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Dalton + MichaelDalton + Michael

Shockingly Good Predictions

Most people focus on predictions that were too optimistic. But some of the most interesting moments in tech are when reality completely blows past expectations. In this episode of Dalton + Michael, the two discuss times when an expectation was off in this way. Topics discussed include the investing outside of Silicon Valley, Sam Altman’s nuclear energy vision, Sam’s hiring advice, and the extent to which customers of a product care more about growth potential than cost savings. Dalton + Michael is brought to you by @Standard_Cap Dalton Caldwell on X: https://x.com/daltonc Michael Seibel on X: https://x.com/mwseibel

Dalton CaldwellhostMichael Seibelhost
Feb 16, 202620mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 0:21

    Big tech isn’t invincible: dominance can flip fast

    1. DC

      Companies like Google could become completely irrelevant.

    2. MS

      Yeah.

    3. DC

      Or they could just become juggernauts even-

    4. MS

      Yeah

    5. DC

      ... more.

    6. MS

      Yeah.

    7. DC

      They're not like institutions that are gonna last no matter what happens. That's what I'm trying to say.

    8. MS

      Yes.

    9. DC

      I think they seem, like, infallible.

    10. MS

      Yes.

    11. DC

      They felt like, I don't know.

    12. MS

      They have to keep winning.

    13. DC

      Yes. [laughs]

    14. MS

      [laughs]

    15. DC

      Yes.

  2. 0:21 – 1:37

    A VC lesson learned: why U.S. markets drive most venture returns

    1. MS

      This is Dalton + Michael. Today, we're gonna talk about predictions that turned out way better than we ever could have imagined, specifically ones that maybe in hindsight look a little bit more obvious, but at the time o- one or both of us didn't quite rock. I remember one of YC's LPs, um, very large LPs, said to me, "Historically, the venture market, something like 97% of returns are generated in the US market." And I remember thinking to myself, like I always do, like, "Eh, that doesn't really align with my current thesis, so I don't believe it." [laughs]

    2. DC

      [laughs] Discard. Opinion discarded.

    3. MS

      [laughs]

    4. DC

      Brr.

    5. MS

      You know, it's a superpower for a startup founder. [laughs]

    6. DC

      Brr.

    7. MS

      I'm embarrassed I didn't realize how good the US was. We're so privileged to live in a market that is kinda just really big.

    8. DC

      Yep.

    9. MS

      That I could just blind myself to my own privilege and be like, "No, it's just as easy to build a billion-dollar company somewhere else." And it's like, is it? No. It's not. Not that you can't do it. It's just not just as easy.

    10. DC

      It's definitely not.

  3. 1:37 – 2:57

    International investing: naivety helped YC back India’s decacorns

    1. MS

      It's not just as easy. What were your thoughts, by the way, back then? 'Cause, like, we invest in a lot of international companies.

    2. DC

      Yeah, we did. Um-

    3. MS

      So, domestic.

    4. DC

      I think-

    5. MS

      Some of them are doing really well.

    6. DC

      Some of them are.

    7. MS

      Yes.

    8. DC

      Like, we, we just had a bunch of Indian companies, um, doing phenomenally well.

    9. MS

      Yeah.

    10. DC

      Like, Groww just went public, which was a really big deal in India.

    11. MS

      Yes.

    12. DC

      So that's a counterexample. But yeah, I think you're right. I think I just didn't know. I think that a lot of folks that are investors are basically specialized finance people.

    13. MS

      Mm-hmm.

    14. DC

      And I don't mean that in a negative way.

    15. MS

      Mm-hmm, mm-hmm.

    16. DC

      But it's... I, I just am stating the truth, which is if you, if you're, like, a stock trader or, like, a private equity person-

    17. MS

      Yeah

    18. DC

      ... I think you're more attuned to this.

    19. MS

      Yes.

    20. DC

      We were just startup founders. There was never a time at our startups that we had to worry about-

    21. MS

      [laughs]

    22. DC

      ... capital markets in India.

    23. MS

      At our US-based startups. [laughs]

    24. DC

      Like, this, this was just... We were just trying to fund smart people.

    25. MS

      But weirdly, I think that's why we got to fund Groww-

    26. DC

      Yes

    27. MS

      ... and Razorpay-

    28. DC

      Yes, yes

    29. MS

      ... and Nisha.

    30. DC

      Yes, yes, yes.

  4. 2:57 – 4:36

    Sam Altman’s early nuclear bet: electricity as the limiting factor

    1. DC

      One thing I remember is right when I was starting at YC-

    2. MS

      Yes

    3. DC

      ... like, the very, very, very beginning-

    4. MS

      Yes

    5. DC

      ... I remember, um... This is when PG was still in charge of everything.

    6. MS

      Mm-hmm.

    7. DC

      I remember sitting down with Sam, who I knew.

    8. MS

      Mm-hmm.

    9. DC

      And Sam was like, "Oh, I'm leaving, and I'm gonna go work on nuclear power. I'm gonna do a nuclear power startup. I've met all the small- smartest reachers- researchers in the world working on nuclear."

    10. MS

      Yes, yes.

    11. DC

      And I remember being like, "Oh, why?"

    12. MS

      [laughs] Yeah.

    13. DC

      And again, I don't mean that in a negative way, like-

    14. MS

      Yeah

    15. DC

      ... as if I knew a lot about it. I'm just like, that's random.

    16. MS

      Yeah.

    17. DC

      Like, didn't you have the, like, social network for boost mobile phones?

    18. MS

      And this was during the, like, gig economy-

    19. DC

      This was like in 2013

    20. MS

      ... hype cycle. Yeah, yeah.

    21. DC

      So in 2013, and he was just like, "Electricity and power is everything."

    22. MS

      Yeah.

    23. DC

      And that it's a total L that, that nuclear got basically banned by governments.

    24. MS

      Yep.

    25. DC

      And that the key to the future is to have unlimited electricity.

    26. MS

      Yeah.

    27. DC

      And I remember, again, not in a negative way, just being like, "Oh." [laughs]

    28. MS

      [laughs]

    29. DC

      Like, like, I think I just filed it away.

    30. MS

      Yeah.

  5. 4:36 – 6:38

    The uncomfortable truth: intelligence and ambition compound over time

    1. MS

      Yeah, just from a zoomed-out perspective. No, I think that's a, that's a really good one. Another one that you bring up that kind of resonates with me is this one around, like, smart people win, and I spend a lot of time thinking about this. I think that we don't talk about this enough, but a lot of the people we interact with were not cool in high school. [laughs]

    2. DC

      I find that hard to believe. [laughs]

    3. MS

      [laughs]

    4. DC

      You're kidding me. Wait, really?

    5. MS

      Uh, we-

    6. DC

      Lot of compensation for that

    7. MS

      ... got the prom king. Yeah, the prom king and prom queen. We-

    8. DC

      [laughs]

    9. MS

      I dare say some of them weren't even cool in college. [laughs]

    10. DC

      Shocking. Shocking.

    11. MS

      And I think that, like, a lot of people were smart, and they worked really hard, and they tried to get good grades, and da, da, da, da, da, when for a long time it wasn't clear the payoff was right in front of them. But then, like, you come to the Bay Area, and it does feel like this weird community of smart people winning. It has all these awkward side effects, like probably the general quality of sports is less good here. [laughs] Or there are other interesting side effects, but, like, you do feel something different about this place. So let's just have a little bit more. Like, what, what was the-

    12. DC

      I think-

    13. MS

      ... kind of non-obvious thing here?

    14. DC

      I feel like what I was taught was, you know, A, there's no such thing as intelligence. Um-

    15. MS

      Hmm. Okay.

    16. DC

      You know, like, hey, let's just, let's...

    17. MS

      Hmm.

    18. DC

      It doesn't exist.

    19. MS

      Okay.

    20. DC

      And then number two, you know, smart people, whatever, but they're just nerds. And ultimately-

    21. MS

      Yeah

    22. DC

      ... everyone is special in their own way.And, you know, there's a lot of factors that go into having an interesting life.

    23. MS

      Sure.

    24. DC

      And intelligence is maybe in there somewhere, but doesn't really matter.

    25. MS

      Yeah.

    26. DC

      And I don't think that's true, Michael.

    27. MS

      [laughs]

    28. DC

      Like, I guess my point is, and, and this isn't even something that's restricted to just, uh, tech.

    29. MS

      Fair. Yeah.

    30. DC

      Think about people that go into law-

  6. 6:38 – 8:10

    “Coolness” flips: why late winners often weren’t early social winners

    1. MS

      I would extend that further to say I think when you look at the people who are actually winning in the macro, you might be surprised at how uncool they were for how long. And it's like the people who you think are cool now were not cool in high school. [laughs]

    2. DC

      Yeah.

    3. MS

      And so, um, it's so interesting how something changes where, like, the population of cool people completely swaps, and, like, smarter people seem to have much more of an advantage later.

    4. DC

      Anything they do, even if it's strange?

    5. MS

      Yes.

    6. DC

      Like, even if it's-

    7. MS

      Yes.

    8. DC

      Well, and I would even say strangely, 'cause, like, I'm a huge basketball fan. People talk about this in basketball a lot, where, like, the best players have high IQ. And you start looking at interviews. Like, there was this great LeBron James interview where he was like, "Hey, we were gonna run this play. It looked like the team was prepared for it, so let's just flip it and run it a different side of the court." And he was like, "Some of my team members just couldn't draw that in their head and do"... And it's like-

    9. MS

      [laughs]

    10. DC

      Even as investors sometimes-

    11. MS

      Yes

    12. DC

      ... I don't think I appreciated-

    13. MS

      Yes.

    14. DC

      Like, I think I thought who raised the most money mattered more-

    15. MS

      Mm

    16. DC

      ... or, like, I, I don't know. I thought a lot of factors mattered, but it does kind of just seem like the most aggressive, ambitious, just smartest people that can see things other people can't see tend to do better.

    17. MS

      They tend to do better. They have an advantage.

    18. DC

      Yeah.

    19. MS

      Yeah. Well, and they have an advantage that might overcome things like did you grow up in a rich family, did it... like other kind of weird starting-

    20. DC

      Yeah

  7. 8:10 – 9:26

    Rotting from within: identifying ‘watermelon’ incumbents

    1. MS

      ... conditions. Um, especially out here. Like, especially out here. One that I, I am still having trouble grasping, so when I came out to the Valley, we s- uh, there were some companies that were kind of obviously losing out here, right? Uh, Yahoo! would be a good consumer example. Maybe HP would be a good enterprise example. At the time, it was kind of obvious to me. What's happened over the last 15 years is it's very hard for me to really identify the companies that kind of look strong today, but are slowly rotting. But I know they exist, right? Because, like, those companies, HP, Yahoo!, we can name others, looked incredibly strong, were incredibly strong, but kind of rotted from within. And we have all these startups that are so intimidated about these big companies. But sometimes I think to myself, like, which one of them is like... A fatter taught me this phrase, like a watermelon, like green on the outside-

    2. DC

      [laughs]

    3. MS

      ... red on the inside. Like, you know? Like, so how do you think about this concept of, like, companies right now that look strong, great valuations, public, d- doing great, but, like, we're gonna tell this little story 10 years from now, they just, that this was the time that they didn't make it?

  8. 9:26 – 10:10

    Nothing is permanent: Google could fade—or become even bigger

    1. DC

      I think the lesson is just it's a topsy-turvy world.

    2. MS

      Yeah.

    3. DC

      And until you've seen it happen a bunch of times-

    4. MS

      Yeah

    5. DC

      ... the things that seem unassailably number one can just go away and be gone in 10 years. All of Internet 1.0, so much of that stuff just evaporated.

    6. MS

      Yeah.

    7. DC

      And so companies like Google could become completely irrelevant.

    8. MS

      Yeah.

    9. DC

      Or they could just become juggernauts even-

    10. MS

      Yeah

    11. DC

      ... more.

    12. MS

      Yeah.

    13. DC

      They're not, like, institutions that are gonna last no matter what happens. That's what I'm trying to say.

    14. MS

      Yeah.

    15. DC

      I think they seem, like, infallible.

    16. MS

      Yeah.

    17. DC

      They felt less... I don't know.

    18. MS

      They have to keep winning.

    19. DC

      Yes. [laughs]

    20. MS

      [laughs]

    21. DC

      Yes. Well, and there's some instances-

    22. MS

      Look what happened to Intel-

    23. DC

      ... with Intel versus Nvidia.

    24. MS

      Yeah.

    25. DC

      Intel was, like-

    26. MS

      It's gonna... [laughs] What?

    27. DC

      ... an institution.

  9. 10:10 – 11:13

    Microsoft’s surprising resilience: stacking wins at massive scale

    1. MS

      Yeah, until it wasn't, yeah. And I think that maybe this is different in other industries or other parts of, of America. When I started thinking this way, Microsoft became so much more of an impressive company. 'Cause, I mean, during this time when HP and Yahoo! were kind of declining, if you had told me, "Hey, Microsoft is gonna be declining, too," I would've believed you.

    2. DC

      Yep.

    3. MS

      And-

    4. DC

      They did really good with cloud stuff.

    5. MS

      Really good. [laughs]

    6. DC

      It was-

    7. MS

      Well, and also they became, like... You remember when VS Code came out?

    8. DC

      Yeah.

    9. MS

      And you know when they bought, like, um-

    10. DC

      Yeah

    11. MS

      ... GitHub?

    12. DC

      Yeah.

    13. MS

      And you're just like, "What?" I'm so used to big companies making the wrong decisions, and then they just [laughs] you string a couple wins together and you're just like, oh, God, at Microsoft scale. So no, I think this is kind of like a, a, a, an interesting one. I think if I was a startup founder, I'd be trying to figure out, are the incumbents in my space rotting from the inside? Like, are they way more vulnerable than they look? Another one I think that's kind of fun, you touched on this. L- let's talk about hype cycles.

  10. 11:13 – 13:09

    Hype cycles are like weather: predictable, inevitable, and neutral

    1. DC

      Yeah.

    2. MS

      'Cause we've gone through so many hype cycles. What's not obvious about hype cycles? What are some hype cycles that worked and that didn't? What do you, what do you, what do you see?

    3. DC

      Yeah. I, I think... You know, I remember being a teenager and being on stock trading message boards during the dot-com boom. And do you remember the company that made zip drives and jazz drives?

    4. MS

      Yeah.

    5. DC

      Yeah.

    6. MS

      People, they, they're... This is way before a lot of these people were born.

    7. DC

      Yeah, sorry.

    8. MS

      Iomega.

    9. DC

      Yeah.

    10. MS

      That was a good one.

    11. DC

      And it was, like-

    12. MS

      Yeah

    13. DC

      ... one of the hottest stocks of all time, and they made, like, basically floppy disk drives, but better.

    14. MS

      They don't know what that is either.

    15. DC

      Yeah, you could just... It has ChatGPT. [laughs]

    16. MS

      [laughs]

    17. DC

      Um-

    18. MS

      Yeah. Like, they got like, uh, like, uh, USB keys, a bit better.

    19. DC

      Yeah, sure.

    20. MS

      Yeah.

    21. DC

      Because-

    22. MS

      But not... No, USB keys are better, but, like, it's a version of that, yeah.

    23. DC

      Imagine Dropbox if it worked offline. [laughs]

    24. MS

      [laughs]

    25. DC

      Um, anyway, it was one of, like, the hottest stocks. So I remember reading about it.

    26. MS

      Yeah.

    27. DC

      And of course, that went to zero.

    28. MS

      Yeah.

    29. DC

      Um, that was not a good stock. And so look, I've seen so many cycles. You can start to recognize-

    30. MS

      Mm-hmm

  11. 13:09 – 15:27

    Ambition as a recruiting strategy: missions attract elite talent

    1. MS

      Yeah. Yeah. Yeah. Yes, versus anger. Yeah, I think the, the last one for me, and I think you brought up Sam before, I have got a good Sam one. I think I used to think a little too mechanically about what it takes to build a company. You need a big market, you need a good product, you need to price it correctly, you need people who are great founders. And I think that, like, Sam, one of the things that he said that kinda stuck is that, like, you have to have kind of an ambition or a mission or a goal that people can rally around. That fundamentally, like, a great company has to attract a lot of great talent, and all kinds of talent, right? Whether they're investing talent or technical talent or, um, talent from our customers who are gonna pick you, and like, if what you're doing isn't interesting, if it isn't something that people can get excited about, it's hard to rally that talent. It's hard to rally those humans. And it, and, and it was, like, so funny, 'cause in my mind before that, I was just kind of like, well, obviously, you know, two plus two equals four. If this company has a good product, we're gonna w- work at it. And then you start realizing, like, really talented people have a choice-

    2. DC

      Yep

    3. MS

      ... of where they put their time. And like, are you telling them, "We're gonna do something super exciting that might change the world," or are you not?

    4. DC

      Are you gonna do ad targeting stuff?

    5. MS

      And the, the counterintuitive thing that Sam really got s- embedded in my brain is like, sometimes all it takes for us to do things that look impossible is for them to be attractive enough to attract the smartest people.

    6. DC

      Yes.

    7. MS

      Like, the smartest people can make the impossible happen, and if you can't attract the smartest people, you can't even make the possible happen. [laughs]

    8. DC

      [laughs] Well, it's like the Apollo moon landing.

    9. MS

      Yeah.

    10. DC

      When you think about it, that was a miracle.

    11. MS

      Yeah. [laughs]

    12. DC

      But those people were pretty pumped-

    13. MS

      Yeah. [laughs]

    14. DC

      ... to be putting a man on the moon.

    15. MS

      Yes.

    16. DC

      Like, that was, like, a cool project-

    17. MS

      Yes

    18. DC

      ... that people worked really hard at.

    19. MS

      Dude, a cool pro- that was the coolest project-

    20. DC

      Coolest thing in the world to work on

    21. MS

      ... to work on.

    22. DC

      Yeah. [laughs]

    23. MS

      Literally. [laughs]

    24. DC

      And it was, like, really hard.

    25. MS

      Yeah. [laughs]

    26. DC

      And what's funny is, like, obviously he was telling us this stuff-

    27. MS

      Yeah

    28. DC

      ... and he went and lived that advice.

    29. MS

      He did. He did, with OpenAI, right? Like, let's create intelligence. In hindsight it just kind of sounds a little hokey, but it's like, oh, you should have a mission, right? Like that kinda-

    30. DC

      Yeah. Lame

  12. 15:27 – 15:54

    Founder advice trap: optimizing for Series A vs building for 10 years

    1. MS

      ... it, it's, it's not that. I think it's just like, sometimes we have to remind founders to just set their ambitions higher. Like, something that gets you more excited, it's gonna get other people more excited. Like, how can you be excited about this for 10 years?

    2. DC

      Mm-hmm.

    3. MS

      Versus how can you be excited about this in the amount of time it takes you to raise your next round? And sometimes I think that we feel like founders are being too safe, whereas I think in the past I might have given people too safe advice.

    4. DC

      Yep.

  13. 15:54 – 19:16

    B2B reality check: revenue creation beats cost-cutting logic

    1. MS

      I might have given people advice, I'm like, "This is the safest way to get to the series A." And it's like, is that, is that the end that we're going for here? Like... [laughs] All right, so another one, and I think that you and I have experienced this so often. We'll have a company come in, and they'll be like, "Well, if a startup... Sorry, if a software company buys our product, it allows them to not hire five incremental engineers. Those engineers cost a million dollars a year, so, like, that means that, like, we can charge $100,000, the company saves $900,000, this is incredible, the company should make this trade every day of the week. And so therefore, I guess theoretically, a sizable software company should have 200,000 different software vendors who each save them a million dollars a year." [laughs]

    2. DC

      [laughs] It's just that easy.

    3. MS

      [laughs]

    4. DC

      It's just that easy.

    5. MS

      And we're just one of them. [laughs]

    6. DC

      Yeah.

    7. MS

      I think I did not quite understand.

    8. DC

      Yeah.

    9. MS

      [laughs]

    10. DC

      It's one of those things where in a vacuum, that is a reasonable first principles argument.

    11. MS

      [laughs]

    12. DC

      But in no way does that resemble actual buying behavior.

    13. MS

      Yeah. [laughs]

    14. DC

      It's like, it's defeated by all the facts. [laughs]

    15. MS

      [laughs] Yeah.

    16. DC

      Like, r- reality calls.

    17. MS

      [laughs]

    18. DC

      They say no.

    19. MS

      No. Re-

    20. DC

      And again, I'm not even saying I would've intuited that myself, right?

    21. MS

      No.

    22. DC

      I'm not being like, "Ha ha-

    23. MS

      Yeah

    24. DC

      ... how dare they think that?" I, I-

    25. MS

      We funded companies on that thesis, yes. [laughs] Yes

    26. DC

      ... but for whatever reason-

    27. MS

      Yep

    28. DC

      ... customers w- like things that increase their revenue-

    29. MS

      Yes

    30. DC

      ... and cause them to grow faster.

  14. 19:16 – 20:51

    AWS as nuance: customers pay more to reduce complexity and friction

    1. MS

      And one could argue maybe AWS made that argument, right?

    2. DC

      Yep.

    3. MS

      Like, oh, like, we can save you so much more money than if you're running your own data centers.

    4. DC

      Well, it w- AWS was more expensive, but it was less logistically complex.

    5. MS

      Yes.

    6. DC

      And often customers will choose-

    7. MS

      Yes

    8. DC

      ... to pay more-

    9. MS

      Yes

    10. DC

      ... to reduce problems.

    11. MS

      Yes.

    12. DC

      And so to not have to deal with servers and-

    13. MS

      Yep

    14. DC

      ... hard drive failures, all their crap.

    15. MS

      Amortization, all the-

    16. DC

      All that junk. So they paid more for AWS.

    17. MS

      Yeah.

    18. DC

      But man, it, it just obviated the need for all this other complexity.

    19. MS

      Well, and it's interesting that you say they paid more, but I'd argue if you're setting up a data center, you have to think about the flow of money.

    20. DC

      Yeah.

    21. MS

      Right? Like, way less upfront investment to get the benefit on AWS.

    22. DC

      Oh, that's a great point.

    23. MS

      So you have, like, way more opportunity to offset those additional money with, with profits. And it doesn't mean, like, every company, to be a good B2B company, you have to figure out how to make someone more money. It's just surprising how much easier it is and surprising how often in large companies people are not asking, "How do we save five engineers?" [laughs]

    24. DC

      [laughs]

    25. MS

      Like, how just often that's not the conversation. And, and there's really no world where those five engineers would then be fired.

    26. DC

      No.

    27. MS

      They are-

    28. DC

      They'd just be put onto something else.

    29. MS

      Exactly.

    30. DC

      Yep.

Episode duration: 20:51

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