah.

Jason Calacanis 38:06 And it turned out to be exactly like Perplexity but at the time, we, we tested machine learning, which is already called AI back then, and it just didn't work. So we were trying to hand roll search results and then back them up with, you know, computer generated ones, algorithmically generated ones, but the tech wasn't there now, um. But I wanna do something again with begin.com. I'm really excited about that domain name. All right, listen,

Jason Calacanis 38:27 we brought up SLOP. Let's get into it. Two SLOP apps in a fortnight here, uh, no pun intended. Zuck and Sammy the Bull have both released, uh...

Chamath Palihapitiya 38:37 (laughs) The bull. (laughs)

David Friedberg 38:39 Gravano, what a pull.

Jason Calacanis 38:39 Sammy the Bull. I just like it for him.

David Friedberg 38:40 What a deep pull, Sammy the Bull Gravano.

Chamath Palihapitiya 38:42 There we go.

Jason Calacanis 38:43 Yes. And, uh, here's a look at Sora. It's objectively extremely impressive. Here's Sam Altman. People don't know this, early in his career when he was starting OpenAI, didn't have the money from Elon. And here's Sam Altman stealing an H100. Here's Sam Altman also, this is when he was, um, storming the Capitol on January 6th. And here he is, uh, when he was working at Google. Yeah, lots of, uh... But it's really good, and they are basically taking a ton of risk and solving some problems with IP. As we all know, the IP outputs is where people think you're gonna have to be really thoughtful or get a bunch of lawsuits. On this app, you can opt in and make your persona, like Sam did, available to everybody to use. So that whole concept of notable persons allowing their image to be used, you opt into that. And that's pretty clever. So you can let your f- and you can make it so your friends can, you know, basically make videos of you but nobody else can. It's, it's a thoughtful way of doing it. However, very controversially, this thing had everybody's IP in it, and you have to opt out if you don't want your IP used. That's gonna get him another whole collection of lawsuits to go with the New York Times and Ziff Davis ones. And there have obviously been a bunch of settlements now. Uh, Anthropic's settling their book thing for 1.5 billion, so. Anybody play with these tools yet? And what do you think folks? And what's the point of these? Do we think this is like a TikTok competitor, Chamath? Or do you think it's just a way, backdoor-

David Friedberg 40:12 I think the, the closest things-

Jason Calacanis 40:12 ... to training data? What do you think?

David Friedberg 40:14 The closest thing is a TikTok competitor, but I, I used it. I thought it was okay, but again, the thing that I ha- that I keep in mind whenever I try these apps for the first time is, today is the worst it'll ever be.

Jason Calacanis 40:28 Sure.

David Friedberg 40:28 It'll, it only gets better from here. And so, if you look at the starting point, it won't take but a year where this thing, I think, um, or maybe two years, where this thing is legitimately excellent. It has to get the scripting right. It has to get the prompting right. It has to be a little bit easier for you to use. There was a bunch of prompts that I used that were rejected by S- or, by the app.

Jason Calacanis 40:50 For, for IP, right?

David Friedberg 40:51 Well, it just said, "Use me," but I couldn't validate that I was me, and so they wouldn't let me...

Jason Calacanis 40:55 Yeah, you have to take a picture of yourself. It's a, it's a little clunky, the app right now, but you're right, it's gonna get better in each version. The one by Zuckerberg is called Vibes. I, you know, I was looking at these, Zach's, and I don't know that this is intended to be like, the next great social media app as much as it's a data play to get folks to train data. When you see them, what are y- any thoughts on them other than interesting? Yeah.

41:20 I haven't played with it yet, so-

41:21 Oh.

41:21 ... sorry for me to say.

41:23 Okay. Freeberg, you got any thoughts on it? Just...

Chamath Palihapitiya 41:26 Uh, no, I, I don't have, like, thoughts. I, I think, you know, we're kind of early innings. I do think there's, like, new categories of media that none of us are really considering today. Like, traditional media, as I've mentioned in the past, is like, centrally produced and then broadly consumed. And I think that there's models of media that are gonna emerge that are gonna create new business categories or new business models and, and also new media categories that are all about kind of distributed production and not necessarily, like, central production, distributed consumption. So that, that kinda changes things quite a bit, and I think maybe this is gonna start to open that door a bit. One of the things I, 'cause I thought about this and I, I mentioned this in the past where I'm like, everyone's gonna make their own movie, their own video game, their own music, but there is this notion of, like, shared cultural context. Like, everyone wants to talk about, you know, how did the 49ers do this weekend or did you guys see that show Adolescence? Did you guys... Like, we wanna have a conversation about some shared stories. That's the, the basis of kind of societal interaction and memetics. So, I think, like, there are elements of this being the beginning of the enabling tools, but I don't think we've actually seen what's gonna happen, which is how do you take one story...... and then create a distributed way of consuming that story, where everyone experiences and consumes it differently. So I do think, like, this notion, it's like, "Hey, everyone is making fun of Sam." Or does some... Like, maybe there's some cultural context about Sam Altman-

Jason Calacanis 42:49 It's possible, yeah.

Chamath Palihapitiya 42:49 ... that we all share. And then we're all, like, engaging with Sam Altman in different ways, you know? So, so I think, like, there's, we're very early and we don't yet know kind of how it's all gonna play out. But I think that's really critical to, to keep in mind-

Jason Calacanis 43:00 It's interesting you bring this up.

Chamath Palihapitiya 43:01 ... that we're still like getting there.

Jason Calacanis 43:02 It is, something is lost because we used to all talk about the latest Tarantino movie or the latest, you know, Sopranos episode. We don't do it anymore. And I, I have to-

Chamath Palihapitiya 43:12 Well, we do share stuff. We do talk about Tweets and stuff. And, you know, there's other forms of media-

Jason Calacanis 43:15 Yeah. In group chats.

Chamath Palihapitiya 43:16 ... that we share.

Jason Calacanis 43:16 But it's, it's not like it used to be where 30, 40 million people would see Raiders of the Lost Ark and it would be the discussion of the summer or whatever it is. And so I, I literally bought 20 tickets to the new Paul Thomas Anderson, One Battle After Another-

Chamath Palihapitiya 43:31 Mm-hmm.

Jason Calacanis 43:31 ... just so I could have a conversation (laughs) with 20 friends about the new PTA. Uh, and so I think people are longing for this shared experience.

Chamath Palihapitiya 43:39 Who?

Jason Calacanis 43:40 Paul Thomas Anderson, he did the Master, The World Is Blood.

43:41 Never heard of him.

43:42 Just-

Chamath Palihapitiya 43:43 There Will Be Blood, greatest film ever.

Jason Calacanis 43:44 One of the great, I know that, yeah.

Chamath Palihapitiya 43:45 Chemof-

Jason Calacanis 43:45 He's top five director of all time, but I know you don't care about culture, um, but ...

43:50 (laughs)

David Friedberg 43:50 Is he like, is he like Michael Bay?

Jason Calacanis 43:53 I would... No. (laughs)

David Friedberg 43:54 (laughs)

Jason Calacanis 43:55 Actually, Michael Bay makes things that go boom.

43:57 (laughs)

43:57 Paul Thomas Anderson is gonna make, makes things that make you go, "Hmm."

David Friedberg 44:00 Michael Bay, Michael Bay is super cool. Fun to hang out with, fun to party with.

Jason Calacanis 44:03 Yeah. Why... Okay, well way to bring it back to you.

Chamath Palihapitiya 44:05 (laughs)

Jason Calacanis 44:05 Um, hold on, you dropped a name here, Chemother- is... I don't know Paul Thomas Anderson, but it was a heck of a film. Ask Sacks. Sacks is actually very cultured when it comes to cinema. Did you see it yet, Sacks?

44:17 I have not seen it yet, no.

44:18 It's, it's of the moment and it's-

Chamath Palihapitiya 44:22 What did you say?

Jason Calacanis 44:22 ... like really interesting.

44:23 I heard it was anti-conservative. So is this-

44:27 Oh, really?

44:28 ... some left-wing take?

44:29 No, it kind of mocks the left and the right.

David Friedberg 44:32 (laughs)

Jason Calacanis 44:32 Okay.

44:32 It's kind of mocking both extremes. You'd love it. I think you'll very much appreciate it.

44:35 Okay. All right, I'll check it out.

44:36 Yeah, yeah. Check it out.

44:37 Hey, I have an idea. Why don't we find a topic that's interesting to talk about?

44:40 Yeah. Okay, great.

David Friedberg 44:41 (laughs)

Jason Calacanis 44:41 Well that's uh, if you contributed to the docket or showed up on time maybe we could do that, um, so...

44:46 (laughs)

David Friedberg 44:47 Unbelievable.

Jason Calacanis 44:47 Just so you know the inner workings right now-

44:49 Just a thought.

44:49 There's a little resentment in the group because one of us decides to change the time of the pod for four weeks in a row and then show up half an hour late. I won't say which person that is, Sacks. Uh, Sacks. But here's an interesting topic, some red meat for you. DeepSeek, the Chinese

Jason Calacanis 45:04 LLM just dropped their latest model, 3.2 EXP. It's faster, it's cheaper, and uh, it has a new feature called DSA, DeepSeek Sparse Attention, which makes it faster to do, uh, training and inference at larger tasks. The key takeaway is, it can reduce API costs by up to 50%. The new model charges $0.28 per million inputs, $0.42 per million outputs. Claude, which is a leading model from Anthropic that a lot of developers use, a lot of startups use, is like $3.15, so 10 times, 35 times more expensive. Obviously people are cutting their prices pretty quick. But, uh, Sacks, this is your wheelhouse as our czar of crypto and AI for the United States of America, what are your thoughts here on the continued execution of the Chinese government with DeepSeek?

45:55 Well, I want to hear Freeberg's thoughts on this because he was paying attention to this, weren't you?

Chamath Palihapitiya 45:59 Yeah, I mean, I think there's a total re-architecture underway and we're at the earlier stages of cost per token in terms of dollar and energy. My understanding is there's actually a lot of work going on with US labs right now on a similar kind of track that's gonna result in similar results. Maybe they're a little bit ahead of the curve. But we should really pay attention to the curves. I think, you know, what do the models say in terms of energy demand, in terms of cost per token, if these architectural changes really do drive down 10X, 100X, 1,000X, 10,000X, um, over the coming months.

Jason Calacanis 46:33 And this is open source, so just so everybody understands, it's available on AWS, it's available on GCP, at least 3.1 is. I don't know if 3.2 is available there now. But I'm hearing from a lot of startups, I don't know if you're hearing this in the field, Chemof-

46:46 Mm-hmm.

46:46 ... that they're testing it and playing with it, in some cases using it because it's, uh, so much cheaper. Are you seeing that?

David Friedberg 46:52 We are a top 20 consumer of Bedrock, so let me tell you what it looks like on the ground. We redirected a ton of our workloads to KimiK2 on Grok, because it was really way more performant, and frankly, just a ton cheaper than OpenAI and Anthropic. The problem is that when we use our coding tools, they route through Anthropic, which is fine because Anthropic is excellent, but it's really expensive. The difficulty that you have is that when you have all this leapfrogging, it's not easy to all of a sudden just like, you know, decide to pass all of these prompts to different LLMs because they need to be fine-tuned and engineered to kind of work in one system. And so like, the things that we do to perfect cogen or to perfect back propagation on Kimi or on Anthropic, you can't just hot swap it to DeepSpeak, all of a sudden it comes out and it's that much cheaper. It takes some weeks, it takes some months. So it's a, it's a complicated dance and we're always struggling as a consumer, what do we do? Do we just make the change and go through the pain? Do we wait on the assumption that these other models will catch up? So-

Jason Calacanis 48:10 Yeah.

David Friedberg 48:11 It's, it's actually-

Jason Calacanis 48:12 People are making-

David Friedberg 48:12 It's a very hard-

Jason Calacanis 48:13 People are making tools now-

David Friedberg 48:15 That, and by the way, I can't just go to my engineers-

Jason Calacanis 48:16 ... to, to make it easier to switch between them.

48:18 Yes. Yeah, actually-

David Friedberg 48:18 No, and like, you know, this weekend a, a different company with a huge model came to us and gave us the preview of their next gen model. Okay, so, and it's incredible. But then when I sit on Monday morning with my team and I'm like, "Okay, what do we do?" We don't know what to do. Do we cut it? Do we move over and say, "Great, we'll refactor all these workloads to run on, on this new model?"... it's a- it's a really hard problem, and it's getting worse the more complicated tasks that we undertake.

Jason Calacanis 48:48 Okay. And just for people who don't know, Kimi is made by Moonshot AI, that's another Chinese startup in the space. Sak, your thoughts?

David Sacks 48:55 Well, I think this is actually a really interesting topic, this topic of open source. I'm a big fan of open source software because it's a- it's a check on the power of big tech, in a way. What we've seen in the past, in the history of technology is that these major categories end up getting dominated by one or two big tech companies, and they have all the power and control. And open source provides an alternate path, right? Because the community of open source developers just puts things out there, and then you can take it and run it on your own hardware. And you're not dependent, right? It's a path to sort of software freedom, if you will. So, so far, so good. I think the thing that is now tricky about this is that all the leading open source models are from China these days. China has made a really big push on open source. Obviously, DeepSeek is an open source Chinese model, that was the first big one. Kimi is one, Qwen from Alibaba. And so I think that if you want the US to win the AI race, then we're all kind of, of two minds about this. On the one hand, it's good that there are open source alternatives to the closed source proprietary models. On the other hand, they're all coming from China. Now, there were some American efforts that have been important. So Meta, most notably, has invested billions of billions of dollars in LLaMA. But the release of LLaMA 4, I think, was considered disappointing by a lot of people, and now there's statements by Meta that they might be backing away from open source and just going proprietary. OpenAI released an open source model, but it's nowhere near their frontier. And there are some startups that are trying. So there's one called Reflection that looks promising, it's developing an open source American model. But so far, this is maybe the one area in AI where the US is behind China, is this sort of open source models. I'd say every other part of the stack, closed models, chip design, chip manufacturing, semiconductor manufacturing equipment, every other part of the stack, even data centers, I would say we're- we're ahead. But this one area of open source is a little bit concerning.

Jason Calacanis 50:58 Interestingly, Saks, the two things of note is OpenAI, who the "Open" was originally that they were supposed to do open source. So that's kind of hilarious. But the second is that Apple, which is the furthest- furthest behind of everybody, they have a really interesting open source model. So when you're behind, like Apple is or the Chinese were, you're open, you're- you do open source. And when you're ahead, like OpenAI became with ChatGPT, you close it down. But watch that, uh-

David Friedberg 51:26 By the way, can I- can I tell you what's gonna-

Jason Calacanis 51:27 What is it called? Open ELM? Open E-L-M, yeah. Efficient language models from Apple. Keep an eye on that one.

David Friedberg 51:32 Can I tell you what's gonna make this open source-closed source battle even worse? Because effectively what this is, is the US versus China. The US is closed, and China is open, at least at the scaled models that work. The problem-

David Sacks 51:45 But that doesn't have to be the case, right? Because we could release open models too.

David Friedberg 51:48 You're right. No, no, no, you're right. I'm just saying, today, if you look at the conditions on the field, the closed source, highly performant models are American. The open source, highly performant models are Chinese. And you would say, "Okay, well, what is the next downstream thing?" It's what Friedberg mentioned, which is the energy and the cost of generating these output tokens. And I talked to somebody yesterday who runs a huge energy business. And I have to tell you, it's not in a good place, meaning, you saw e- I think this week where the residents of Indianapolis were able to reject or get their city to reject a billion-dollar data center that Google was going to build near Indianapolis, largely because of concerns of price inflation around electricity. And what this energy CEO told me is, "Look, the next five years are baked. And if we don't find some compelling solves," and I'll tell you what the two ideas were, "But if we don't find some compelling solves, electricity rates will double in the next five years." Now, if you think about how then consumers will view the use of AI, and then if you think about companies like us and others trying to use the cheapest version so that we are minimally impacting the downstream cost of these things, because it will become an energy problem, this is a very complicated thing. Now, his idea, and it's a huge PR crisis, because if you want to take big tech, which is already viewed negatively, and make their perception even worse, if you start to finger point to them and say, "These guys are the reason my electricity costs have doubled in the last five years," that is no bueno for them. And they need to find an off-ramp ASAP.

Jason Calacanis 53:30 It's a bet-

David Friedberg 53:30 So look, 'cause what are the-

Jason Calacanis 53:31 ... because you're saying-

David Friedberg 53:32 What are the off-ramps?

Jason Calacanis 53:32 ... your energy is doubling-

David Friedberg 53:33 What are the off-ramps?

Jason Calacanis 53:34 ... and this could take your jobs, right?

David Friedberg 53:35 Yeah, it's terrible.

Jason Calacanis 53:36 Whether you believe that's true or not, that is the perception of the public.

David Friedberg 53:40 There are two off-ramps. There are two off-ramps that he suggested, which I think are worth considering. Off-ramp number one is what's called a cross subsidy, which is essentially to say that they pay a rate card, which they can absorb with all their free cash flow, materially higher than-

Jason Calacanis 53:57 Mm.

David Friedberg 53:57 ... what other rate payers would pay in that geographic area. So the homeowner, his or her electricity costs stay flat to down. The data center costs are higher, and it's the Metas, the Googles, the Apples, the Amazons who have hundreds of billions of free cash, they absorb it. That's- that was idea number one. And idea number two is to start to set up some mechanism so that they can install things like batteries at every single home in and around these data centers to allow those homes to have a better chance of actually, um, absorbing some of this inflation without having to pay it.

Jason Calacanis 54:34 That's a really good idea. And this is playing out, Saks, in Virginia in a major way, because that's where data center alley is, and 40% of the energy in Virginia now is going to data centers. This is becoming acute. So what- what are your thoughts here, Zar?

David Sacks 54:48 Well, Christopher and I spoke to this pretty well at the All In Summit in terms of what we have to do. I mean, there's no question that AI is gonna create a huge need for power over the next five or ten years.I think on a five to 10 year timeframe, the answer is probably nuclear, or at least that's a big part of it. But nuclear takes at least five years. Within the next five years, it's probably gas, you know, natural gas. But the issue there is there's a huge backlog for gas turbines, basically the engines that burn the gas to create power, and there's, like, a two to three year backlog for those to spin those up. So the question is, what do you do in the next few years? And I think Chris Wright talked to this, and I've heard this from other energy executives, which is we just need to squeeze more out of the grid. If we were to shed just 40 hours a year of peak to, say, backup generators, diesel, things like that, you could get an extra 80 gigawatts out of the grid. This is what one energy executive told me.

David Friedberg 55:42 Hm.

David Sacks 55:42 The reason is because they build the grid and they have regulations on it based on the peak, right, which is basically the coldest day in winter or the hottest day in summer. And the same way that you, you know, you build your church for Easter Sunday, the rest of the year it runs at 50%, same thing with the grid. And so if they could just reduce the- the peak 40 hours, if they could shed that load to backup, to generators, to diesel, things like that, then they could run the grid to squeeze an extra 80 gigawatts out of it. And I think that's the bridge over the next few years that we need to then get a lot more gas and then eventually some nuclear as well. But unless you wanna keep talking about electricity, I think there's some other things to talk about on the open source 'cause I think that's a pretty interesting topic actually, and if, can we just go back to that?

David Friedberg 56:30 Well, I mean, Virgin- Yeah, go further. Yeah, yeah, yeah. Well, yeah, I mean- I was- I was just trying to paint the case that my- No, no. ... economic model for going to open source is better because I can't pay $3 in output token and then also pay for all this-

David Sacks 56:41 Yeah, actually I want to, Chamath, I wanna ask you, when you're running, like, Kimmy or something like that, so I think it would be good just to explain to the audience how this works 'cause I think there's a lot of confusion about what it means to be an open source model. A lot of people think that when a Chinese company publishes one of these models, it's still somehow theirs.

David Friedberg 56:59 No.

David Sacks 56:59 But the reality is-

David Friedberg 57:01 Yeah, yeah, okay, yeah.

David Sacks 57:01 ... once it's published, it's no longer theirs.

David Friedberg 57:03 Yeah.

David Sacks 57:03 It belongs to anyone who wants to take that code. And you're not running that on a Chinese cloud or something like that.

David Friedberg 57:08 No.

David Sacks 57:08 The data's not going back to China.

David Friedberg 57:10 No, not in its-

David Sacks 57:10 You're taking that model and you're running it on your own infrastructure, right?

David Friedberg 57:14 100%.

David Sacks 57:15 Can you just explain this?

David Friedberg 57:16 Yeah, so when I first started EightyNinety, my only solution was, uh, Bedrock, which is a service that Amazon provides that allows you to essentially get inference as a service, right? So as we are building our product and we need inference and we need inference tokens-

David Sacks 57:32 Mm-hmm.

David Friedberg 57:33 ... Bedrock basically handles everything. So it's- it's what AWS is but for this vertical of AI, right? So they have the servers. These are in American data centers. They're managed by Americans, and what they do is they take a handful of models and they make sure that they can support usage of those models. That was how we started. But as with everything, we have to manage our costs and our operating profile, and so we're always looking for are there other models and other places other than Amazon that can service our needs, because in fairness, Amazon is very expensive. So a different company that I helped get off the ground, Groq with a Q, they have a cloud, and what they've been doing is they've been working with initially LLaMA, then they worked with OpenAI to bring their open source model, but they also brought online a couple of these Chinese models. And what they do, exactly as you said, Sax, is they take the source code, they basically implement that-

David Sacks 58:36 They fork it. They fork it.

David Friedberg 58:37 They fork it.

David Sacks 58:37 Yeah.

David Friedberg 58:38 And- and now it's implemented domestically on American soil by Americans inside of an American data center. So there's, China gave us kind of the l- the way, the roadmap, if you will, the architectural plans, but we as in, you know, the American company, in this case Groq, built the house and then launched it. And so now we as EightyNinety basically made a cost decision to move to this open source model because it was just materially cheaper.

David Sacks 59:04 Right, and what Groq with a Q will give you, uh, you're the application company, EightyNinety is-

David Friedberg 59:08 They're like Amazon for us. They're like an AWS.

David Sacks 59:10 ... they'll give you an API.

David Friedberg 59:11 Exactly.

David Sacks 59:11 So the same way, if you wanna use a closed model like OpenAI or, you know, ChatGPT, they'll give you an API. You submit prompts, they give you answers, basically tokens in-

David Friedberg 59:19 Correct.

David Sacks 59:20 ... tokens out.

David Friedberg 59:21 Correct.

David Sacks 59:21 What- what Groq does is they will take this open source model, run it on its own infrastructure, and then give you the API so that you can then get tokens in, tokens out-

David Friedberg 59:29 Exactly.

David Sacks 59:29 ... through their API.

David Friedberg 59:31 So for me-

David Sacks 59:32 So, and- and- and-

David Friedberg 59:32 ... as a consumer, it reduces us to a pure economic decision. Where is it cheaper? And, you know-

David Sacks 59:37 Right.

David Friedberg 59:37 ... it's not dissimilar to the last generation of the internet. You'd run on AWS, but then you'd bid it against GCP, you'd bring in Azure, you'd say who is cheaper because ultimately you're running a database, you know, you're running, I don't know, pick- pick your service, Snowflake.

David Sacks 59:52 Right.

David Friedberg 59:52 It didn't really matter where it was, you were just really trying to find the cheapest vendor.

David Sacks 59:56 Right. Now here- here's- here's what's compelling about it. So first of all, like you said, it's cheaper to just run it on your own infrastructure if you know what you're doing. Also, enterprises like it because it's more customizable and there's gonna be a lot of fine tuning of these open source models for specific applications.

David Friedberg 1:00:11 100%.

David Sacks 1:00:11 And enterprises frequently want to run these models on prem in their own data centers because they wanna keep their own data on their own infrastructure. But now the challenge is you've got these models that they're no longer Chinese. They've been forked, it's an American company, but they originated in China.

David Friedberg 1:00:28 That's right.

David Sacks 1:00:28 And they could be running on some critical infrastructure and that, you know, that- that does raise issues. I mean, do- what- what is Groq doing, I guess, to, like, test whether these models are safe, whether they could be backdoored? I mean, how do they-

David Friedberg 1:00:41 Yeah, they-

David Sacks 1:00:41 ... think about that?

David Friedberg 1:00:42 They- they have an entire pipeline of stuff that they do, the details of which I- I don't exactly know 'cause I've not asked exactly what they run through. But yeah, I thi- They have their big rubbing this... They go through an incredibly rigorous...

David Sacks 1:00:52 They basically do, like, safety testing to make sure...

David Friedberg 1:00:54 Absolutely.

David Sacks 1:00:54 So, I mean, 'cause a lot of people think that if you run a Chinese model, the data must be going back to China, but it's not if it's being run on your own infrastructure. I think the issue is more theoretical that, like, could a Chinese model somehow be backdoored?... with an exploit or vulnerability somehow, and-

David Friedberg 1:01:08 Well, if you take a compiled version, sure. But if you (laughs) take, just take the open source and you do it yourself, no.

David Sacks 1:01:13 Right. Well, that's the thing. So I mean a- and if someone did discover a vulnerability, it would get widely shared in the community very, very quickly, and then everyone would patch it.

David Friedberg 1:01:20 I think you can... I think, I think at this point, you can expect that every single major company that is in security, that is in the cloud vendor, and also every single major model-maker, is trying to prove and invalidate how the other models are inferior or bad in some way. And so, that's where the competitive cycle, I think, is really valuable because you do have the best and the brightest computer scientists. Like, you know, yesterday, a certain person, he's Italian, that's how I know him, this leading security guy at one of these model-makers, just talking to him, he's in charge of the security stuff, they're hammering everything to try to figure out whether there's a, there's a vulnerability because it slows these other folks down. So that made me feel quite positive that we haven't seen anything yet on any of these models, which is to say that generally, everybody has actually been a pretty good actor so far.

Jason Calacanis 1:02:13 The other piece to this puzzle, Sacks, is there's a lot of crypto-distributed projects. The one I've been working on is Bittensor and TAO. I think you've also done a deep dive on this, Chamath, and I'm a partner in a, you know, an emerging crypto fund called Stillcore Cap. And we're buying TAO, and we're looking at Bittensor and all of these subnets that are being made to do distributed computing, and this is a big push for Apple as well. A lot of these M4 Mac Minis you've seen out there, their plan is to put all of this, uh, all these LLM stacks on people's personal computers and then distribute them and have this, like, steady at home and an incentive layer, and I think that's gonna be a big part of this. People are not gonna want their AI jobs to go to the cloud necessarily. They might wanna do it locally, and I think that's where the phones and all this silicon is going with, um, you know, Apple's big focus on it. It's gonna be-

David Sacks 1:03:06 Yeah. Well, I think-

Jason Calacanis 1:03:07 ... brave new world.

David Sacks 1:03:08 Yeah, you bring up an interesting point. You know, in the early years of this AI revolution, I'm talking about, like, 2023, 2024, I mean, this has started in the last three years, there was this analogy that AI was like nuclear weapons. I mean, you hear the, the doomer crowd, the safety advocates saying this, that, like, AI was this really threatening technology, and they would even say things like GPUs are like plutonium, you know, things like that. And I think that model of the world is just wrong, right? Because what we're seeing is, um... And Justin had- actually had a pretty good line about this, he says, "Nobody needs nuclear weapons. Everyone needs AI." And it's true, like, every consumer, every business is gonna want to run AI, a lot of them are gonna wanna run it on their own infrastructure. Consumers are gonna wanna run it on their own phone, you're gonna have an AI that's highly personalized to you, and so everyone's gonna have AI. It's not like a nuclear weapon where we want to stop all proliferation. AI is a cons- first and foremost a consumer product that is gonna proliferate. And so the question is, bearing that in mind, how do you then create an appropriate response for the national security risks? But this idea that we're just gonna stop AI and only have two or three companies who, who have it, which I think was the view a few years ago among policymakers-

Jason Calacanis 1:04:24 Yeah, it's ridiculous to even think that now.

David Sacks 1:04:25 ... is that they could... Yeah, they, they were thinking in very centralized terms, and I think what we're seeing now is regardless of what certain policymakers might want, it, it's already highly decentralized, right? You've got five major American disclosed source companies, you've got eight major Chinese models, and then you've got everything that's happening with startups-

Jason Calacanis 1:04:46 Yeah.

David Sacks 1:04:46 ... so this is gonna be highly decentralized and-

Jason Calacanis 1:04:49 And verticalized, right? All the Hugging Face models, there are specific ones on images, specific ones for video. Like, it's, it's gonna be super fragmented.

David Sacks 1:04:56 The vast majority of this activity is benign. I mean, that's the thing. These are-

Jason Calacanis 1:04:59 Yeah.

David Sacks 1:04:59 ... business solutions, these are consumer products, these are viral videos. Most of this stuff does not rise to the level of a nuclear weapon or something like that.

Jason Calacanis 1:05:09 This is a good chance for

Jason Calacanis 1:05:11 us maybe to talk about AI regulation. There is, uh, a lot of... And, and maybe we'll get into Wikipedia as well, but there's a lot of states that are starting to look into regulating AI. California SB-53, the Transparency in Frontier Artificial Intelligence Act, is working through the system. It's gonna serve as a template possibly for other states. It was introduced in January as an alternative to the more sweeping bill, the SB-1047. This would require AI developers to conduct extensive safety tests before rolling out the models. It got a lot of pushback from tech, obviously, and Newsom ultimately vetoed it. But this new law focuses only on the most advanced large frontier models that we just talked about, and it requires companies to release a framework for knowing how they're approaching safety issues, including standards and best practices, whatever that means, and however safety is defined. These are models, I guess, in this definition, that have half a billion in annual revenue. I don't know how they pick that out. But it requires these companies to release transparency reports before deploying. So they're gonna be like the App Store, I guess, if this gets through, to approve frontier models with updates. Oh, that sounds great. You don't gotta go to the government to release a new model. Your thoughts, David Sacks-

David Sacks 1:06:33 Yeah, I mean, look-

Jason Calacanis 1:06:33 ... American czar of AI.

David Sacks 1:06:35 I think it's very concerning. There's a, a regulatory frenzy happening at the states right now. Just to be very clear about what happened in California, there was a original bill, SB, was it 1047, that was incredibly obtrusive, that, uh, Newsom vetoed that, but now they've passed a new one, which is called SB-53, and like you said, it's not as burdensome and intrusive as the previous version. It focuses on making frontier AI models report safety risks-They're supposed to report if they have-

Jason Calacanis 1:07:10 Can I stop you there for a sec?

David Sacks 1:07:12 Yeah.

Jason Calacanis 1:07:12 What is the safety risk they're gonna be required to report? That's... It, it's such a nebulous-

David Sacks 1:07:17 Exactly.

Jason Calacanis 1:07:17 ... term. What safety what? That it's gonna jump out of the computer and murder me? Safety that it's gonna give me the wrong answer? Safety...

David Sacks 1:07:22 They're supposed to... They're supposed to-

Jason Calacanis 1:07:24 What?

David Sacks 1:07:25 ... report on potential catastrophic harms related to cyber attacks, bio threats, model autonomy, which is the Terminator scenario. And they're supposed to-

Jason Calacanis 1:07:37 Okay.

David Sacks 1:07:38 ... let the government know if there's a safety incident. I mean, look, all these things are quite nebulous right now.

Jason Calacanis 1:07:43 So it's almost like a nuclear power plant having to report if there was an incident. Are any of these, in your mind, thoughtful?

Chamath Palihapitiya 1:07:51 Well, J Cal, let me just-

Jason Calacanis 1:07:52 Like a cyberattack?

Chamath Palihapitiya 1:07:52 Let me just... Let me just interrupt for a second.

Jason Calacanis 1:07:54 Yeah, jumping. Please.

Chamath Palihapitiya 1:07:54 I think it's the equivalent of saying, "I need any factory to report to me on the risk of something, of a nuclear explosion," even though the factory might not be working with nuclear material.

Jason Calacanis 1:08:06 (laughs)

Chamath Palihapitiya 1:08:06 You see, it, it... Like, it, it uses this terminal-

Jason Calacanis 1:08:08 That's what I'm trying to get at here. I'm confused.

Chamath Palihapitiya 1:08:10 Yeah. I mean, it, it effectively uses terminology that makes everyone nod their head and say, "Oh, yeah, that makes sense. That's a good idea," when the reality is that the legislators have actually no concept of what they're talking about. They have no concept of how these models are built. They have no concept of how they're deployed. And they're using language that they think is inevitably gonna result in giving them ultimately tools and control over a private market system, and that's fundamentally what I think a lot of this comes down to. Think about this issue that's going on with free speech in California, this hate speech bill, SB-771, that's sitting on the governor's desk to be signed right now, where effectively the state of California's administrators have the ultimate say of what is deemed hate speech and not. Which, if you think about it, if they had this bill in Alabama during the civil rights era, there would have never been the ability to have the protests and realize the equal rights that arose from the civil rights movement, because the government would have said, "Those are inappropriate hate speech things that you guys are saying." And we're now putting those same tools in the hands of the legislators. They're going to do the same thing with AI. They're giving onerously powerful tools to the legislators to let them decide what is and isn't appropriate for private market actors when they actually have no sense and no sensibility about what they're talking about.

Jason Calacanis 1:09:25 So-

David Sacks 1:09:25 Yeah, and actually, I think that's a really important point. Just wanna give you some stats on this, this regulatory frenzy that, that's happening. So, all 50 states have introduced AI bills in 2025. There's been over a thousand bills in state legislatures. 118 AI laws have already been passed across the 50 states. The red state proposals for AI, in general, have a lighter touch than the blue states, but everyone just seems to be motivated by the imperative to do something on AI, even though no one's really sure what that something should be.

Chamath Palihapitiya 1:09:56 Exactly.

David Sacks 1:09:57 And there's no real agreement on, like, what all these AI regulations are supposed to do, so they're just making things up.

Chamath Palihapitiya 1:10:02 Or what the risks are.

David Sacks 1:10:03 Or the risks are. (laughs)

Jason Calacanis 1:10:03 Yeah, that's what I'm trying to get at. So, so, so, let me ask you a specific question, though.

David Sacks 1:10:06 Well, yeah. So... We- well, I was gonna finish the point about California.

Jason Calacanis 1:10:09 Okay.

David Sacks 1:10:09 So, so look, California, they've kind of gotten to this point where now it's about reporting on all these safety risks. And if this is all it was, then it would just be basically a bunch of red tape, and it wouldn't be so bad. The problem is that you've got to multiply this by 50 states. You've got 50 different states, each with their own reporting regime, which is gonna be a trap for startups because they've all got to figure this out about what they're supposed to report on, what the deadlines are, who to report to. I mean, this is, like, very European-style regulations. Actually, maybe even worse than the EU, because what... The EU tried to basically harmonize to get to one authority. We're gonna have 50, they're gonna have one. But the other problem is that this is just the camel's nose under the tent. So even in California, Scott Wiener, who's the legislator who did SB-1047, now he did this, he's got a bloc of legislators, and they have 17 more AI regulation bills that they wanna pass. So this is just the beginning. And if you wanna see where this is going, okay, look at Colorado. We should talk about this Colorado bill, because this has already been passed into law, and it's called SB-24-205, Consumer Protections for Artificial Intelligence. It was passed all the way in May of 2024, so it was one of the first to pass, even though they didn't really know what they were trying to regulate. No one's quite sure how to implement it. But what the law does is it bans something they call algorithmic discrimination, okay? And algorithmic discrimination is defined as unlawful differential treatment or disparate impact based on protected characteristics, so things like age, race, sex, disability. If any of those factors drive an AI decision, and it results in a disparate impact, then both the developer of the AI model and the deployer, which means basically the business that's using it, can be in violation of this law, and they can-

Jason Calacanis 1:12:01 Mm-hmm.

David Sacks 1:12:01 ... be prosecuted by the Colorado Attorney General. Let me give you a practical application here.

Jason Calacanis 1:12:05 Please.

David Sacks 1:12:06 So, let's say that you got someone like a mortgage loan officer who's reviewing applications, okay? And let's say they don't even discuss race. There's... It's not on the form, okay? They're just using race-neutral criteria like a credit rating or financial holdings, something like that. If the result of their decision nevertheless had a disparate impact on a particular protected group, its decisions could be found to be discriminatory. And moreover, the developer of that model could be liable, even though their model just gave an answer that, under the circumstances, was truthful. The only way that I see for model developers to comply with this law is to build in a new DEI layer into the models to basically somehow prevent models from giving outputs that might have a disparate impact on protected groups. So we're back to woke AI again. And I think that's the whole point.

Chamath Palihapitiya 1:13:01 Yeah, makes no sense. Yeah.

David Sacks 1:13:02 That's the whole point of this Colorado law.

Jason Calacanis 1:13:04 Well, let's get Chamath in on this discussion. Chamath?

David Friedberg 1:13:06 I think that this is really, really dumb, what's happening.If you have 50 sets of rules, what you will have are some conservative versions of AI. You'll have some progressive-leaning versions of laws. These 50 series of laws will essentially just render this industry impotent and incapable of maximizing itself and, and actually doing what's necessary to drive productivity and GDP on behalf of the country. There is no conceivable way, as Friedberg said, that anybody in Sacramento or Little Rock or, you know, name your state capital, will have the intellectual wherewithal to get to an answer as good as the federal government will and as Sax will, just to be totally honest with everybody. So what should happen here is that there needs to be a complete moratorium, and the federal government should be given the time to figure out what the framework should be so that there is a one-size, one-set of rules. Now, if that doesn't happen and this is allowed to stand, there is a perfect example of where this has happened before, and that is in the car market. Because in the car market, what happened was, there is a complete set of rules in California for emissions that is entirely different than the rest of the country. And you can look and see what it did. Now, that's just two sets of rules, and what those... Hold on, let me finish.

Jason Calacanis 1:14:31 Well, would you argue that could be a good thing?

David Friedberg 1:14:32 Let, let me, let me finish.

Jason Calacanis 1:14:33 Okay.

David Friedberg 1:14:35 And so what these two sets of rules, going from one set of rules to two, what did it do? It drove most of these companies to go towards barely break even or massively money losing. It has been something that the entire industry has been fighting back on for now 10-plus years. Now, can you imagine instead of two sets of rules, you have 50? I think you know what the economic consequences will be. You'll render this entire category incapable of being able to generate any positive economic output.

Jason Calacanis 1:15:09 So I guess the steel man, if we were to make one, is transportation, education, abortion, taxes, alcohol, cannabis, I think I mentioned. Those are all state-

David Friedberg 1:15:20 Cannabis is a poison, and, uh, it is the, the worst thing i- in the world-

Jason Calacanis 1:15:25 Right, but-

David Friedberg 1:15:25 ... for our children.

Jason Calacanis 1:15:26 ... do you... Okay, that's your opinion, great. Uh, but should states have some level-

David Friedberg 1:15:31 Drugs in general are trash.

Jason Calacanis 1:15:32 Oh, okay. We,