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Elad Gil of Gil Capital, Gil & Co. & Enigma Global

Elad Gil, of Gil Capital and Gil & Co, aka one of Silicon Valley’s most influential investors, sits down with Molly O’Shea to unpack it all..

Elad GilguestMolly O'SheahostMolly O'Sheahost

Oct 17, 202537mWatch on YouTube

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Transcript

40 min read · 8,077 words

0:00 – 2:00
Elad Gil
1. EGElad Gil
  I was looking a little bit at the data from the '90s, 'cause I thought we're in this weird moment in time in AI. What did the internet version look like? It spans the globe like a super highway and is called internet. It is a whole group of networks- Do you know how many companies went public in '99?
2. MOMolly O'Shea
  200.
3. EGElad Gil
  It was close, 450. And then if you look at the first part of 2000, another 450 or so companies went public. And then before that, I'm guessing another thousand internet companies went public. How many of those are relevant now or even exist? I think one interesting shift that's happened is there may be a subset of companies that are forever private because they can afford to be. That may be Stripe, that may be SpaceX, that may be some other companies. I don't know if you remember the direct listing wave of, like, 2020 or whenever all these companies started doing DLs, and it was considered the next big thing, and then like five companies did it, right? I think it's quite possible that this forever private thing will be similar. And then I think there's a bunch of companies that will just do the normal IPO thing and all the rest of it. And it's interesting to ask, like, what percentage of future market cap will be these perpetually private companies versus not, and will they eventually go public?
4. MOMolly O'Shea
  The HubSpot CEO tweeted out, "If you wanna sell your company, sell it now."
5. EGElad Gil
  I think that's always true. [laughs]
6. MOMolly O'Shea
  [laughs] Elad. Elad.
7. EGElad Gil
  Molly. Molly.
8. MOMolly O'Shea
  Welcome to Sourcery.
9. EGElad Gil
  Ah, thanks for having me.
10. MOMolly O'Shea
  Okay, so I have, like, two sets of questions.
11. EGElad Gil
  Mm-hmm.
12. MOMolly O'Shea
  One is the fun route, and one's the serious route.
13. EGElad Gil
  Oh.
14. MOMolly O'Shea
  Which one do you choose?
15. EGElad Gil
  [sighs] I don't know. Maybe the, uh, fun route. We could do the serious route.
16. MOMolly O'Shea
  The se-
17. EGElad Gil
  It's up to you. I mean, it's your, it's your podcast.
18. MOMolly O'Shea
  It's your choice.
19. EGElad Gil
  It's whatever direction. It's... It, it feels like a very loaded choice.
20. MOMolly O'Shea
  [laughs]
21. EGElad Gil
  Like, if you choose the fun route but then you're not actually that fun or having that much fun, people will be like, "Ugh, that person isn't fun."
22. MOMolly O'Shea
  Okay.
23. EGElad Gil
  So the serious route is actually the safer route but sounds less fun.
24. MOMolly O'Shea
  What if I told you I only prepared one? [laughs]
25. EGElad Gil
  [laughs] Let's do the serious route. That sounds amazing. Let's go.
26. MOMolly O'Shea
  Okay. So doing some deep research on you-
27. EGElad Gil
  Mm-hmm
28. MOMolly O'Shea
  ... you have had a very
2:00 – 2:30
Elad’s career arc: Google, Twitter, Color, angel investing
1. MOMolly O'Shea
  interesting, unexpected career.
2. EGElad Gil
  Mm-hmm.
3. MOMolly O'Shea
  Google, Twitter, Color Genomics.
4. EGElad Gil
  Mm-hmm.
5. MOMolly O'Shea
  You then wrote a book, then [laughs] you were one of the first AI investors, and you have a podcast now. You're doing incubations. You also have a very successful fund. So how did you do all this?
6. EGElad Gil
  Yeah, I mean, I guess I've just been around for a while, so these things accumulate with time. [laughs]
2:30 – 3:20
Technology as a force for good
1. EGElad Gil
  I mean, I don't know if there's much more than that. I think, um, uh, the honest answer is, um, you know, I have sort of a broader set of things that guide me in terms of, um... I view technology as a force for good. I think it has helped raise, um, elevate hundreds of millions of people out of poverty, out of famine, out of all sorts of things. And I mean technology in a broad way, right? Technology is agri- the agricultural revolution. It's new medicines. It's biotech. It's running water, right? Um, it's all sorts of things. And so when I look at the impact that's had on humanity, it's been very positive, and obviously there's always the negative things that can happen, all the rest, but I think it's been very net positive. And so, um, throughout my career I've kind of asked myself, where do I think technology can be most valuable, most useful? How can I help transfer it in the world? And so that's driven a lot of the choices of where to be and what to work on and, you know, how to get involved with things.
3:20 – 9:09
Why Elad is building monuments
1. MOMolly O'Shea
  Not to mention monuments.
2. EGElad Gil
  And monuments. And so, [laughs] um-
3. MOMolly O'Shea
  [laughs]
4. EGElad Gil
  ... yeah, I'm working on a project now to try and build, um, a series of new monuments. So if you look at, um, every society that's at apex ultimately, um, has built large public art to inspire the next generation to move forward for progress. Maybe it captures its ethical values. Maybe it captures its ambition. And I think the last time we built a large scale monument was, um, Mount Rushmore, which was initiated in the '20s and was built up until the early '40s. And then since that time, we really haven't done anything societally, at least in the US. And maybe you could argue the Sphere in Las Vegas is almost like a monument of some sort, right? Um, but we used to do these really big symbols, and the Statue of Liberty, which is obviously a gift, is a great example of that, right? You get off of Ellis Island as an immigrant, and you'd be exp- inspired by this giant statue and this symbolic nature of, like, liberty and freedom and this new land that you've come to. And so, um, we're working on, um, doing monuments or public art across, um, four or five key cities in the US. And, um, we've been talking with different, both artists and artisans around different materials. So we've experimented with different bronze works. We've experimented with marble. We're actually looking at carbon fiber, which nobody's really used, which I think is really interesting for all sorts of reasons. And then, um, we've provided, um, proposals to a few places already in terms of some of the public art that we could build. And I think the smaller scale of what we wanna do is probably 15 to 20 feet tall, which is kind of the scale of the Atlas in front of Rockefeller Center, uh, which I think is a, is a beautiful work. Um, and then the hope is to eventually do something, at least one that's, you know, sort of Statue of Liberty or Eiffel Tower scale.
5. MOMolly O'Shea
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6. EGElad Gil
  Oh, uh, I don't know. I mean, in, uh, yesteryear's world, um, these things were polarizing. So the Eiffel Tower was considered very ugly when it was built, right? It was a giant steel work. And Eiffel was actually a bridge maker, right? And he had all these divots and pieces of steel, and he's like, "I'm gonna make a, a big thing for the World Fair" in the late 1800s. And it was actually, um, meant to show off French steelmaking, right? It was an ode to technology progress, and, um, apparently, a big chunk of the city thought it was ugly and terrible, and they were looking forward to it getting torn down. Um, and so I think these things that we now view as beautiful and iconic and inspiring and wonderful at the time were not viewed that way. And one thing that I thought was really cool, I went to see the Ei- Eiffel Tower actually recently as sort of a refresher over the summer, and he had his office on one of the top floors.
7. MOMolly O'Shea
  Oh.
8. EGElad Gil
  And it was a power move for him to invite people to his office, and they would take the pneumatic lift. I don't know if you've been in it. It's this very quiet elevator that was built 150 years ago using modern technology, right, of the day. Um, and so the elevator takes you up there, and you get in, and you go into this little office, and they still have the desk and everything set up. And it was him showing off, like what he built, which I thought was kinda neat.
9. MOMolly O'Shea
  I'm curious what happens, um, because in San Francisco, do you remember that, that statue they... Is that still up?
10. EGElad Gil
  Which one?
11. MOMolly O'Shea
  The, the woman one in front of the Embarcadero.
12. EGElad Gil
  Oh, I'm not sure if it's still up. They, they also used to do a lot of Burning Man art, like in Hayes Valley. I don't know if you remember. They'd bring art from Burning Man or right before they take it to the burn, and they'd put that up there. Um, but all... Uh, there's a lot of temporary art still. And so there's some in San Francisco. There's, um, some in New York. Periodically, where they'll, they'll sort of do some, uh, public works. There's a little bit in Miami sometimes.
13. MOMolly O'Shea
  Mm.
14. EGElad Gil
  Um, but I'd really like to move to, like, big permanent installations that have meaning, um, that hopefully can transcend a really long time period, hundreds of years. You know, you want the thing to be relevant 200 years from now. And so then you ask the question of, okay, what are societally relevant themes over long periods of time, and what is actually forms of beauty that we will agree 200 years from now is still beautiful? Because if you look at a lot of post-modernism and a lot of architecture, I don't think it's that attractive anymore, right? And there are things that are still beautiful, right? Uh, Gothic periods and Art Deco and, you know, there's all sorts of... Uh, people still love seeing Roman ruins 'cause they're so beautiful, right? Even though they're ruins. Um, so I think there's some things that feel like they're universal, and there's some things that seem like they're a moment in time from an art or architecture perspective.
15. MOMolly O'Shea
  What do you think of Be- is it Bezos that has the clocks sculpture?
16. EGElad Gil
  Yeah. Oh, yeah. He has the, um... Basically, he, he, he tried to build a clock that would last for millennia.
17. MOMolly O'Shea
  Mm.
18. EGElad Gil
  And I think it's very cool conceptually. Um, I think it's really neat that he did that and he was thinking big. I think the hard part is it's kinda isolated. You c- you, you kinda have to go out to get to it. And so what I'm interested in is can you do these societally inspiring things, but in major cities, in major thoroughfares? Like, how can you be central to where people are spending time? Because if people don't see it, it, it kinda doesn't matter, you know?
19. MOMolly O'Shea
  As a multidimensional person, you have culture, you have investing, you have technology and science.
9:09 – 11:03
From angel investing to a potentially multi-billion-dollar fund
1. MOMolly O'Shea
  On the investing standpoint, you started off with angel investing.
2. EGElad Gil
  Sure.
3. MOMolly O'Shea
  Apparently, you're gonna have a big fund soon.
4. EGElad Gil
  Mm-hmm. Yeah.
5. MOMolly O'Shea
  How did we get here? Like, so what was the arc from angel investing to this fund? Because the strategy-
6. EGElad Gil
  Mm
7. MOMolly O'Shea
  ... is insane. Like, you're doing seed and pre-seed and incubations.
8. EGElad Gil
  Mm-hmm.
9. MOMolly O'Shea
  But you're also leading $100 million Series Ds.
10. EGElad Gil
  Yeah. I think, um, basically, we view ourselves as investing from incubation or pre-seed through pre-IPO, and at this point, um, have done every stage and have done very large investments. So I think we've, we've now, um, led a few rounds that are a half billion-plus each. And, um, you know, ultimately, the, the starting point to your original question was I was just investing my own money as an angel, and I ran out of money. Like, literally, I just... I ran out of money 'cause I put all my money into startups. And, um, so I started raising SPVs, which are these, um, single, um, investment funds, right? You raise money to invest in a specific company, and that was really tough for a couple years. Like, nobody had heard of me. It was very unusual for a single person to go and raise funds. Um, and I was sh- I was involved with a lot of the key companies who kept giving me bigger and bigger allocations, like a Stripe or other companies. And I just couldn't-- I just didn't have the money. Um, and so, uh, I scraped together the first few of those, and then the LPs in those eventually asked me to, um... if I wanted to do a standalone sort of fund, and I kept angel investing alongside that. And now I kinda do a mix of, I can still do personal investments. I can do things through the funds. I can do incubations. You know, it's, it's kind of multifaceted. And to your point, we even do things now like AI-driven roll-ups, right? So we'll help actually, uh, fund a entrepreneur or founder who wants to go and consolidate an industry or buy into different traditional businesses and then, you know, modernize them with AI.
11. MOMolly O'Shea
  How do you think about the categories? 'Cause you're investing in many different things. As a solo GP, by the way.
11:03 – 11:45
Inside Gil Capital’s small but focused team
1. EGElad Gil
  Yeah.
2. MOMolly O'Shea
  Right?
3. EGElad Gil
  Well, I mean, I have a small team, but, um-
4. MOMolly O'Shea
  Okay. How big is the team?
5. EGElad Gil
  Uh, on the investment side, I have four people who are helping me, and then I have about another six, seven people helping with back office and finance and... You know, I tend to, uh, have always thought that it's really important to ensure that you're properly focused on compliance and accounting and, you know. [chuckles]
6. MOMolly O'Shea
  Yeah.
7. EGElad Gil
  I'm very, um, paranoid about doing things properly, and I'm always paranoid about, um, fraud or other things that can really be existential to a business. And so I view that in the context of what I do as well, like, as really important to get right. Um, so I have a whole team just dedicated to, you know, accounting and finance. Um, and then I have other people helping with a few other areas, events and, you know, things like that. You know, it's interesting. The, the, the... There's sort of two approaches to investing.
11:45 – 12:43
Thesis-driven vs. opportunistic investing
1. EGElad Gil
  One approach to investing is to say that, uh, you're gonna be thesis driven, and you're gonna look for specific things, and then the other approach is you're just opportunistic, and you wait for the best things to show up. And the argument for the first one is every once in a while there's a sea change or a shift in technology that's so important that it makes sense to just go looking. And so two examples of that in my career have been crypto, where in 20- 16, 2017, I just started doing a lot of crypto investing 'cause it was such a clear sea change, and I wish I'd obviously started earlier. [laughs] Um, but that's when I invested in Coinbase and other companies in that, in that area. Um, and then I think more recently with the generative AI wave, um, I ended up getting involved with that quite early, 2021, 2022. And that was, you know... I played with GPT-2 and then GPT-3, and it was a huge step function up. And y- all the scaling papers were out, and you could just read them and see that all this stuff was coming. And so I just started looking for people working in the area, and so that's when I funded, um, Perplexity and Harvey and eventually Decagon and Abridge and a bunch of other companies.
12:43 – 15:15
Backing 200+ companies across waves
1. EGElad Gil
  And, um, so that was a little bit s- thesis driven, like, "Hey, I think this big change is happening, so let me just see who's doing what there," and very few people were looking. But there's a lot of companies I invested in simply because I met the founders and I thought it was a really great company. You know, that was Airbnb, and that was Stripe, and that was Figma, and that was Instacart and, you know, um, Notion and all... And so I think some of these things in hindsight feel like trends. You know, oh, there was a fintech wave. You know, in fintech I did Stripe, Square, Affirm, Brex. Um, but I wasn't like, "I'm a fintech investor." I just thought it was, like, an important set of companies. And then in hindsight, oh yeah, of course, there was this wave that was happening.
2. MOMolly O'Shea
  Mm.
3. EGElad Gil
  So, uh, you know, I think in general there's thousands of great founders out there, and you could think of them as a distributed search function, right? You have thousands of people exploring all the space of entrepreneurship. And so how can any one person or small group of people come up with better ideas than thousands of people in a distributed manner? You know, it's just impossible. But every once in a while there's this technology shift, and if you notice it, you can, you can really get involved with important things.
4. MOMolly O'Shea
  How many companies have you invested in?
5. EGElad Gil
  Um, I don't know the exact number. So I've invested in, say, um... I'm making up the number, 10 to 15 companies a year, but I've been doing it for 15 years, so that's between 150 to 225 if you use that as an estimate, over, like, a really long time span. So many of those are now sold or public or dead or, [laughs] you know-
6. MOMolly O'Shea
  [laughs]
7. EGElad Gil
  ... all the various things that can happen to a company. So-
8. MOMolly O'Shea
  Can you name all of them?
9. EGElad Gil
  Oh yeah, of course. I, I can actually do it alphabetically and then reverse alphabetically or-
10. MOMolly O'Shea
  Are you serious?
11. EGElad Gil
  No.
12. MOMolly O'Shea
  No?
13. EGElad Gil
  Yeah, no. That'd be-
14. MOMolly O'Shea
  Oh, come on.
15. EGElad Gil
  That'd be tough. Yeah.
16. MOMolly O'Shea
  [laughs]
17. EGElad Gil
  So...
18. MOMolly O'Shea
  Wow. I was really excited there.
19. EGElad Gil
  Yeah, it would've been a very long episode.
20. MOMolly O'Shea
  Would've been great.
21. EGElad Gil
  Yeah, people would start to get bored. They'd be like-
22. MOMolly O'Shea
  No. [laughs]
23. EGElad Gil
  ... "Oh, he's on the S's now." It's always the worst letter. So many S's.
24. MOMolly O'Shea
  It would make a good clip.
25. EGElad Gil
  [laughs]
26. MOMolly O'Shea
  [laughs]
27. EGElad Gil
  We just release that on Twitter.
28. MOMolly O'Shea
  Yeah.
29. EGElad Gil
  Yeah, that'd be really-
30. MOMolly O'Shea
  Elad's still going.
15:15 – 17:08
Stripe, Airbnb, Figma, Instacart & investing across competition
1. MOMolly O'Shea
  investing in competitive companies? I'm sure there's been some crossover across.
2. EGElad Gil
  I try to be really cautious about that because, you know, I've started, um, two companies myself, and, um, you know, I wanna be very respectful of, um, founders and what their goals are and their wishes are and everything else. And so I, I often ask both sides. I say, "Hey, this thing has come up. Do you view it as a conflict? Is it okay if I proceed?" Et cetera. And so I usually wait for that okay. Um, I think that, uh, there's a number of circumstances where people think something's... I'd say 90% of the time founders think that they're gonna compete, and they don't. They tend to grow in very different directions, especially if it's two early-stage companies. Um, and then maybe a few percent of the time things actually converge, and sometimes they actually converge on the companies that you don't expect. And so I've seen more conflicts in things that I didn't think would converge than things would. And, um, I'll give you an example. I remember I was an investor in Square, and the Stripe founders pinged me and asked if I wanted to invest. And so I pinged one of the key executives at Square and said, "Hey, do you think this is a conflict?" And he said, "Absolutely. This is a conflict. You shouldn't do it. These things are gonna collide." And so then I texted Jack, and I'm like, "Hey, is this a conflict?" He's like, "No, go ahead." And so I went ahead [laughs] and invested, so I'm glad I did that extra ask. And then in hindsight they didn't really end up competing, so...
3. MOMolly O'Shea
  Is it harder on the earlier stage side?
4. EGElad Gil
  Um, there's definitely more potential for conflicts, but I think most of the time it's less likely. I actually think on the later stage side is usually when it's pretty clear. Um, or suddenly the industry shifts and then it, it sort of crystallizes and you're like, "Oh, wow, like Cognition is now competing with Coursera. They bought Windsurf." You know, it's, it's a more direct thing than maybe it was even six months ago.
5. MOMolly O'Shea
  Do you think because we're in this wave of AI, you have to be an AI company in order to survive or even be relevant?
17:08 – 18:47
Why every software company is now an AI company
1. EGElad Gil
  Yeah, I mean, arguably anything software is to some extent AI now, and so I can't think of a modern new software company that isn't using AI. Maybe if you're truly doing something basic in fintech or some other area, although that fintech wave is, um, for chunks of it are kind of over, right? There's still a lot of innovation in different areas and new things to do, and there's a lot to do in crypto. But fundamentally, um, you know, traditional fintech isn't as active as it used to be. Um, and so there may be some pockets where if you started a company today it wouldn't... the AI wouldn't matter that much. And you could argue it two ways. You could say, well, if you're in the middle of one of the most important technology waves of all times, maybe you should be focused on that thing, right? Um, and in general, uh, early in technology waves, that's when you have all the low-hanging fruit. And so one of my pieces of advice to founders is often, um, who are doing really hard things right now in AI, I'm like, "Why are you doing the really hard thing? Just go do the dumb easy thing that you think is non-defensible and build defensibility because the really hard complex thing is something you should do in three, four years when you've run out of the easy stuff," right? And so it's almost like you're going for a walk and there's a giant mountain and there's a nice little path around it, and you're like, "I'm gonna go up the mountain." And you're like, "Well," you know, "maybe I should just take the nice path." Um, and so I think, uh, there's that sort of overlay right now. There's easy stuff in AI. It's a good time to go do it. Um, you know, the flip side of it is there's lots of other areas that people are working in, although again, often AI plays a role. Like defense tech is largely drones and intelligence and other things that are, you know, really important now in the AI world. Um, but there may be other verticals where it's just a little bit less important. Maybe aspects of energy. You know, like what, um, Base Energy is doing with battery storage. That isn't necessarily AI-enabled, right, but it's a very different type of sector or industry.
18:47 – 22:10
AI’s biggest bottleneck: energy & geopolitics
1. MOMolly O'Shea
  How do you think about the bottlenecks in AI, one being energy?
2. EGElad Gil
  Yeah, I mean, it's an interesting question because, um, energy is one of those areas where we have all sorts of solutions. We just choose not to use them, right? Nuclear is a great solution for all sorts of things of ener- in energy, and, um, if you look at nuclear as an example, um, public opinion on nuclear flipped in the mid-'70s, right? It went from something everybody was for to something many people were against, and that was probably a mixture of the environmental lobby and big oil effectively wanting to kill the industry. Um, the US is still 18% nuclear despite not having opened a nuclear power plant in fifty years. Uh, France is 70%. Japan is 25%. So we know that we have a clean, abundant, um, very safe energy source, actually. I don't know if you've ever read the Wikipedia page on nuclear. Uh, that's how I spend most of my free time is actually on that page.
3. MOMolly O'Shea
  Wikipedia?
4. EGElad Gil
  Yeah, no, the nuclear page specifically.
5. MOMolly O'Shea
  Specifically?
6. EGElad Gil
  Yeah.
7. MOMolly O'Shea
  Why?
8. EGElad Gil
  Just for reading. I'm joking. I don't read Wikipedia.
9. MOMolly O'Shea
  What? No.
10. EGElad Gil
  Yeah, that'd be awful.
11. MOMolly O'Shea
  You're pulling jokes on me.
12. EGElad Gil
  Yeah.
13. MOMolly O'Shea
  This is, uh-
14. EGElad Gil
  Yeah, I'll stop
15. MOMolly O'Shea
  ... this is unexpected. [laughs]
16. EGElad Gil
  I'll stop. I'll stop. So, um, if you read that page, you basically see that a lot of the, um, direct evidence on deaths from nuclear are very small. And in some cases, it said like in Fukushima, there was two or three deaths and, um, they think it was elderly people who had heart attacks, right? It wasn't necessarily from the radiation, although there may have been one death there. Um, and so most of the deaths from nuclear that are clearly provably traced back to the nuclear accident are either Russian submarines in the '80s, which for all sorts of reasons you can imagine-
17. MOMolly O'Shea
  [laughs]
18. EGElad Gil
  ... and then radiology lab accidents where, um, they misdose people. And if you compare that to stats of people dying installing solar by falling off of roofs, more people per year die from solar installs. Um, and so it's very safe, right? And so we do have these things we could do societally. We choose not to, which is a different topic. Um, but if we wanna do something, we can. And the question is, are we gonna constrain ourselves? And the best example of that is probably Europe, right? Europe's energy policy is really hurting their ability to win new data centers for training. And obviously, they have extra regulation for it, too, that makes it worse and all these things. But fundamentally, energy costs in Europe keep going up. They shut down nuclear power plants in Germany that are working perfectly fine. They're dependent on Russian oil. There's all sorts of very bad policy decisions. But what that's doing is it's, it's having this weird side effect of hurting their AI industry because you're not gonna build new training data cet- centers there because it's too expensive on a relative basis to run them. You may do inference because of GDPR forcing you to do it, but you're not gonna do training. So all the training will probably go to places that have the cheapest, densest energy and then a proper fiber optic cable in for the data transfer. And so that's probably parts of the US. That's probably the Gulf. Like, the Gulf I never-- Five years ago, I never would've expected, but I think they're really gonna end up with some of these data center build-outs potentially. Um, the Trump administration, I think, in their AI plan actually had the ability to sort of extend into UAE as, as effectively, um, US land from the perspective of training. And so it's interesting to ask these questions of like how do global, um, energy policies impact costs and therefore impact where AI is gonna be really important as an industry, right? Uh, because if you look at these data center build-outs, they've added or they've accelerated, uh, some aspects of GDP in the US, right? It's actually a lot of money is being spent. And so Europe is shutting itself off from some of that money right now.
22:10 – 26:14
Policy, crypto regulation, and AI’s political risks
1. MOMolly O'Shea
  How do you think about the new administration's approach to technology? We're going through many different waves of lots of support that-
2. EGElad Gil
  Mm-hmm
3. MOMolly O'Shea
  ... to your point, nuclear, AI. How do you view that and then the action afterwards? 'Cause things come up and they're, like, trendy, they're cool. You get a lot of support and then your fifteen minutes of fame, like, dies out.
4. EGElad Gil
  Yeah. Um, I think it's really sector-dependent. So for example, I think in crypto, the main thing the crypto industry wanted for years was just certainty. Is this something the SEC regulates? The, the commodities folks. Like, where, where... Who governs what? What are the rules, and how can we just follow the rules? And so I think a lot of the crypto industry just wanted clear guidance on what to do, and that was absent for many years. And then I think this administration has started to provide a lot of that clarity. To your point, you then need to codify it with legislation because if you don't, it's just gonna be dependent on who's in power. And so you wanna remove that dependence. And so I think a lot of what the crypto industry, my sense is, is thinking about is how do we pass certain bills or help certain bills progress so that we can end up in a situation where, um, these things are codified in law, and they don't just become executive orders that can be rescinded with the next administration. Um, for AI, I think similarly, we have to be very thoughtful about it, and the, the dangerous part in AI was, um, there's state-level initiatives that have been very negative, uh, or could've been very negative for AI. I think Scott Wiener proposed one in California. I think there's others that, um, have been proposed in other states that you could really curtail overall US progress in AI because you set the standards in one state where it's important to function, where most of the researchers are, right? Where most of the da- where some of the data centers are, et cetera. So, um, you know, there's a national level of it, and then there's a state level, and I think both are important for some of these topics.
5. MOMolly O'Shea
  Yeah, I think about this a lot, um, 'cause I, I love the American dynamism movement and how that, like, propelled small tech as the Andreessen media empire calls it to now big tech. So as we think about the government's involvement in these different sectors, they're also putting dollars to work. So how are these deals, one, getting structured, whether it's MP Materials-
6. EGElad Gil
  Mm-hmm
7. MOMolly O'Shea
  ... or Intel, and are you at all concerned about them and whatever happens with TikTok?
8. EGElad Gil
  Yeah, I don't have, like, deep thoughts on those things. I haven't spent a lot of time looking at, um, government investment in some of these companies, and they very much are companies that I tend not to spend as much time with because they're much later on in life. I mean, Intel was started in the '70s and-- or maybe it was late '60s. I can't remember at this point. Um, and so, um- I, I just haven't thought about this very deeply. Um, I think there's a slightly different question, and I think Andreessen Horowitz, for example, has been very good at promoting this concept of small tech, and we need to advocate for that. Um, I do think that one thing the prior administration has done, which this administration is to some extent continuing, is effectively, um, curtailing some of the M&A activity you'd normally see big tech participating in. And I, I actually think that's negative for the startup ecosystem. I think it's good for companies to be able to exit. I think we're going through a massive sea change right now technologically. A lot of things are being innovated on that, um, won't necessarily sustain on their own and actually having larger partners will help a lot for them. Uh, I was looking a little bit at the data from the nineties 'cause I thought it was really interesting to say, "Okay, we're in this weird moment in time in AI. What did the internet version look like?"
9. MOMolly O'Shea
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26:14 – 34:29
Lessons from the 1999 IPO boom & what it means for AI
1. EGElad Gil
  Do you know how many companies went public in '99?
2. MOMolly O'Shea
  Two hundred.
3. EGElad Gil
  It was close. Four hundred and fifty.
4. MOMolly O'Shea
  [chuckles] That's so close.
5. EGElad Gil
  And then in the first... Well, you know, it's within an order of magnitude. I think in the hundreds is close, in my opinion. Um, you didn't say, like, ten or, you know, ten thousand. Um, and then if you look at the first part of 2000, another four hundred, four hundred and fifty or so companies went public. And then before that, I, I'm guessing another thousand internet companies went public. So you had two thousand companies go public. How many of those are relevant now or even exist, right? There's probably two or three companies that are highly relevant, very important, Amazon and the like. And then there's probably a dozen companies that are still around that are important enough or important-ish. And then the other, um, one thousand nine hundred and eighty companies all died or got bought, right? And so we had this massive culling of the entire ecosystem over a reasonably short period of time. And so the question is, what's the AI version of that, and how should you think about that as a founder? And how should you think about that as an investor? And there's all sorts of aspects of that. Should you sell your company or not? What are the signs you should? When should you exit? Um, how do you think about that relative to what you're trying to accomplish, both from an impact perspective and then also from a business perspective? And I don't think, um, that many people are really actively thinking about that, but it is a interesting cautionary tale.
6. MOMolly O'Shea
  What do you think is gonna happen to all those companies that were supposed to go public that are just waiting?
7. EGElad Gil
  Oh, so the backlog from-
8. MOMolly O'Shea
  Yeah
9. EGElad Gil
  ... five, ten years ago?
10. MOMolly O'Shea
  The backlog.
11. EGElad Gil
  Yeah, I mean, I think a subset of them will go out. Um, I think one interesting shift that's happened is there may be a subset of companies that are forever private because they can afford to be. That may be Stripe, that may be SpaceX, that may be some other companies. Uh, and I think it's only... I don't know if you remember the direct listing wave of, like, 2020 or whenever all these companies started doing DLs, and it was considered the next big thing, and then, like, five companies did it, right? Um, I think it's quite possible that this forever private thing will be similar. And there's a handful of companies that are marquee brands. They'll always have access to capital. Um, and the founders have a specific way that they wanna do things, and they'll just be private. And then I think there's a bunch of companies that will just do the normal IPO thing and all the rest of it. And it's, it's kinda interesting to ask, like, what percentage of future market cap will be these perpetually private companies versus not, and will they eventually go public? And there's all sorts of dynamics that then kick in around capital markets and other aspects of these things.
12. MOMolly O'Shea
  How do you view that as an investor in getting returns?
13. EGElad Gil
  Like, I've never sold a, a, a share of Stripe, and I hope to never, you know, do so. Or I shouldn't say never, but, like, for a very long time. You know, I'm a big believer in the company. Um, but it does impact how you think about, um, you know, do they have regular tenders? Can you get liquidity? And, you know, for most companies that, um, are doing well, you can always find some form of liquidity. The question is, do you wanna take it? Uh, what's the discount, and also just is there pressure? And what sort of pressure, and can you avoid that pressure over time? And so how do you even structure how you approach investments if you're an investor? If you're a founder, similarly, there may be things that you do or don't wanna do relative to the structure or so.
14. MOMolly O'Shea
  Do you coach any of your founders on the different exit paths?
15. EGElad Gil
  Yeah, people call me quite a bit on that stuff. Um, and I think it's always just context-dependent. I think the only good generic startup advice is that there's no good generic startup advice. So [chuckles] I think it's all contextual.
16. MOMolly O'Shea
  The HubSpot CEO tweeted out, "If you want to sell your company, sell it now." What do you think about that?
17. EGElad Gil
  Um, I think that's always true. [both laughing] It's like if you want to sell your company, you know, you probably should sell your company. Um, I think there's usually four reasons people sell, right? They're really tired. You're burnt out. You've been working nonstop. You're not getting any joy out of it. You're fighting with your co-founder, whatever it is. Um, so one is you're just unhappy or you're tired. Um, two is a company's paying so far ahead that it makes sense for you to... You, you do the math, and you're like, "There's no way I'm, I'm gonna hit that in any reasonable timeframe." And some people keep going then, but l- rationally, it's kinda like, "Maybe I really should get out." And the hard part is to know, um, is that correct or not. And I think that maybe the way I would put it is there's a handful of companies that should never sell or should never have sold, but in some cases they did. And maybe they did the math wrong or maybe they misunderstood their own position or something else, right? Um, but if you're in one of those companies, you should never sell. You should just keep going. Um, and then there's... And then most other companies probably should sell, and they should just figure out the right price because most companies just don't get that big. And most companies fail. I think one thing we forgot in this era of sort of perpetual funding is that the traditional venture portfolio, you know, fifty to eighty percent of companies would fail outright. And even at the Series B stage, it was like 40, 50% of every company fails. It's a lot of companies go out of business. And, um, I remember there was one company, I think it was Friendster, that got offered, what was it, like a percent or two of Google at the time as, as... They, they were raising their Series A. And, um, it's possible they could've turned into Facebook, and that was the right decision. But, you know, you see these companies where they really could've been these massive outsized, um, outcomes if they'd sold. But the... And, you know, in the end, it, it didn't necessarily work out as well. Um, and then there's a third reason, which is competitive dynamics. Like, you know, there's, again, a, a handful of reasons to actually sell.
18. MOMolly O'Shea
  This is, this is an interesting stat because the Series A, there's, like, such a wide gap there and a, a wide gap in valuation. Those companies that are actually AI companies are getting a 30% premium.
19. EGElad Gil
  Mm-hmm.
20. MOMolly O'Shea
  Do you think that's, like, do you think that's a mark of a hype cycle? Do you think that's relative?
21. EGElad Gil
  I think every time you go through a big technology shift, things are simultaneously over and under-hyped. And they're, um, under-hyped because it's such a massive wave of transformation. So let's say you look at Azure earnings. A quarter or two ago, they did, um, I think it was like $28 billion in revenue-ish, and, um, 10 to 15% of that was AI. So it's a few billion dollars a quarter on Azure alone for AI spend. That's enormous, right? If you extrapolate to the other clouds and everything else, that's real money. So real money is, um, being spent on AI today, and there's very little actual impact, which to me means there's even more room to go, right? In other words, we're just in the very earliest innings of all this stuff, from adoption and usage and everything else, and there's massive adoption. You look at ChatGPT, you look at Cursor, you look at Cognition, you look at all these things. So, um, we already know that it's important, that it works, and it can really scale up. Um, and so it's under-hyped from that perspective. And then the average company's probably over-hyped back to this point of 2,000 IPOs and, like, a dozen relevant companies, right? Definitionally, most startups are gonna fail, and this wave is gonna be just like every other one. And the place where every founder and investor think they are is in the right companies, right? And the reality is most people aren't, right? Um, 90% of people are gonna be in something that doesn't work. And so then the question is, can you actually tell what is good and what isn't, and what's durable versus not? And there's different forms of durability. There's short-term durability and long-term durability. The short-term durability, um, was Braintree, right? Braintree was a great payments company. When I funded Stripe, everybody thought, "Why would you fund Stripe? Braintree already does it." Literally, that's what people would say. And then Braintree eventually got bought by PayPal for, I think it was 800 million, and Stripe is now a $100 billion market cap company. And so, um, it would've been great to be involved with Braintree. It would've been even better to be involved with Stripe. And so when I look at the set of AI companies today, part of the question I ask is, is this Braintree or is this Stripe even if it's working, right? Because, because just the fact that it's working now doesn't mean that five years from now it's gonna be the important company in the market given how fast things are changing and the competitive dynamics and all the rest of it.
22. MOMolly O'Shea
  Can you justify OpenAI's $500 billion secondary valuation?
23. EGElad Gil
  Um, I don't know all the details of their revenue and things like that. I... My sense is that for many of these foundation lab companies, if you just do a revenue multiple and you look at the growth rate, it's actually pretty reasonable. Um, that's true of OpenAI, that's true of Anthropic. I think it's actually surprising. You're, you look at it and you're like, "Oh my gosh, they have a lot of revenue, and it's growing really fast." And obviously you look at margin structure and other things, but it actually seems like it's in the ballpark of, of, of reasonable for many of these things. I don't know, again, uh, specifically OpenAI's latest numbers, so I can't say specifically about them. But in general, as I've looked at these things over time, it's actually been pretty reasonable.
24. MOMolly O'Shea
  What do you think it takes to become a trillion-dollar company?
34:29 – 37:49
What it takes to build a trillion-dollar company
1. EGElad Gil
  TAM, just a big market. That's really the answer. Google's a giant market. AI's, uh, AI chat or API is a giant market. Cloud businesses are giant markets. Um, selling productivity software plus the world's most important OS, or one of the most important OSes, a giant market. Selling phones to a billion people and one of the world's most important OSes, a giant business. These are just giant businesses. Selling chips for everything for AI is a giant business.
2. MOMolly O'Shea
  What do you think on the founder level? Like, what do you think it takes for a founder to get to that level?
3. EGElad Gil
  Yeah. I think, um, I think ultimately, uh, there's usually two or three characteristics. One is you have to find a giant TAM and build a product people care about in it. And the question is, is that luck or is that skill? Um, and I think for some people it's, uh... I used to do this thing, I don't really do it anymore. When I'd meet people, I'd sometimes almost think of their life as, like, a Monte Carlo simulation. If I reran their life... Which everybody does, right? It's, like, a standard [laughs] thing people do. Um, if you reran their life a billion times, what's the expected outcome, right? Or what's the average expected outcome? And for some people, you meet them and you're like, "Oh my gosh, this person is amazing." Like, their average outcome is gonna be up here. And for other people, you're like, "Wow, this person got lucky. You know, they're [laughs] not that good."
4. MOMolly O'Shea
  [laughs]
5. EGElad Gil
  And they hit that thing, and oh my gosh, like, what a lucky, you know... I'm not gonna cuss, but what a lucky person.
6. MOMolly O'Shea
  Yeah.
7. EGElad Gil
  Um, and so usually the people running these companies are really good and, um, you know, is really good finding the TAM or is really good exploiting it? And maybe it's both. I'm not sure. Um, but the best founders, um, tend to be very smart, very driven, very aggressive, wanna win, relentless work ethic. You know, it's a bunch of stuff that for a couple years people tried to say wasn't important, but is extremely important.
8. MOMolly O'Shea
  Mm-hmm.
9. EGElad Gil
  They tend to be very smart, very strategic, um, able to motivate people extremely well. Um, I don't think any... You know, people are kind of on this weird memetic thing about autism. They're not autistic.
10. MOMolly O'Shea
  [laughs]
11. EGElad Gil
  You know, they read people very well. Whether they care about how the person's feeling in the moment may matter less or more, but they can read people very well, and they know how to motivate them and poke them and... You know? So I think a lot of that stuff gets really misunderstood. Some of them are deeply loyal and, and friendly people. You know? So, um, I think there's these interesting almost misconceptions in startup lore about, like, what makes for somebody who's very effective at these highest levels.
12. MOMolly O'Shea
  Who's an entrepreneur that you admire?
13. EGElad Gil
  Uh, I mean, Elon Musk has just accomplished amazing things.
14. MOMolly O'Shea
  Why?
15. EGElad Gil
  Why has he accomplished them, or why is, uh, why is, why are they amazing? [laughs]
16. MOMolly O'Shea
  Both.
17. EGElad Gil
  Well, I mean, sending rockets into space, building a next-gen, uh, ele- electri- electrification company/cars for the first time in the US in a long time. Uh, you know, co-founding OpenAI. Like, that's pretty, that's pretty good.
18. MOMolly O'Shea
  It's not bad.
19. EGElad Gil
  Yeah, it's not bad. You know?
20. MOMolly O'Shea
  He's doing okay.
21. EGElad Gil
  He's doing fine. You know, I'm-
22. MOMolly O'Shea
  [laughs]
23. EGElad Gil
  ... I could've done better, but he's saying-
24. MOMolly O'Shea
  [laughs]
25. EGElad Gil
  ... you know, he's not bad, so...
26. MOMolly O'Shea
  Hey, it's Molly. If you enjoy our interviews, check out our newsletter, Sourcery.vc, where we deliver a once-a-week top deals and tech headlines email, and also go deeper on our podcast interviews. Subscribe to Sourcery today. And don't forget to subscribe to the podcast on YouTube, Spotify, Apple, or wherever you listen. Link in description to sign up.