All-In PodcastBiggest LBO Ever, SPAC 2.0, Open Source AI Models, State AI Regulation Frenzy
EVERY SPOKEN WORD
150 min read · 30,013 words- 0:00 – 1:53
Bestie intros!
- JCJason Calacanis
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-
- DFDavid Friedberg
Skiff, skiff.
- JCJason Calacanis
... United States of America.
- DFDavid Friedberg
Skiff.
- JCJason Calacanis
From the skiff.
- DFDavid Friedberg
Skiff.
- JCJason Calacanis
It's not... There's no T at the end? It's just skiff?
- DFDavid Friedberg
No T. No T. (laughs)
- JCJason Calacanis
Oh, skiff to my left. Okay.
- DFDavid Friedberg
(laughs)
- JCJason Calacanis
He's in a skiff-
- DFDavid Friedberg
Skiff. (laughs)
- JCJason Calacanis
... doing something with his BlackBerry-
- DFDavid Friedberg
(laughs)
- JCJason Calacanis
... 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-
- DFDavid Friedberg
You guys see that
- CPChamath Palihapitiya
announced a PT and a fitness test for the generals? Could you imagine if Sacks had to pass a PT (laughs) test?
- JCJason Calacanis
Oh my God. (laughs)
- DFDavid Friedberg
(laughs)
- JCJason Calacanis
They should totally make it for the administration. "Sacks, we need you to do, uh, one pushup, Sacks. One."
- CPChamath Palihapitiya
What do they do if you don't pass? They remove you from your...
- DSDavid Sacks
You probably get a cure period.
- JCJason Calacanis
We should do a pushup contest. That would be great. Winner take all. How many pushups can you do, Freiberg?
- DFDavid Friedberg
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.
- JCJason Calacanis
What does that mean?
- DFDavid Friedberg
So, 20 for me is much harder than 20 for you, Jason.
- JCJason Calacanis
(laughs) I mean, 20 is easy for me at this point, but yeah.
- DFDavid Friedberg
Yeah, you're like Bilbo Baggins. It'll take you, like, eight seconds to put on 20.
- JCJason Calacanis
(laughs)
- CPChamath Palihapitiya
Bilbo Baggins. (laughs)
- 1:53 – 17:42
EA acquired for $55B in biggest LBO ever, why PE is in trouble
- DSDavid Sacks
- JCJason Calacanis
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?
- DFDavid Friedberg
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.
- JCJason Calacanis
Wow.
- DFDavid Friedberg
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.
- JCJason Calacanis
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?
- CPChamath Palihapitiya
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.
- JCJason Calacanis
Why is that? Why? Explain to me.
- CPChamath Palihapitiya
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.
- JCJason Calacanis
Yep.
- CPChamath Palihapitiya
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.
- JCJason Calacanis
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.
- DFDavid Friedberg
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.
- CPChamath Palihapitiya
Yeah.
- DFDavid Friedberg
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-
- JCJason Calacanis
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.
- DFDavid Friedberg
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.
- JCJason Calacanis
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-
- DFDavid Friedberg
So look, I think, um-
- JCJason Calacanis
... never goes public, what impact does that have on people's retirement accounts?
- DFDavid Friedberg
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-
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
... it doesn't matter what asset class it is, the returns go to zero. And so we've seen this in venture capital.
- JCJason Calacanis
Yep.
- DFDavid Friedberg
We've seen this in hedge funds. And we're now gonna see this in private equity. And-
- JCJason Calacanis
Too much money going in, to be clear what you're saying, Chamath-
- DFDavid Friedberg
Yeah, and, and-
- JCJason Calacanis
... means you kind of-
- DFDavid Friedberg
Well, there's just, there's no-
- JCJason Calacanis
... index it, right?
- 17:42 – 27:41
IPO market, SPAC 2.0
- JCJason Calacanis
the IPO market today would we say?
- DFDavid Friedberg
It's completely dysfunctional.
- JCJason Calacanis
How dysfunctional is the IPO market? (laughs) Let me say it another way. And, and, and, and-
- DFDavid Friedberg
Well, we have to-
- JCJason Calacanis
How do we correct that? And this, this leads into your new SPAC.
- DFDavid Friedberg
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-
- CPChamath Palihapitiya
Spotify would be in that group as well, yeah.
- DFDavid Friedberg
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.
- CPChamath Palihapitiya
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?
- DFDavid Friedberg
Yeah. So, you know, Nick, maybe you can find it. You know that image of the Raptor engines?
- CPChamath Palihapitiya
Yes.
- DFDavid Friedberg
N-
- CPChamath Palihapitiya
Super complex to being elegantly simple.
- DFDavid Friedberg
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.
- CPChamath Palihapitiya
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.
- DFDavid Friedberg
And founder shares that were basically-
- CPChamath Palihapitiya
And, and, and there was founder shares, but, like-
- DFDavid Friedberg
... zero.
- CPChamath Palihapitiya
... 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-
- DFDavid Friedberg
No.
- CPChamath Palihapitiya
... desire for that?
- DFDavid Friedberg
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.
- CPChamath Palihapitiya
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.
- DFDavid Friedberg
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-
- CPChamath Palihapitiya
Hmm.
- DFDavid Friedberg
... at a very fair price.
- CPChamath Palihapitiya
And you-
- DFDavid Friedberg
I think that, I think that that's what the Raptor 3.0 version of a SPAC will look like.
- CPChamath Palihapitiya
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.
- DFDavid Friedberg
Well, no, then- then- then meaning then there's no conversion risk, that all the money comes over right from day one.
- 27:41 – 36:01
The AI rollup opportunity
- JCJason Calacanis
my advice.
- CPChamath Palihapitiya
Before we move on-
- DFDavid Friedberg
Sure.
- CPChamath Palihapitiya
... can I just make one comment? And I'd like you guys-
- JCJason Calacanis
About SPACs?
- CPChamath Palihapitiya
... 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.
- JCJason Calacanis
Oh, is he really?
- CPChamath Palihapitiya
Yeah.
- JCJason Calacanis
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.
- CPChamath Palihapitiya
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.
- JCJason Calacanis
Mm.
- CPChamath Palihapitiya
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.
- JCJason Calacanis
Hmm.
- CPChamath Palihapitiya
And so I think there's an opportunity for more buyouts. They're not going to be of the $55 billion scale.
- DFDavid Friedberg
It's worse than that.
- CPChamath Palihapitiya
In what sense?
- DFDavid Friedberg
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.
- CPChamath Palihapitiya
And you're s- sorry, and you're saying you've looked at this-
- JCJason Calacanis
So the first meeting-
- CPChamath Palihapitiya
... you've looked at this with their portfolio companies, Chamath?
- DFDavid Friedberg
No, I've talked to all of them.
- CPChamath Palihapitiya
Yeah.
- DFDavid Friedberg
All of them.
- CPChamath Palihapitiya
With their- with their port- existing portfolio companies?
- DFDavid Friedberg
Yes. Yes.
- CPChamath Palihapitiya
Okay. Yep.
- DFDavid Friedberg
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.
- CPChamath Palihapitiya
Yes.
- DFDavid Friedberg
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.
- CPChamath Palihapitiya
Right.
- 36:01 – 38:27
Sacks joins the show!
- JCJason Calacanis
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?
I was in some meetings. But actually, no, I was just, uh, buying some domain names.
Oh, you are? Did you get-
Yeah.
... mahalo.com? It's available for $1 million.
I got, I got the Mahalo for the bargain price of $1 million.
I mean, that's what it's worth.
Just $1 million.
Go to mahalo.com, I'm selling it for a million. I mean, it's-
- CPChamath Palihapitiya
Are you really?
- JCJason Calacanis
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.
- DFDavid Friedberg
It rhymes with mahalo. I might give you an equity swap for that. I'll give you, uh... Yeah.
- JCJason Calacanis
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-
- DFDavid Friedberg
Wait, I'm sure, I'm surprised Benioff hasn't tried to ask you for it.
- CPChamath Palihapitiya
Yeah, totally. He always says that.
- JCJason Calacanis
You know I should do, I was just texting with Benioff.
- CPChamath Palihapitiya
Give it to him as a gift, dude. He's a great guy, just give it to him.
- JCJason Calacanis
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.
- CPChamath Palihapitiya
Oh, he would, he would, he would do that. Oh, for the next 20? (laughs) Oh my gosh.
- JCJason Calacanis
Yes. That's 80 weeks.
- CPChamath Palihapitiya
Imagine having J Cal for 80 weeks, oh my God, as a houseguest.
- JCJason Calacanis
J Cal for 80 weeks as a houseguest.
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
He can be there. He can be there. It doesn't matter.
- CPChamath Palihapitiya
I know.
- DFDavid Friedberg
I'll give him the money so he buys it. Don't worry.
- CPChamath Palihapitiya
He'll buy it, he'll buy it.
- JCJason Calacanis
Don't it to a non-profit foundation, then you can take a tax write-off.
- DFDavid Friedberg
That's right.
- JCJason Calacanis
Lookit, everybody's... When I have something to sell-
- 38:27 – 45:04
OpenAI and Meta launch short-form video apps: "AI Slop" or the future of content?
- JCJason Calacanis
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...
- CPChamath Palihapitiya
(laughs) The bull. (laughs)
- DFDavid Friedberg
Gravano, what a pull.
- JCJason Calacanis
Sammy the Bull. I just like it for him.
- DFDavid Friedberg
What a deep pull, Sammy the Bull Gravano.
- CPChamath Palihapitiya
There we go.
- JCJason Calacanis
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-
- DFDavid Friedberg
I think the, the closest things-
- JCJason Calacanis
... to training data? What do you think?
- DFDavid Friedberg
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.
- JCJason Calacanis
Sure.
- DFDavid Friedberg
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.
- JCJason Calacanis
For, for IP, right?
- DFDavid Friedberg
Well, it just said, "Use me," but I couldn't validate that I was me, and so they wouldn't let me...
- JCJason Calacanis
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.
I haven't played with it yet, so-
Oh.
... sorry for me to say.
Okay. Freeberg, you got any thoughts on it? Just...
- CPChamath Palihapitiya
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-
- JCJason Calacanis
It's possible, yeah.
- CPChamath Palihapitiya
... 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-
- JCJason Calacanis
It's interesting you bring this up.
- CPChamath Palihapitiya
... that we're still like getting there.
- JCJason Calacanis
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-
- CPChamath Palihapitiya
Well, we do share stuff. We do talk about Tweets and stuff. And, you know, there's other forms of media-
- JCJason Calacanis
Yeah. In group chats.
- CPChamath Palihapitiya
... that we share.
- JCJason Calacanis
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-
- CPChamath Palihapitiya
Mm-hmm.
- 45:04 – 1:05:11
Open source AI: DeepSeek's new model, pressure on US AI industry
- JCJason Calacanis
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?
Well, I want to hear Freeberg's thoughts on this because he was paying attention to this, weren't you?
- CPChamath Palihapitiya
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.
- JCJason Calacanis
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-
Mm-hmm.
... 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?
- DFDavid Friedberg
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-
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
It's, it's actually-
- JCJason Calacanis
People are making-
- DFDavid Friedberg
It's a very hard-
- JCJason Calacanis
People are making tools now-
- DFDavid Friedberg
That, and by the way, I can't just go to my engineers-
- JCJason Calacanis
... to, to make it easier to switch between them.
Yes. Yeah, actually-
- DFDavid Friedberg
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.
- JCJason Calacanis
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?
- DSDavid Sacks
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.
- JCJason Calacanis
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-
- DFDavid Friedberg
By the way, can I- can I tell you what's gonna-
- JCJason Calacanis
What is it called? Open ELM? Open E-L-M, yeah. Efficient language models from Apple. Keep an eye on that one.
- DFDavid Friedberg
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-
- DSDavid Sacks
But that doesn't have to be the case, right? Because we could release open models too.
- DFDavid Friedberg
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.
- JCJason Calacanis
It's a bet-
- DFDavid Friedberg
So look, 'cause what are the-
- JCJason Calacanis
... because you're saying-
- DFDavid Friedberg
What are the off-ramps?
- JCJason Calacanis
... your energy is doubling-
- DFDavid Friedberg
What are the off-ramps?
- 1:05:11 – 1:15:34
State AI regulation frenzy: States' rights vs Federal control, overregulation
- JCJason Calacanis
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-
- DSDavid Sacks
Yeah, I mean, look-
- JCJason Calacanis
... American czar of AI.
- DSDavid Sacks
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-
- JCJason Calacanis
Can I stop you there for a sec?
- DSDavid Sacks
Yeah.
- JCJason Calacanis
What is the safety risk they're gonna be required to report? That's... It, it's such a nebulous-
- DSDavid Sacks
Exactly.
- JCJason Calacanis
... 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...
- DSDavid Sacks
They're supposed to... They're supposed to-
- JCJason Calacanis
What?
- DSDavid Sacks
... report on potential catastrophic harms related to cyber attacks, bio threats, model autonomy, which is the Terminator scenario. And they're supposed to-
- JCJason Calacanis
Okay.
- DSDavid Sacks
... let the government know if there's a safety incident. I mean, look, all these things are quite nebulous right now.
- JCJason Calacanis
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?
- CPChamath Palihapitiya
Well, J Cal, let me just-
- JCJason Calacanis
Like a cyberattack?
- CPChamath Palihapitiya
Let me just... Let me just interrupt for a second.
- JCJason Calacanis
Yeah, jumping. Please.
- CPChamath Palihapitiya
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.
- JCJason Calacanis
(laughs)
- CPChamath Palihapitiya
You see, it, it... Like, it, it uses this terminal-
- JCJason Calacanis
That's what I'm trying to get at here. I'm confused.
- CPChamath Palihapitiya
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.
- JCJason Calacanis
So-
- DSDavid Sacks
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.
- CPChamath Palihapitiya
Exactly.
- DSDavid Sacks
And there's no real agreement on, like, what all these AI regulations are supposed to do, so they're just making things up.
- CPChamath Palihapitiya
Or what the risks are.
- DSDavid Sacks
Or the risks are. (laughs)
Episode duration: 1:29:30
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