Uncapped with Jack AltmanFounders Fund on Truth-Seeking, Taiwan, and Whether You Can Still Beat the S&P | Ep. 53
EVERY SPOKEN WORD
85 min read · 17,203 words- 0:00 – 0:54
Intro
- JAJack Altman
It is less important to be exactly true than it is to be directionally true.
- SPSpeaker
Mm.
- JAJack Altman
Because it's really hard to shift the Overton window. Most people are like, they try to, like, sort of moderate their approach to something. Because of that, they're not directionally pulling hard enough to shift any strategy. Whereas I think Peter is just like, "I'm gonna get like super... I'm gonna dig in my heels on this," and be like-
- SPSpeaker
Just to move the window a little bit.
- JAJack Altman
Just to move the window a little bit. And that tiny adjustment that ends up being made i- is really powerful. All right. Well, very excited for this. What a crew we have here. Delian, you excited to be here?
- SPSpeaker
Oh, yeah.
- JAJack Altman
Yeah. I've been looking forward to this for a while. You two-
- SPSpeaker
In the lion's den.
- JAJack Altman
100%.
- SPSpeaker
[laughs]
- JAJack Altman
It's, it's gonna be hard. And, uh, Trae-
- SPSpeaker
Oh, sorry. Tiger den.
- JAJack Altman
The tiger den. Yeah.
- SPSpeaker
[laughs]
- JAJack Altman
That's right. Um, can we run that back? [laughing]
- SPSpeaker
There was a lot of discombobulating-
- JAJack Altman
[laughs]
- SPSpeaker
... commentary there.
- JAJack Altman
We can try to... [laughs] We're gonna try to have a serious conversation.
- SPSpeaker
That's gonna be, that's gonna be this whole two
- 0:54 – 8:01
What makes FF unique
- SPSpeaker
hours.
- JAJack Altman
No, I got to do this with Trae, and that was amazing, 'cause we wanted to bring it all together. My first question is actually for Ev. And we're gonna start in a really positive place. We really respect what you guys have done and what you do as a firm. I, I hope that's the same. But Ev, you've worked at both. You've talked a bunch about, like, what makes Benchmark unique. I've obviously gotten to hear a lot about that from you. But I'd be curious for you to talk about what you loved about Founders Fund, maybe compare it a little bit to, like, what's different from other places, maybe Benchmark, but I'd just be curious for you to start here.
- SPSpeaker
I think when people that aren't in the investing business think about what investors do and, like, what the day-to-day or, like, what an investment committee looks like within a venture firm or any investing firm, I think they have this, this idea in their head that, like, you know, the team comes together, they've done a bunch of research, they've done a bunch of work, and they have this, like, very intellectually honest debate about the merits and considerations of the investment and, like, weighing the risk/reward and then coming to some, like, intellectually perfect, um, decision about that investment given all the information that they've gathered. And that's just, like, not how basically any firm actually operates. There's so many other, you know, politics or organizational structures and incentives that, like, push you away from this, like, truth-seeking place. And so I think the, the really unique thing about Founders Fund that, that, um, when I came in, I thought was just so amazing and unique was, like, not only that it was, like, a culture that bought... like, truly bought into the, like, process of truth-seeking, and, like, really putting, like, truth-seeking on a pedestal above, like, you know, the, the hierarchy of who's a GP and who's not a GP or any of these other things. But then also there was, like, even, like, organizational incentives and structures in place to, like, keep that the same basically no matter who was, you know, in the halls of, of Founders Fund, um, so the one that, that I- I've, I've mentioned before is this, like, 1%, um, you know, like the 1% mechanism or provision or whatever, whatever it's called, which is for any investment that you do at Founders Fund, 1% of that investment on a dollar basis is set aside for the people that worked on the investment to basically angel invest up to 1% of the total dollar amount. Um, and it's not just, like, some, you know, workplace benefit. The entire idea of that mechanism is to basically measure the conviction of the partners or the investors that are sponsoring a given investment. And so-
- JAJack Altman
You guys still do that?
- SPSpeaker
Mm-hmm. Yeah.
- JAJack Altman
Like, if somebody doesn't wanna do it, are you... Is that, like, a thing?
- SPSpeaker
No. I, I think, like, it's, it's really important to be mindful to liquidity constraints, obviously. Like, you know, people on the team have very different personal financial situations. Um, so it's not super prescriptive, but it is, like, a useful tuning because y- you don't have to do the full 1%.
- JAJack Altman
Yeah.
- SPSpeaker
Uh, you know, you can split it up between the different parties that work on the deal, or you can say, like, "Hey, I have five grand or whatever that I, I wanna put towards this." It's not a signal of lack of conviction. It's just, like, based on liquidity constraints.
- JAJack Altman
Yeah.
- SPSpeaker
I think it's more helpful, like, on a individual comparative basis. Like, if you're known for doing lots of 1%s, and on this one you're choosing not to-
- JAJack Altman
Right
- SPSpeaker
... people will ask. But it's like, if you typically don't and then don't, that's not necessarily a signal.
- JAJack Altman
Are there any other, like, incentive aligning mechanisms like this that you guys have going? Or what would you... I guess what would you two ascribe... Obviously, you've, you've been at Founders Fund much longer than, than I was. What would you ascribe... A- and do you agree that, like, the, the, the thing about truth-seeking kind of being, like, the highest calling of, of the team and, like, what do you ascribe that to, if it's cultural, if there's organizational things that lead to it?
- SPSpeaker
You know, when I first joined Founders Fund, a- as you guys know, like, I, I didn't have any interest in venture capital. I just ended up there because Peter basically told me that I was gonna do it, and I wasn't clear that I had an option. [laughs] Um...
- JAJack Altman
I love that. That's the best kind of recruiting process.
- SPSpeaker
[laughs] Yeah.
- JAJack Altman
You're gonna work here.
- SPSpeaker
Um, and so I, when I showed up, I, I kinda didn't know what I was doing, and I had this, like, hypothesis that venture capital was gonna be more like what you said. It's like this diligence exercise, and you meet with hundreds of companies a year and, you know, you do, like, a deep process on each of them, and the hard part is making the literal investment decision. Uh, it's, like, not what it is at all. It's like there are tens of thousands of companies that are raising at a- any given point. Ninety-nine percent of them are obviously n- knowably bad [laughs] within a second. And so th- really, it's about access and finding the super high conviction things that you wanna pour your energy into. And I think that's, like, really what makes Founders Fund unique is that we're just very internally honest about that. And if you're not personally super high conviction, I really wanna do this deal, I'm gonna fight for it, I'm gonna be willing to argue, I'm gonna be willing to, like, put my reputation on the line disagreeing with Peter, if you're not willing to do that, you're just never gonna get a deal done. And so that's really all it is at the end of the day. Yeah. I, I spent a little bit of time early in, like, my venture career at KV, and one of the things that I find very uniquely different between, you know, sort of the two models is at FF, so much more of what we do, and I'd have to look it on, like, a
- DADelian Asparouhov
Dollars basis or deal count basis, but there's so much more that I feel like, like sort of rises from below, if that makes sense, where it's like individual team members that have like, you know, sort of really strong conviction and then are steadily presenting that case to other colleagues and working their way up and then, you know, at FF still every check above meaningful size requires Peter's approval. But it's almost always like that person steadily, you know, sort of gaining conviction and convincing others, and then eventually presenting that case to Peter, much more so than like top-down Peter saying like, "We need to go invest into, you know, sort of this thing." And I think that creates some like truth-seeking by default because there's such high, like activation barrier of Peter's got many things going on, Trae's got many things going on. And so if you're going to take up years of their time, especially 'cause like venture's not the only thing that they do, you're going to want to have a really compelling case as to why, versus at other places where like the GPs are really full-time only investing GPs, I find that they also like are the ones leading a lot of the investments, you know, sort of themselves, which I feel like that's like less the case at FF.
- JAJack Altman
The incentives thing is interesting. Like, I feel like, um, o- one of the things w- I've noticed here that Ev and I have talked about is that like because there's sort of like nothing at Benchmark to fight for, like everybody's equal. You're never gonna get, you know, a promotion. You're never gonna get a raise. And so because a lot of that stuff is stripped out, it leaves there to be sort of nothing other than just try to make good investments and try to help your teammates make good investments, versus I think at a lot of big firms, that gets like harder because there are other competing interests that people have. But I think Founders Fund seems to have avoided a bunch of that through a lot of these sort of mechanisms that we're talking about, like, you know, there's the 1% thing, there's the fact that like a lot of senior people are like crazy busy. But I also feel like you guys have a cultural thing where there seems to be something to it. Like I think, you know, Ev's talked about how like, you know, at a Founders Fund partner meeting, people can like get pretty heated over ideas or even maybe at each other, but like somehow at the end, like everybody still like really likes and cares about each other, which I think is like the inverse of that, which is like ruinous empathy or sort of just like toxic collegiality that I think is much more common where people like-
- TSTrae Stephens
Everyone's very polite.
- JAJack Altman
Very polite, and then after the meeting they're like, "Look at that idiot. Like, I can't believe he thought that."
- TSTrae Stephens
I just think the, uh, EQ of the team isn't high enough to be able to operate in that way. [laughs]
- DADelian Asparouhov
Maybe we just got a little sprinkle of it, and so as a result we, ev- everybody just says what they
- 8:01 – 12:10
Lacking EQ can be an asset
- DADelian Asparouhov
think and moves on.
- TSTrae Stephens
Yeah, because I, I just don't think people are tuned to even understand how the things they say have like an emotional impact on other people.
- JAJack Altman
Would a super high EQ person not work particularly well at Founders Fund?
- TSTrae Stephens
Either that or they'd be like really good at manipulating the group. [laughing]
- JAJack Altman
Just take, take full advantage of the-
- TSTrae Stephens
One or the other. I'm not really sure it could go either way.
- JAJack Altman
Yeah, they'd, they'd never know.
- TSTrae Stephens
Yeah.
- JAJack Altman
They'd never know.
- TSTrae Stephens
They would never know, yeah. [laughs] Exactly.
- JAJack Altman
Actually, can I ask, what, what is like Peter's interpersonal sort of like... What, what, what's the experience? 'Cause I think he like, um, like I could imagine you sort of saying this in either direction, but he clearly is deeply attuned to people in some important way. Is this thing you're describing about EQ, is that related to him? Is it different from him? Because obviously, you know, when you have a founder of a firm, of course like a lot of the DNA is gonna to go through it, but like does much of this kind of come from, from him?
- TSTrae Stephens
One of the things that he said to me very early on, um, we were talking about having kids and, you know, what we wanted for our kids and stuff, and, um, we were talking about like intellect as being like one of these things that you as a parent think about wanting for your kid. And, um, he said something to the, like along the lines of, "I think like one thirty is like roughly the right IQ, because anything over one thirty, there are too many trade-offs." Um, and I think that's like sort of... You're like, you're not hiring people for their EQ or lack thereof. You're hiring people to have really high IQ that are able to hold their own, hold their own in these debates, and the reality is, is like when you do that, there are trade-offs.
- JAJack Altman
Right.
- TSTrae Stephens
And so we're, we're kind of experiencing the result of those trade-offs many times.
- JAJack Altman
Too smart for your own good.
- TSTrae Stephens
Yeah, or, or maybe it's exactly for everyone's good, uh, because we don't have these like weird harbored p- politics and animosity.
- JAJack Altman
Yeah. Yeah.
- TSTrae Stephens
At least I don't feel... I've never felt like that.
- JAJack Altman
Delian before the pod told me that he can't stand you, but other than that [laughing] I think it's all... Everyone likes each other.
- TSTrae Stephens
Of all people, I think Delian and I are very cool with one another, so.
- DADelian Asparouhov
I, I think like Peter, um, deeply understands people, but like, uh, uh, from like an intellectual framework level. Like I think he's very good at like quickly understanding where is somebody biased, where do they have blind spots, like, you know, what are they good at, what are they not good at. In terms of like how his words will have like XYZ emotional impact, like, you know, you know, Trae said, yeah, I think that, you know, sort of poor rat. But I think when it comes to like deciding on whether or not to make an investment, it's actually much better to understand, I think, somebody's intellectual capabilities-
- JAJack Altman
Yeah
- DADelian Asparouhov
... versus the like emotional impact side of it. And I, I think also right now is probably amongst the best cultural states it's been in, in the time that at least I've been there, but then even from the like history that I've heard. And I think there's a variety of reasons as to why that is, but definitely one of them is if you like look at the, you know, call median age or median, uh, tenure of somebody on the team, it's probably something on the order of like seven or eight years, uh, which is I think reasonably high relative to most years at venture firms, you know, amongst a spread of, you know, call it 12 people that are there.
- JAJack Altman
Has the culture gone through like ups and downs? I mean, you've been there a long time.
- TSTrae Stephens
Oh, for sure. Yeah.
- JAJack Altman
Does it... And do you think it matters? Like maybe ask more accurately, what do you think the impact is of like good and bad cultures at various points in time? 'Cause obviously you can make a great investment in the context of a terrible culture and vice versa.
- TSTrae Stephens
Primarily, it's like, can you retain the people that you have that are doing a good job? Um, I think that's like ultimately the thing. 'Cause you're right, like you could have, uh, you know, Bridgewater as like an example, like great performance, but I think it's a really hard place to work for a long period of time. You know, that's sort of the trade-off that you're making at, at some of these funds. It's usually not like a systemic problem. It's usually like there are individuals inside of these systems that tend to sort of like buck against what the general expectation is from the team for like what they signed up for, if that makes sense.
- JAJack Altman
Yeah.
- TSTrae Stephens
Um, and then when they feel like there's been some sort of violation, things get, you know, they get dicey. Um, when I first came into Founders Fund, it was definitely like people were kind of in their offices Staying very quiet, staying away from each other. And, you know, I was walking through the halls trying to give people high fives, and they were like, [laughs] "What's going on right now? This is really weird."
- JAJack Altman
Yeah.
- 12:10 – 18:30
Delian on working with Keith
- TSTrae Stephens
when people aren't working out.
- JAJack Altman
Yeah.
- TSTrae Stephens
Um, and just being, like, really honest with ourselves about what we want in the long run.
- JAJack Altman
You know, I was just thinking as you were saying that, like, um, you obviously worked really closely with Keith for a long time, and then you didn't. And I'm actually interested to hear, we've never talked about this, but, like, what are your reflections on, like, you had this, like, sort of, like, apprentice relationship for, I don't know what it was, five, seven years?
- DADelian Asparouhov
Yeah.
- JAJack Altman
It's, like, wild.
- DADelian Asparouhov
Four and a half years, six years.
- JAJack Altman
Yeah.
- DADelian Asparouhov
Yeah.
- JAJack Altman
You're kinda, like, doing your own now, you know, with him going back to Khosla. Has that been, like, seamless and smooth? Like, do you reflect on that all a lot? 'Cause I think it's like, um, it was, like, an uncommonly sort of tight apprenticeship model. You don't see it all the time.
- DADelian Asparouhov
Yeah, I mean, obviously, like, single biggest influence I've ever had on, like, you know, sort of my, you know, sort of career, and I think that'll be the probably the case for the rest of my life because it's just, like, there's nothing that compares to those, like, early period where it was like he was the only person that I basically, like, you know, sort of worked with for, like, a really extended period of time. Versus now even though, like, Trae and I work together a lot-
- JAJack Altman
But Trae's impacted
- DADelian Asparouhov
... it doesn't compare to, like... Yeah. [laughs]
- JAJack Altman
[laughs]
- DADelian Asparouhov
Almost just not spending 12 hours a day, you know, with Trae, even, like, when we're most, you know, sort of collaborative. There's always this, like, talking point that I give to, um, founders or investors, which is within an operating company, there are actually, like, a, like, decent set of constraints that you have to, you know, sort of live by, which is, like, you have to, like, serve your customers, you have to, like, fundraise, you have to actually hire talent, et cetera. And so if you were to, like, examine the cultures of Anduril and Varda as an example, there's for sure differences, but in the grand scheme of, like, distribution curves, they're, like, probably not that different relative to the distribution curve that you see in venture. 'Cause in venture, there's effectively only, like, one rule, which is, like, IRR and make money, and then the rest is sort of, like, totally free form. And so if you were to compare the, like, Benchmark versus FF cultures, my guess would be that you would see way more differences in that versus, like, XYZ to, you know, sort of top tier, you know, basically startups would actually be much more, you know, sort of similar.
- JAJack Altman
Mm.
- DADelian Asparouhov
I do think that seeing Keith operate in these different environments, like, very, you know, sort of closely with him, I do think, like, my, you know, sort of net reflection on it, and I think he would agree with this, is, like, I do think his work style, personality, how he likes to do things actually just does fit into how KV's culture, et cetera, like, operates a lot better than I think it did, like, at FF. I'm not sure that that would've been obvious without actually, like, literally doing what he did-
- JAJack Altman
Yeah
- DADelian Asparouhov
... and in some ways, like, sampling the two. And I do think also him coming over to FF helped fix some of the things that he wanted to get fixed at KV. So I think actually, like, the whole process and outcome was, like, the best for everyone all around. Obviously now not working with him, like, day in, day out is, like, an interesting experience where it definitely, like, you know, took me some time. And I remember, you know, Trae and I went on this, like, super long walk, uh, maybe, like, a week after it was, you know, sort of clear that's where, you know, sort of things were headed. It had already steadily been happening over the prior year or two where I was doing more deep tech, I was doing more, you know, sort of Varda things, which are very not the, like, Keith fintech, et cetera, type of things. The thing that made me comfortable with in some ways staying was actually looking back at the prior year investments and realizing, like, of the people that, like, I worked with on, like, votes on a, you know, check, the prior year was actually 80% Trae and Scott Nolan.
- JAJack Altman
Yeah.
- DADelian Asparouhov
And it was only, like, 20% Keith. And so I was like, "Oh, well, like, I'm already, you know, sort of doing this job."
- JAJack Altman
You're out of the wing.
- DADelian Asparouhov
Yeah, yeah. I'm out of the wing already, basically.
- TSTrae Stephens
The other thing that's worth mentioning about this is that, like, um, Keith stylistically is, like, a really good coach or mentor because he's very hands-on. He's... He, like, he wants to do updates. He wants to, you know, get in the weeds with how something is going. That's, like, the opposite of really Peter and myself. Like, we're not like that at all. Like, I, I think I'm a terrible lead.
- JAJack Altman
Sure.
- TSTrae Stephens
Like, I'm, I'm a bad... I, I don't mean lead investor, I mean, like-
- JAJack Altman
I meant, like, board member
- TSTrae Stephens
... board member.
- JAJack Altman
Yeah.
- TSTrae Stephens
Yeah. I'm, like-
- 18:30 – 24:13
Why Trae hates board meetings
- DADelian Asparouhov
Founders Fund team would quit.
- JAJack Altman
Yeah. Do you not like the board member stuff because you think the board member theatrics or it's because you're like, "I made the investment and you should figure it out, and I don't wanna be part of it"? Like-
- TSTrae Stephens
I've thought about this a lot. There are three things.
- JAJack Altman
Okay.
- TSTrae Stephens
The first reason I hate it is the board member theatrics. It's, like, people who-
- JAJack Altman
It's exhausting
- TSTrae Stephens
... who believe that somehow they are better at running the company than the founder, and they, like, stand on a soapbox and try to convince everyone in the room that they're really smart. I, I don't-
- JAJack Altman
I can't deal with that
- TSTrae Stephens
... I hate when peop- you say, you're like, you're in a board meeting and, like, someone's there, and they're like, "This..." You can tell that they're like, "This is my Super Bowl. Like, I'm gonna-
- JAJack Altman
[laughs] Yeah.
- TSTrae Stephens
... I'm about to show off in front of everybody."
- JAJack Altman
I'm about to show off. Exactly.
- TSTrae Stephens
And I'm like, "Come on." And also, like, if we, if you invested in the company, you should probably believe that the founders are the right people to run the company, otherwise you shouldn't have invested. So that's the first, the first thing. The second thing is information density is at an all-time low. A pitch meeting, I, in 30 or 45 minutes I can, like, do a full dump of everything that I believe that I need to know, and if I have follow-up questions, I can do that asynchronously or whatever. But I can't tell you how many times I'm sitting in a board meeting that's, like, scheduled for three hours and it's like, "Dude, we could've done this in an email. Like, just tell me what the numbers are, tell me what your struggles are-
- JAJack Altman
Yeah
- TSTrae Stephens
... answer a couple questions. Let's get, let's get out of here."
- JAJack Altman
And when you think about how expensive that three-hour meeting is, they had their whole exec team there, and it's like, "Oh, man."
- TSTrae Stephens
Yeah, it's crazy how low the information density is. And then the third reason is that I don't actually think that I'm adding a lot of value, and I don't like being in situations where I don't feel like I'm adding a lot of value. And so when I sit through this thing where I, like, sponge up a bunch of information, maybe I, like, interject one or two things, it's like, this is not only a waste of my time, it's a waste of everyone else's time to have me, like, sit here and pretend that I'm gonna know the right things for you to do in all these moments.
- JAJack Altman
Okay. So you don't wanna do it, but do you think venture should have people who do wanna do it and are engaged and do the whole board member thing, or do you think the whole construct's wrong?
- TSTrae Stephens
At some stage, I think you, you need to have governance. Like, there should be a board that serves a function. I think these boards are pulled together way earlier than they should be. Like, a Series A company should not have a board. It's just really stupid. You know, "What are you reporting on?" "Oh, we, like, built additional features into our product." [laughs] It's like, who cares, dude? That's like, I don't-
- JAJack Altman
[laughing]
- TSTrae Stephens
I just don't understand-
- JAJack Altman
I can't imagine you at a Series A board meeting and they're like, "Yeah, we had a great month." You're like, "I don't give a shit, man." Like [laughing]
- TSTrae Stephens
I really don't care. It, it's exhausting. There's almost a perfect correlation between the funds or people that think you should have a board at a seed or a Series A and the type of people you don't want on your board long term.
- JAJack Altman
Okay.
- DADelian Asparouhov
I think the core thing at FF is, for a decent chunk, especially with the venture team, we're constantly comparing it against just going to go work on our own companies. And so I just think the venture, the way that we view venture is very different, where it's like we are working on this 'cause we're explicitly choosing to not work on the company, and so this better be very high value. Relative to somebody who's doing it full time, that is like, "Well, I need to figure out some way of making myself feel valuable in this world," and so board member theatrics is one way of feeling good about it.
- JAJack Altman
Well, then you, you both have boards at Varda and at Anduril.
- DADelian Asparouhov
Mm.
- JAJack Altman
Do you feel like you've been able to take these things that you really don't like about boards and, like, like, would you, how would you grade... Not to put you on the spot, but how would you, like, grade the work that you've done to make the boardroom at Varda and Anduril?
- TSTrae Stephens
Massively condense-
- JAJack Altman
Yeah
- 24:13 – 26:31
Benchmark vs. Founders Fund
- DADelian Asparouhov
just like, you know, you know, getting external perspectives. But-
- JAJack Altman
This, this is another area where I would say Benchmark and Founders Fund are like pretty opposite, where you guys are like, it's, um, you know, mo- as much of the work as possible is on building. It's like in some ways the investing is like, we'll do as much of it as we can, but it's kind of competing with, you know, operating in a lot of ways. Versus at Benchmark, everything is designed so that there's literally nothing else to do but invest, and like that's sort of like the goal almost is like Benchmark wants there to be nothing for the partners to do but make investments and work with those companies. You want it actually to be very hard to make investments and make-
- DADelian Asparouhov
You want there to be lots of things that compete for your attention-
- JAJack Altman
That aren't investments, yes
- DADelian Asparouhov
... that are better things to do than investing.
- JAJack Altman
It's like, yeah, exactly.
- JAJack Altman
Yeah, it's sort of, it's sort of like the being professional at anything. It's like if you're a professional baseball player, you're gonna hit a lot in the batting cage, you're gonna take a lot of ground balls because that's what you're being paid to do. It's like you have to do it.
- JAJack Altman
Yeah.
- JAJack Altman
And so if you're a professional investor, you're gonna feel like I have to be doing deals all the time. Now, the challenge is like having discipline around that, because sometimes the right decision is-
- DADelian Asparouhov
Don't invest
- JAJack Altman
... not to invest.
- JAJack Altman
That's right.
- JAJack Altman
And so if you're-
- JAJack Altman
By the way, one good way to implement that is by saying, "If you wanna make an investment, you have to be on the board for the next, you know, 10 years." [laughing]
- JAJack Altman
I mean, I would never make an investment. [laughing] I would just I'm out, I'm out.
- JAJack Altman
If I had to make Trae [laughing] In that situation, Trae, you're gonna pay 1,000X multiple on revenue-
- JAJack Altman
And you're gonna be on the board for 10 years. [laughing]
- JAJack Altman
2,000 hours of board meetings. [laughing]
- JAJack Altman
Delian, you said something recently that, that did really resonate, which is like the investing side of things should almost be like an exhaust, or you see it almost as like a side hobby or like an exhaust of what you already do in your operating day-to-day job at Varda. And I do think that there's like, even as like a mental framing, I was trying to, to frame that for myself and it's like in some ways, like, you know, depending on like the stage of investing that you're doing, like you could see your job as like, I'm a researcher and I'm a networker with this group of people, whether it's like, let's say you're in cybersecurity, like cybersecurity experts or whatever, and then the exhaust is that once in a while I do an investment.
- DADelian Asparouhov
There's this investment that we were just talking about earlier that you guys met, you know, sort of this week that we just led the seed round on that I think is like a, like perfect example of this, where it's just like I, over the past couple years have just gotten deeply frustrated watching like cognitions and, you know, cursors just out of the world completely transform how like a backend software engineer at like a Ramp or a Meta or, you know, name your favorite software company,
- 26:31 – 28:52
Investing as the exhaust of operating
- DADelian Asparouhov
you know, significantly improve their productivity. And then you just look at the sets of tools that we like use internally at Varda for our firmware engineers, thermal modeling, et cetera. It's the same stuff that I was using in 2012 when I was building robots, and it's like there's effectively no change. Like, the software's like slightly updated, but there's no improvement in productivity. And so I just started spending a ton of time looking at all the tools in that category. Some are now later stage companies in our portfolio, like Nominal I think is one of these that was like an early, you know, sort of example of this. But the one that you guys, you know, sort of met this week was this example of like, I was just so frustrated that there's this like very rote manual work that our junior mechanical engineers do that felt like the classic type of thing that AI should clearly be able to not just like slightly improve the workflow on, but just completely remove. And then was like, I'd probably met at that point maybe like 15 different companies that were like in this space, frustrated by all of them. I met like the 16th one, and I was like, "Great, this is the one." Like it's just the best founder, the best product, the best idea, and I was like, "I want to invest." And it's like, I partially like doing it 'cause I like doing the early stage, you know, get 10%, like, you know, start to be a little bit of like that founder coach. But then I also specifically like it because it like solves a problem at work. Or another one that we like, uh, did together way back in the day that is just one that solves a problem personally is like we both did Eight Sleep together back in the day, and it was not because like we like had some deep hypothesis on like mattress markets or anything like that.
- JAJack Altman
You're just like, "I'm so hot in the middle of the night."
- DADelian Asparouhov
I'm just so hot in the fucking middle of the night [laughing] and I'm just like, "I don't want this to happen anymore, and this is a good product." And I remember at the time we were like, "We have no idea if this is going to be a good business," but like it is a really good product and like typically over time, good products turn into good businesses. And-
- JAJack Altman
My memory is that I actually was, I was crapping all over this deal. I was like, "Guys, this is so dumb. Why are we investing in a mattress company?" And I think it was Keith that actually said like, "Just try it."
- DADelian Asparouhov
Try it. Yeah.
- JAJack Altman
And I-
- JAJack Altman
You just said correct
- JAJack Altman
... like I slept on it for one night and I was like, "Let's freaking go. [laughing] Let's invest in this company." But yeah, I think that's totally true. On the, on the like being a professional investor side of things, like, you know, I, I think if you look at different vintages, like 2022, you could argue that actually like the best investors were the investors that stopped investing. How do you deal with that if, if like you've tuned your whole system for like building a track record by making good deals?
- JAJack Altman
I think there's a couple. One is... 'Cause I was actually just looking. So, um, we, we had a fund that, uh, I wasn't here obviously, but, um, there was a fund that was, that had 2022 included in it. I don't think it's, like it's hard to be excited about much of what happened in
- 28:52 – 30:42
Venture as a micro asset class
- JAJack Altman
2022, but it's a three-year fund, and then it also has 2023 and 2024 in it. And so one answer to this is you're consistent through vintages, you have some time diversification per fund, and like, you know, you hope that the 2022 also includes the 2023, and so like you get through some of it that way.
- JAJack Altman
Yeah, this is, Bryan Zingerman used to always say that venture is not a macro asset class-
- JAJack Altman
Mm-hmm
- JAJack Altman
... it's a micro asset class. As long as you're in the right companies, it doesn't really matter. Um, but like the, if you just look at the data-
- JAJack Altman
Yeah
- JAJack Altman
... around the 2022 vintage-
- JAJack Altman
Yeah
- JAJack Altman
... or the window around that, it's massively underperforming-
- JAJack Altman
That's right
- JAJack Altman
... other ven- vintages. I think there's like some truth to that, and then there's also-
- JAJack Altman
Yeah
- JAJack Altman
... some risk.
- JAJack Altman
There is.
- JAJack Altman
Yeah.
- JAJack Altman
There is risk to it, but it's also like, um, unless you're Peter Thiel-
- TSTrae Stephens
I think trying to call the market moment is also very risky.
- JAJack Altman
Mm-hmm.
- TSTrae Stephens
And like you look at like, let's take like, um, public market index investors. People who just buy and hold the S&P destroy people who try to, like, time it almost, almost every time.
- JAJack Altman
Right. Yeah.
- TSTrae Stephens
And so I think if you're not one of a small number of investors that, you know, you guys might have on your team, I think it's... You can, you can mess it up in a big way. 'Cause I think there are a lot of people who are like, "Ah, 2017, this is a bad time. We're at the top. Don't invest for the next few years," and then, you know, you miss some good companies. Or 2023, 2024, you still don't have your foot back on the gas, you can miss it. So I, I guess, like, my counter to that would just be that, like, most people can't call the macro very easily.
- JAJack Altman
Mm.
- TSTrae Stephens
And if you can't call the macro very easily, and then you miss the good vintages, like-
- JAJack Altman
You have to focus on the micro. Yeah
- TSTrae Stephens
... you miss it all.
- JAJack Altman
I- if you can't call the macro, there's at least enough data that you should be able to, like, remember prior cycles, which it doesn't seem like we have the ability to do at all. Memory is so short. Like, 2022 is not that long ago. [laughs]
- TSTrae Stephens
[laughs] And like-
- JAJack Altman
January this year was four years ago.
- TSTrae Stephens
[laughs]
- JAJack Altman
And everybody's like, "Man, we can't do that again." [laughs]
- TSTrae Stephens
[laughs]
- 30:42 – 34:21
The infamous 2021 offsite
- JAJack Altman
months ago, you know? [laughs] And it's crazy.
- TSTrae Stephens
Yeah, it's crazy.
- JAJack Altman
Well, a core investing memory of mine was actually an offsite at your house, Trae, and this was peak in 2021. The crazy thing was, like, the consensus in the room was that it was, the bubble was about to pop. Like, one, that we were in a bubble, and then two, that it was definitively about to pop. And the conclusion that we came out of that offsite actually was to... Peter wanted us to go to the beach for a year, um, and do a sabbatical. But the, the conclusion was, let us invest in our very best companies, and we made two investments. I won't say them un- in case that's weird. But we did two investments, and both of them have been actually even vintage adjusted really, really good.
- TSTrae Stephens
Mm-hmm.
- JAJack Altman
And so I think that, like, to the micro versus macro point, like, the, the winter of 2021 was the worst possible time to make an investment probably in, like, the last 15 or 20 years in venture. And I think if you still get the micro right, like maybe you would've made more money if you would've done those investments in the summer of 2022 'cause you still probably could've done them, but they were still really good investments. Both of them.
- TSTrae Stephens
I mean, this is, this is the nature of Peter, is that, like, no matter how annoyed you are with him, he's always right. [laughs]
- JAJack Altman
[laughs]
- TSTrae Stephens
Like, on some timeline-
- JAJack Altman
Yeah. [laughs]
- TSTrae Stephens
... he's always right. I can't tell you how many times I've been like, "Oh, this is so ridiculous." Like, you know, he's getting so emotional about this, this thing that, like, I don't understand why he's so charged about it. And then 12 months later, I'll look back and I'll be like, "Shit, wow." [laughs]
- JAJack Altman
[laughs]
- TSTrae Stephens
"Can't believe how well he nailed that."
- JAJack Altman
But I think it's really dangerous to try to do this if you don't have someone like that.
- TSTrae Stephens
Yeah, if you're not Peter.
- JAJack Altman
And-
- TSTrae Stephens
I couldn't do that. There's no way I could.
- JAJack Altman
I, I think almost nobody can do that.
- TSTrae Stephens
Yeah. And, and I think there's, like, something really unique about him as where, as well, where he understands that you... It is r- it is less important to be exactly true than it is to be directionally true.
- JAJack Altman
Mm. Yeah.
- TSTrae Stephens
Because it's really hard to shift the Overton window. And so, like, most people are like, they try to, like, sort of moderate their approach to something. Um, and they, because of that, they're not directionally pulling hard enough to shift any strategy. Whereas I think Peter is just like, "I'm gonna get, like, super... I'm gonna dig in my heels on this," and be like-
- JAJack Altman
Just to move the window a little bit
- TSTrae Stephens
... just to move the window a little bit.
- JAJack Altman
Mm-hmm.
- TSTrae Stephens
And that tiny adjustment that ends up being made, um, is, I- is really powerful. And I come up, come up with this all the time with Anduril, with our executive team, where, like, you know, the, everyone wants to be reasonable, and I feel like I'm constantly coming in over the top, being completely unreasonable, and I think it's just, like, a, a learned-
- JAJack Altman
Not actually wanting the outcome that you're saying.
- TSTrae Stephens
Right. It's just a learned behavior-
- JAJack Altman
Yeah
- TSTrae Stephens
... from Peter.
- JAJack Altman
Yeah.
- TSTrae Stephens
It's like, I'm gonna say something that even if I don't believe that we should do exactly what I'm saying, I, I'm just trying to pull people out of their, you know, their, like, you know, unintentional stasis that they've-
- 34:21 – 39:18
Current market sentiment
- DADelian Asparouhov
really big investments, and we're like, "Okay, like, you know, we can stop now." [laughs]
- TSTrae Stephens
Is there any, like, rising discomfort in Founders Fund at this current moment that's like 2021, or is that not the tone?
- JAJack Altman
I think it's probably different across different people. I am very uncomfortable. Uh, I am not enjoying this moment at all. [laughs] Um, maybe some other people are.
- TSTrae Stephens
Why aren't you enjoying it?
- JAJack Altman
I feel like we're getting back to this point where the prices are untethered from reality, and it, like, reminds me a lot of 2021.
- TSTrae Stephens
Mm. I mean, you're also, um, you're in, uh, obviously there's AI, but I know you spend a lot of your time in hard tech, which is now probably just as hot as AI it seems like.
- JAJack Altman
Totally, yeah. If not hotter in some ways.
- TSTrae Stephens
Yeah.
- JAJack Altman
I, I feel like there's almost been a bit of a reset, particularly on, like, vertical AI SaaS, where people are like, "Oh, crap," like, the, the labs are kind of gonna do a bunch of this stuff.
- TSTrae Stephens
Yeah, yeah.
- JAJack Altman
Uh, so maybe there's even been a bit of a reset, but there hasn't been any form of a reset on, on hard tech. And, um, I think, you know, Founders Fund for over a decade has had this sort of Founders Fund science concept of, you know, we wanted flying cars, and instead we got 140 characters. And we've probably been more active than anyone in investing in these hard tech companies, and did they work out? They did not, for the most part.
- TSTrae Stephens
[laughs]
- JAJack Altman
They did not work out.
- TSTrae Stephens
Most did not. Well, but you got... I mean, you got the ones that mattered.
- JAJack Altman
Yeah, we got, we got the ones that mattered, but it-
- TSTrae Stephens
If you, if you think about, like, where the most of those gains came from, it was actually PayPal mafia. It wasn't, like, a thesis-
- JAJack Altman
Right. Right
- TSTrae Stephens
... that turned into great returns.
- JAJack Altman
Right.
- TSTrae Stephens
It was-
- JAJack Altman
Your network
- TSTrae Stephens
... not like, that turned into great returns.
- JAJack Altman
Yeah, it's funny 'cause most people in your position would obviously say, "Oh, well, our thesis played out, and yeah, we had some losers, but we had Anduril and SpaceX," and so it was basically right. But you're saying that, like, actually thesis didn't really serve us and we would've made those investments anyway?
- TSTrae Stephens
And I think they were actually hard to make even with the thesis. Uh, you know, where, where not for Luke Nosek basically, like, putting his career on the line, I don't know that Founders Fund would've done the early SpaceX investments. When I pitched the Founders Fund team on Anduril, they were basically like, "Who's running this company?" [laughs]
- JAJack Altman
[laughs]
- TSTrae Stephens
Like, it's, it's not you and it's not Palmer, so you need to come up with a better solution. So these things weren't even obvious even when they were direct network. Um, and so I think, I, I think the thesis side of this, like, we're just way more careful around it now than we were historically, where it's like it's not sufficient to have a really strong technical founder. You, you have to have somebody that's equally good on the business side, otherwise it, it's just not gonna work. And what we're seeing a lot of today, whether it's, like, hard tech or defense tech or manufacturing, industrial automation, whatever it is, is that there's a lot of people with great ideas and interesting technology, um, but significantly accelerated rounds for the commercial progress.
- JAJack Altman
Mm-hmm.
- TSTrae Stephens
Um, and the belief, I guess, is that, like, well, if the product works, the company will just obviously work, and I, I don't think that's actually obvious at all-
- JAJack Altman
Mm-hmm
- TSTrae Stephens
... that the company will work.
- 39:18 – 48:53
Can you beat the S&P?
- TSTrae Stephens
There's way too much money in the system where they-
- JAJack Altman
Well, and forget the new funds. It's really just the, the mega platforms are consolidating $40 billion or whatever.
- TSTrae Stephens
Yeah. E- even that.
- JAJack Altman
Yeah.
- TSTrae Stephens
Um, and because those terms are shifting, it's like the deals that you could do 10, 15 years ago that led to these-
- DADelian Asparouhov
They're gone
- TSTrae Stephens
... hundred... They're gone.
- DADelian Asparouhov
They're totally gone.
- TSTrae Stephens
They're gone. And so, like, then the question is, like, can you actually over a, a venture cycle, like a venture fund cycle, can you actually beat the S&P 500 with the new, this new unit economic even if you're hitting the monopoly players? I don't know. It seems like it's way harder than it has been historically.
- JAJack Altman
I think it is way harder than it has been.
- TSTrae Stephens
Yeah.
- JAJack Altman
I mean, I think it seems like you'd expect across the industry multiples to compress, but the power law is still super strong, obviously.
- TSTrae Stephens
Mm-hmm.
- DADelian Asparouhov
One thing we've noticed is, like, in our latest venture fund that we kicked off maybe, like, six or seven months ago, the, like, average entry price right now I think is something like 700 million in valuation, and if you compare it to the prior five, those would probably be on average... 'Cause we do some mid-stage rounds in there, but it would probably be, like, 80 to 100 million, you know, in, like, you know, entry point average price. Probably speaks to the fact that, like, even seed rounds that we're doing are so high that then when you, you know, add in some of the mid-stage things that are also high.
- JAJack Altman
We don't talk about this much. What's your current comfort with the temperature in venture and funding and everything like that?
- TSTrae Stephens
Yeah, I'm, I'm also deeply, deeply uncomfortable. I think the, the similarity to 2021 that I draw, um, is that in 2021 there was this just, like, unanimous sense because 2021 p- people were... like, investors were making a lot of money. Like, there was a lot of things that were IPO-ing. Everyone w- was getting, like, a great cohort in 2020... 2019, 2020, and 2021 of really big IPOs that gave everyone kind of like a big taste of liquidity at the same time that everyone was getting markups very, very quickly and, and very, very, um, like, high markups very rapidly. And there just started to become this sense where you'd have a company that would be at, say, like 100 of ARR, and it would get priced at $10 billion. So you'd have this, like, 100X multiple on it, and the investor would be like, "Well, but, like, obviously it's gonna go, like, 100 to 300, and then 300 to 700, and then 700 to 1.4, and that's gonna be worth 30 billion, and I'll make a 3X in, you know, four years or whatever." It, it was just, like, this sense of inevitability without really digging deep into, like, one, just the immense difficulty and the base rates of how many companies that are at 100 of ARR that ever make it to 1.4
- SPSpeaker
Billion of ARR in that, like, arbitrary example. But there was a lot of situations that looked like that where everyone was like, "Well, of course, like, it's here, and, like, the trend's good, so it's gonna be there." And it's like, well, wow. Like, if it does get there, it's a three X from where you're investing in, and two, like, in history, the amount of people that have gone from here to there is five percent of all companies. And so you're, like, over-underwriting relative to historical norms by twenty X.
- TSTrae Stephens
Not to mention all the dilution along the way. [laughs]
- SPSpeaker
And you're not incorporating dilution in that equation. And so you only have these situations when people are, um, you know, making a lot of money and, and like I, I, I also... I think this, like, this duality is the key to a bubble where, like, it will also, like these last three years unquestionably are, is going to be the period where venture capitalists have made the most amount of money in history. Anduril, SpaceX, OpenAI, and Anthropic, they're going to produce the most amount of returns that we've ever seen, probably by two orders of magnitude, of any batch of companies. But then when you strip out those four companies or five or six companies, then, like, you start, one, playing with house money, and two, you start assuming that everything's gonna, like, be daisies and roses because of the, the success that, that has been baked in other parts of the market. And so it's just that, that feeling... Like, I'm feeling investors have that feeling o-of inevitability where it's like, "Yeah, I'm gonna invest at five billion, but it's gonna be fifteen billion in two years, and then we're gonna IPO or we're gonna sell it at that price." And it's like, oh, it's just we've forgotten how hard, how brutally hard it is to go from one to a ARR.
- TSTrae Stephens
Even if you go down from the hundred million ARR line, one of the things that I've noticed in my 12 years doing this is that there's this weird glass ceiling between twenty and thirty million-
- SPSpeaker
Mm-hmm
- TSTrae Stephens
... where, like, a reasonably managed enterprise SaaS company is gonna get to twenty or thirty million [laughs] in revenue.
- SPSpeaker
Yeah.
- TSTrae Stephens
But then, like, getting through that glass ceiling is super freaking hard.
- SPSpeaker
Yeah, like the percent that make it from twenty to a hundred is a massive, huge drop-off.
- TSTrae Stephens
Huge drop-off. And so I think that early on in, in my time in venture, I would meet with these companies that are like, "Yeah, in three years they've gone from zero to fifteen million in ARR," and it's like, "Oh, that's really g- that's a really good trajectory. We should, like, dig in."
- SPSpeaker
Yeah.
- TSTrae Stephens
And now I'm just like, I don't know. I mean...
- SPSpeaker
Well, it's tough because the way VCs are underwriting is forcing founders at one to five million of ARR to tell a story that we're going two to thirty to a hundred and fifty, and, like, you see that all the time. It, it... And then it forces people to build companies in weird wa- Like, it's all kind of distorting.
- DADelian Asparouhov
I think what's different about this cycle relative to '21 is that in 2021 you still had not even the best companies, um, were able to beat the original, like, Google early years of revenue growth. And then Anthropic in this cycle is literally the first company that since Google has actually, like, shown an even steeper basically, you know, sort of curve, and then I think that feeds into the both the, like, hey, you're playing with, like, house money. There's so much liquidity coming. But then also assuming that, like, anybody else will be able to now match that same, you know, sort of revenue trajectory. And there's things like, you know, even in our portfolio, Cognition is obviously on, like, a, you know, sort of wild, you know, growth rate, and then I think it just goes down the stack where people assume even the seed stage one million ARR thing is gonna be able to follow that same.
- 48:53 – 51:56
America's semiconductor blind spot
- DADelian Asparouhov
things maybe that connect to Anduril and whatever. But maybe just starting with chips as a point in time, like, what's the lay of the land? What are people, you know, excited about? Like, what are we missing?
- TSTrae Stephens
I think the, the biggest challenge is just around fabrication. It's, like, there's a lot of energy going into chip design, uh, you know, making more efficient AI chips or making more leading-edge chips or, you know, whatever it is for memory or for inference. Like, there's all of these different things that people are working on, and that's great. I'm glad that we're doing that, but at the end of the day, like, these chips are all coming from the same place, like, they're being made. Um, and for decades, the United States was the really only player in semiconductor manufacturing. Uh, that was actually where Silicon Valley came from. And we've completely lost our way with this. Almost entirely happens outside of the United States. To the extent that we were doing anything in the United States over the last, you know, couple of decades, it's not leading edge anymore. It's, you know, some of the more mass scale like automotive, uh, uh, chip fab and things like that, uh, or low-scale kind of research and development fabs. Um, and we haven't really figured out how to reshore, um, the leading-edge, uh, fabrication. And obviously, like, this is what the CHIPS Act was intended to do. It doesn't seem like there's a whole lot of traction coming out of the money that was spent there. Um, the government has made this big bet on Intel, uh, taking an equity position in the company to try to get them to the point where they can be not only a manufacturer of their own chips, but also as a merchant supplier of, uh, chips to, to other people. Uh, their yield rates are still really low. Obviously, Lip-Bu is doing everything he can to level that up and has the TeraFab project that he's working on with Elon now as well. So i- it's sort of our best bet, but not at all certain that it's going to work. The other companies that have, uh, leading-edge processes like TSMC and Samsung have been, like, getting attention from the government to try to get them to build domestic fabs in the United States, but the incentive structure for those is totally wrecked where, like, it's not clear why they would build any of these fabs. It's not clear that the talent even exists to do it domestically anyway. So I feel like our focus has just been sort of wrong. It's been on the eas- I, I'm gonna... I will say this, and I, I actually mean it. We're focusing on the easy part, design, which I'm not saying is easy on an absolute basis. I'm saying on a relative basis, we're focusing on the easy part, and there's a lot of money to be made there. But if we don't fix the hard part, none of this is actually going to work.
- DADelian Asparouhov
There's not even, like, an optimistic plan right now. Like, I think if you were to just look at all the chess pieces today and how they're playing for the next five years, there's nothing that would indicate it would be any different five years from now. Like, at least when you had, like, in 2015, we lost, you know, sort of access to space 'cause we shut down Space Shuttle and, like, we were dependent on, like, you know, the Soyuz for taking people up to space. At least you could, like, be like, "At least Elon is trying." Like, there's a, like, path to something where those will be brought back. 2020, we have it. If you were to, like, analyze what everyone is doing today and say, in 2030, you know, whatever one, is there gonna be leading-edge fabs in the United States at scale? It's like,
- 51:56 – 57:58
Taiwan and the 90% probability
- DADelian Asparouhov
uh, no, there's not even, like, anything that anybody's working on that would lead towards that today.
- TSTrae Stephens
Over the next decade, and if you haven't thought about this, no need to give an answer, but over the next decade, what do you think the probability is that Taiwan is, is quarantined or otherwise? I think it's high probability that it's not what it is today.
- DADelian Asparouhov
Yeah.
- TSTrae Stephens
Um, uh, if that's, like, a Hong Kong-like situation or if it's some sort of, you know, the United States reaching a detente, um, where we continue to have access to critical supply chain, uh, and we've given up something, uh, in, in that arrangement or, like, a full-scale invasion where, you know, we have to make a v- really hard decision about whether or not we [chuckles] want to actively support Taiwan. One of those outcomes is wildly probable, I think 90-plus percent in the next 10 years.
- DADelian Asparouhov
I feel like your view is pro- must be something along the lines of, like, we need to be able to, you know, we need U.S. chip fabs, right?
- TSTrae Stephens
We both need to, like, create a credible deterrent threat for a full-scale invasion of Taiwan, and that's the Anduril side of the problem that we're focusing on, um, which has led to our co-founders being sanctioned, uh, in China. So that's that. [laughs]
- DADelian Asparouhov
Yeah.
- TSTrae Stephens
Uh, and then on the other side of it, it's like, yeah, we n- we need to figure out some way to reshore the manufacturing credibly with, with a real plan.
- DADelian Asparouhov
I- is it, like, basically impossible to start a new company? Like, is there anybody... Are there any entrepreneurs with any amount of capital that could just start a net new chip fab, or is that just, is it too big of a problem?
- TSTrae Stephens
I wrote this article about choosing good quests, and I made some joke about how, like, celebrities monetize their brand by, you know, selling consumer goods like tequila or popcorn or whatever it is, just it's a commodity. They just slap their brand on it, and they make a bunch of money. Good for them. Um- Our version of this in Silicon Valley is like starting a venture fund.
- JAJack Altman
Yeah.
- TSTrae Stephens
You know, it's like all these people that have the ability to raise gobs of cash and do really hard things, they, you know, sit on the roof like Big Head from HBO's Silicon Valley and raise a venture fund and, you know, piddle around with AI. Um, and we really need them to be founders. We need them to be heroes. It's a big ask, but like I'm shocked that no one has taken it more seriously 'cause it feels like the most important thing that people could work on right now.
- JAJack Altman
But like what would... Like what does it take? Is this like Elon plus $100 billion? Like what, what actually is required for this problem for somebody to net new start one?
- TSTrae Stephens
I think it's Elon plus tens of billions of dollars. I don't know that it will require hundreds of billions, but, um, definitely in the mid-tens to do it. I, I mean, there's all sorts of levers that you have to pull. Like you would have to get the US government involved in pulling you to the front of the line with ASML to get the EUV.
- JAJack Altman
Mm.
- TSTrae Stephens
Uh, you would have to like figure out the supply chain stuff. You would have to build out the process, which is literally like thousands of tiny steps that you have to get high yield rates on so that you don't fail out as you, as you make them, which is a talent problem. We don't have enough skilled labor that understands how that works. It's really hard 'cause it's sort of death by a thousand cuts, and it will require someone that has the ability to manage that complex process-
- JAJack Altman
You should do it
- TSTrae Stephens
... as a leader.
- JAJack Altman
[laughs] Yeah.
- TSTrae Stephens
Yeah. Uh, as I said, I'm not a good manager, so [laughs]
- JAJack Altman
[laughs]
- TSTrae Stephens
I'm not sure I'm the right person to do it, but, um-
- JAJack Altman
Delian can help.
- TSTrae Stephens
[laughs] Yeah.
- DADelian Asparouhov
I need to get far, a little further along before I sign up for another one.
- TSTrae Stephens
[laughs]
- DADelian Asparouhov
Let's not do it once.
- TSTrae Stephens
Um, but you know, I, I think that like there are ways that we can shortcut some of this system. Um, we've invested in a company called Substrate that's building a new form of lithography that, um, simplifies the process for, um, the rest of the steps that are involved. Um, and it's like, it's really important that things like that get pushed down the road so that we can, we can actually pull this off. But this is like civilizationally important.
- JAJack Altman
Yeah, it seems like it.
- TSTrae Stephens
It's, it's not, it's not just a technology problem, it's a geopolitical problem.
- 57:58 – 1:11:56
Robotics, humanoids, and the China question
- TSTrae Stephens
need some fabs.
- JAJack Altman
Also in, uh, hardware, uh, Vinod said this on the podcast that like, you know, robotics will probably be the biggest thing of all time. Obviously Elon's, you know, thinking about this a lot with Tesla. Have you spent a bunch of time, you know, meeting with robotics companies? It seems like robotics would be something that would be square in sort of your guys' interest. Are you guys looking at it a lot?
- TSTrae Stephens
All the time.
- JAJack Altman
Seems like it should work, right? Like why wouldn't it work?
- TSTrae Stephens
On some timeline.
- DADelian Asparouhov
Yeah, I think we haven't like yet made any like huge either like let's say like humanoid or like generalist model, you know, sort of investment yet. But like we do have a whole set of portfolio companies that either like use robotics a lot, like Anduril has plenty of robots, you know, in, you know, Foundry. Um, you know, Hadrian, one of our portfolio companies, uses robotics all the time. Uh, we've made some like vertical specific, you know, sort of robotics plays. Um, I think we're a little more bearish on the like, you know, humanoid as like a venture, you know, sort of category. We are comparing it to Unitree in China and thinking like, you know, is there even an American ecosystem that can like support something like this? I think, you know, the hope that at least I personally have is that like, you know, humanoid robots play out somewhat similar to, you know, sort of phones where it's, you know, Chinese hardware but American software and that forces this like, you know, forced détente that neither side is happy with. Like China would much prefer that it was Chinese software running everywhere, America would much prefer that iPhones are made in America.
- JAJack Altman
Did you like, um, Jensen Huang's point on the Dwarkesh podcast about like-
- DADelian Asparouhov
He's gotta win
- JAJack Altman
... America should go win every market, including the Chinese market?
- DADelian Asparouhov
I think my view is somewhere in between in that like I don't think we should be like helping them. But I do think that some of the chip sanctions actually heavily incentivize them to set up their own, you know, sort of fab ecosystem. And so I think that like sometimes winning the Chinese market is a way to weaken them. And so I agree with him in like that narrow point, but I do think it requires like looking at that like on a market by market basis. I don't maybe agree with the like American venture capital should be like funding Chinese companies because that feels like you're just strictly helping the Chinese ecosystem versus Jensen selling chips to China feels like you're sort of just, you know, giving them the opioid addiction but like, you know, in the form of chips and it's probably good for them to be, you know, addicted to us.
- TSTrae Stephens
Provided that there actually is such a thing as a US company owning a market in China.
- DADelian Asparouhov
Yeah.
- TSTrae Stephens
This is not how it works.
- DADelian Asparouhov
Yeah, yeah.
- TSTrae Stephens
I mean, I think that's probably the thesis that Tesla had as well before they realized that BYD was just going to- ... copy all their best stuff-
- SPSpeaker
Yeah
- TSTrae Stephens
... and cut the price, and I think that's the much more likely outcome. It's like the super naive ramblings of a monopoly-hungry American who ignores geopolitical reality.
- SPSpeaker
I think-
- TSTrae Stephens
Well, obviously, the, the right thing to do is just to do business with them 'cause they're a mercantilist, and, like, this is just gonna work, obviously, until your IP is gone and they've taken the, the market that you thought existed for you [chuckles] and they've exported it to the rest of the world at a much lower cost.
- SPSpeaker
I have a hypothetical for, mostly for Delian. So the, the -- If there is Chinese citizens that aren't, you know, CCP members that deeply want to come to America or come to a Western country and build Western AI, build AI that enriches the Western world away from China that they might not want to be citizens of anymore or want to leave or not wanna build for that ecosystem, do we have a responsibility or even should we invest in those very hypothetical companies? Or should we stay away from, from those teams that, that actually deeply want to contribute to and, and advance Western AI, but because of where they were born, um, have to go through different means to do so?
- DADelian Asparouhov
I think if somebody is working on national security technologies, which I'd argue like Leading Edge AI effectively is, you know, I don't think it's, like, an unreasonable argument to make that you should have to roughly abide by the regulations around that, which is ITAR compliance. At Varda, at Anduril, we would not be allowed to, you know, hire someone like that. If they renounced their Chinese citizenship, if they fully became an American citizen, if there's also strong confidence that the CCP doesn't have some of their, like, family members, you know, under gunpoint and can, you know, leverage that fact to get them to do things on behalf of China in America, sure. But I think that's, that's just really, really difficult about, like, if it's just an individual citizen that has made it over, China still controls their life. Even if they, like, hate China, they don't want, you know, sort of that to be the case, if they've got their grandma by a gunpoint and they convince that, you know, sort of person to, you know, sort of fly back to China and then detain them, doesn't matter what that person's personal beliefs are. What matters is, like, the system that you're interacting with.
- TSTrae Stephens
The alternate version of this is suicidal empathy. It's like, uh, look, none of us want to believe that every multi-billion Chinese people in the world are bad. Like, no one -- I don't believe that. I don't think Delian believes it.
- SPSpeaker
Of course. No. Yeah.
- TSTrae Stephens
It's crazy to believe that there's, like, some, some racist tendency in having a concern around this.
- SPSpeaker
Mm-hmm.
- TSTrae Stephens
Um, but, like, there are people in our society who have that level of suicidal empathy-
- SPSpeaker
Mm
- TSTrae Stephens
... where, where they're like, "Well, obviously you can't say anything negative about-
- SPSpeaker
Mm
- TSTrae Stephens
... the obvious logical [chuckles] like fall through of, of doing the, you know, investing in, in Chinese nationals with family ties back in the country and stuff."
Episode duration: 1:11:56
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