Don't want to burst your bubble, but ...

0:05This week on Great Chat, we discuss whether or not we're in a bubble that's about to burst. And if we are, what to do about it. I'm Helen, and I'm joined by Sally and Angela. Great Chat is brought to you by Mercury, the fintech used by entrepreneurs through every stage of company building. We use Mercury to run this podcast and love recommending it to other founders and fund managers. Try it for yourself. Visit mercury.com to join over 200 ,000 entrepreneurs who use Mercury to make managing their money unbelievably simple. Hello. Hi, ladies. Please. So Sally, I thought you went to Paris, but I see that Angela actually went to Paris.

0:44You will not see any signs of me in and out of the Louvre. Guys, if you're stealing priceless jewels from the Louvre, if you don't wear them on a podcast, what else can you do with it? That's right. They'll never catch you. It feels so Ocean's Eleven. It almost feels like this was a storyline made by AI. How is this even possible? Yeah, because of the chainsaws? Like, I was reading the head. I was like, wait, did I read that correctly? Chainsaws? Chainsaws. That's a Sora video. Yeah. This is all a hallucination. But I was reading that these, the jewels were not insured. And so I think that. Really?

1:31The government is just eating the cost of it. But also I was thinking, would they ever actually sell it? Like, you know, what is the value of these jewels to the French government? Like, are they just sitting in the Louvre? Like, you know, if France runs out of money, are they actually going to be selling these? Or, you know, just a... I did see someone did do a breakdown of, like, the cost of all the diamonds and rubies as some of its parts. And because you can't, they're not going to be able to sell the, obviously, the jewels on the black market. I think the diamonds were worth like$4 million.

2:05And like, so it's kind of interesting where it's going to show up. But it's kind of sad. It's going to like the only way that they can sell in the black market is to actually just sell it in pieces. And, you know, these jewels might never be able to be in its form again. Real question. How much resale value of the parts would you need to have for you to engage in a heist? Like what's your clearing back? Oh, by the way, we should also add that the price of diamonds are going down because of the topic we talked about in the past, lab grow diamonds. Okay, no, but Sally, are we talking$5 million,$10 million,$100 million?

2:43Like what loot amount do you need for you to be wielding a chainsaw and breaking into the - Well, I don't know. Apparently it's not that hard and it's seven minutes and they haven't been caught. And I don't know, the bar might be a little lower than I thought. there was a funny meme i saw this morning that said um if you unleash because taylor swift it always goes back to taylor swift always taylor swift has them vault full of some of the music that she hasn't released and so they were like if you unleash the the taylor nation and say hey find the thief in 24 hours and and they would unlock they would find it so much faster than anyone else that are looking for them.

3:26Guys, total plot twist. Like, this is the new direction for the pod. Like, we're going to solve the mystery of the Paris jewelry heist. Mystery and murder mystery pods thrive. Speaking of murder. There was no murder here, right? No one was actually hurt by the chainsaws. I don't think anyone was hurt by the chainsaws. There was an article yesterday about A-Star Capital putting 20 % of their fund into companies founded by teenagers. I feel like kids are everywhere in SF right now and on Twitter it's just like, I dropped out of Stanford to do this or I'm 15 and I'm chief of staff at this like SaaS company.

4:16And I think I've refrained on making comments because it's just such like a millennial thing to do to kind of talk about how young everyone is. But there was literally an article talking about, you know, investing in teens, literally teens. Or the like YC batch just getting younger and younger by like next year. Right. Yeah. Someone said, yeah, they just visited SF and some of the data points. But yeah, that they learned that the average age of YC founders went from 30 to 24, which is wild in like a short period of time and i wonder if it'll stay there or go younger i don't know i think it's also a great marketing engine for them for them to just put it out there right like we're talking about it the fact that you know it's heaven hearts fund um who started event bright and um i don't know it's it it it'll definitely be a way to attract certain founders obviously higher much higher risk when it comes to some of the profile but well you just got to go earlier and earlier right there's there's alpha and going earlier when especially when these prices get out of control we're gonna have like high school scouts at these funds i think they exist oh yeah like the math olympiad and like they're you know they're all these like places the way their signal i'm just impressed at this current generation and the fact that they're like starting companies when they're teenagers like i i think back to when i was a teenager in the dinosaur ages and i mean what was I doing?

5:47I was like watching the OC and shopping at Abercrombie, like not, not, not anywhere capable of, you know, having a mindset of starting a company. So I think it's pretty incredible that they can find this many teenagers to back to start companies. On the other side of the spectrum i saw that um everett or ev randall who is a kp just joined benchmark as the latest general partner and i thought it was interesting because for at least a few months people were just wondering the future of benchmark where they were going sarah sarah had left and um was it victor had just started his fund and then the big loss was last year miles grimshaw had left and returned back to thrive.

6:35And so this like story adventure firm with like Bill Gurley at the helm many years ago didn't look like it was going to, I don't know, it was just whittling down. And so I've spent a little time with Ev when I was a scout at KP, like incredible, incredible investor, always available, a great like thought partner on so many different things. So I think it was a huge went for for benchmark and young right yeah because i think victor and miles were like relatively young so i think whenever like the bench kind of like gets gutted it's important to like fill the bench back with like with a good mark yeah yeah succession planning um in mind i just saw the the trolling of the announcement and it's like i feel i don't know one of the ones i saw I felt like was crossing the line on on a trolling like look like maybe like was more than friendly banter and I just X is so weird for me right now well so today we can film this podcast because I guess AWS is back up yeah my favorite part of the whole saga was that Amazon stock was up like one and a half percent you know despite the outage because everyone realized how important awf was to the running of the world trying to think of equivalence to that i mean it doesn't like amazon.com go down all the time and they like wordpress is a good example i think 40 percent of the world's internet is powered by wordpress when wordpress goes down i think that number went down because i've been citing the 40 percent for like 15 years oh really but maybe maybe it's I think I saw recently when they were doing, you know, there was obviously this like battle between WordPress and them.

8:23Now I believe it. But yeah, like New York Times is powered by WordPress among many other corporate sites, though. Did you see any jokes on the AWS stuff? I thought it was kind of funny. I saw one where there's like an image of like the whole Internet and then this like tiny little AWS. Was it like US, like East Coast one or something? Yeah, yeah. It's like a little like stick. Yeah, yeah. internet infrastructure well okay not to go down this like dark doom scenario but I have been recently thinking about how if the grid did go down so you know how like the Simpsons has been able to predict a lot of these like yeah things and one of the things that is supposed to happen and Queen Angela over there is just dying for those who cannot see with her crown um but i'm a doomsday planner now and i am afraid that like a grid could go down and so i have created a go bag wow didn't like journalists start the idea of a go bag um we've always had a go bag yes yeah so i mean like dust it off your old go bag but that's a different that's a go bag to like run into the fire when something happens okay what is your what is your when the what is when the grid goes down when we enter an apocalyptic world go bag for sally look like uh well well initially i had it um i had like dog treats in there i had like water purified tablets like uh contact lenses but then someone was like when there's enough uh you know when when it goes down it might get a little violent so i did add like a pepper spray and i thought you were to say like a machete i know i was like wait am i revealing too much we should move on to the next topic no this is this is like no that's good a doomsday pod and we talked about getting a bunker in new zealand last time you heard exactly everything ends exactly i'm like we got to prepare the end of the world is coming so like it's funny nothing nothing was tech in your bag no tech goes down tech is useless if the cell service goes down maybe solar chargers maybe we should sell that great chat branded solar powered phone chargers for the apocalypse or just great great good great chat doomsday bag and you can get it in five flavors it's like the bizarre shit that would be in max a rainbow one yeah okay last one i saw um somebody posted some screenshots of like uber experimenting with um the gig economy or the gig force for ai labeling work and how that might be like their next act and i thought that was interesting and made me think about like no sort of i don't know if this is like kosher to say but i feel like we keep talking about these ai companies and including like the data labeling companies that are obviously doing really well like mercore and like handshakes getting into this game scale ai of course and i'm just like what is ai about this like it seems more similar to gig economy work to be honest like so i feel like this uber play feels more appropriate like a lot of the gig you know the data labeling data labeling companies like remind me of like upwork do you consider those companies ai companies Well, I think they're enabling AI companies.

11:50Like I'm starting to see a lot of a lot more of these like scale AI for robotics, which is similar to what I think Uber is doing. I haven't read the Uber thing in detail, so I don't know the details of it. But like LLMs, we've pretty much scraped all the texts that's out there. I think image and video are sort of there as well. But then when we're trying to understand physics and like spatial awareness for robotics and like world models, there's not enough data out there. So I think if this is what Uber is trying to do is like just film people that are doing like daily tasks like, hey, if I drink this water and I tip this water, like what's the physics of this water, which is not going to be in like an image gen to the like specs that it is.

12:33So I'm seeing a lot of the companies that are doing similar things where you're just literally taping a camera to a person who is in a factory line who's fixing the toilet. I don't know, because you want the humanoid to understand the physics of that. I don't think it's considered an AI company, but I think it's enabling an AI company to do things. I think it's smart. yeah i mean this also i think explains i think there was that video game company that was valued at a lot recently and people were freaking out about it and it's like or there was maybe like a which one descartes or world lab it was like one week ago yeah it was like general intuition there was it was metal they set off the lab um in partnership with light speed on like a world lab building yeah and i think you know i asked my friend who's a gamer i was like well what's what's the thing behind this and they're like well there's been all of this work put into how to make things realistic inside games and how people play games and it's like that's actually useful so sally in your example i think that's kind of like you know if an uber driver is doing different tasks to kind of show like what the real world implications of something is like i feel like yeah the gaming industry has probably been down that path and there's valuable information there Yeah, or just easier things like, hey, how do you fold the laundry or how do you get the plate out of the cupboard without the actual training data of that?

14:01They're not going to be able to learn to the spec that they do. So they need more of these videos, these like everyday videos, because, you know, you and I are going to have little humanoids hanging out in a few years. Yeah. Who knew that like AI infrastructure would be people? The future is coming. I don't know if it's a good thing or a bad thing, but I was telling Sally the other day, I went to go visit one of these humanoid companies and it's a company that operates in the home. And when I rang the doorbell, the humanoid opened the door and I just freaked out. And I like, you see it in front of me.

14:40I was like, you go in the house first. That way, you know, if this robot decides to kill you, you're, you're. She's now leaving the firm. I feel like the incident. I think all these these like home helper robot robotics companies like we keep trying to copy the form factor of a human. And I think that ultimately what will be in the home will actually not be human shaped. Right. I agree with that. What's the now I'm blanking Amazon's home device Echo whatever Alexa Alexa. Or Echo, yeah. Like, that is in some form a humanoid-ish. Like, you just add some arms and, like... I keep seeing these pitches of, like, you know, a humanoid robot folding laundry, like, one making the bed.

15:29I'm like, can we stop trying to replicate, like, a person with arms? Like, I'd rather have it be just like a box, you know, or like some, you know, reasonably shaped thing that is more utilitarian and less like mimicking like another person doing a task. But maybe that's just me. It is both very cool and very unnerving, like to see some of these humanoids in action and to like understand what the potential is is very cool. But then I have this recurring thought that I'm going to wake up in the middle of the night and my humanoid will just be like standing over me, you know, or it's just it's it's just it's unbelievable to think of like it's like very Westworld.

16:09It's like it's not sentient, but it's sort of sentient. Reality is here. Human in your home. There are some videos out of China. I don't know, Angela, if you've seen them of like humanoids that are being like that that are like unleashed on the street. And there's one that went viral where the humanoid like try to take someone else's Vespa. Oh my gosh. Yeah. I'm going to share it in the notes. Great. I saw this Broadway show in New York called Maybe Happy Ending that is literally about what happens to the humanoids when their model is now outdated and where they go and the whole lives that they live.

16:45And it was very sweet. And I guess it was creepy, but it wasn't creepy when you're sitting there watching it. So highly recommend. And let's take it over to our main topic for today since we're talking about robots and AI. A question that I feel like Ashley inspired the other week. She was like, my friend came back from San Francisco to New York and remarked that everyone she talked to thinks that we are at the top of a bubble or the bubble is about to burst, the AI bubble. And I think there's been debate on whether that's true. You see a lot of memes like, you know, of the of the what movie is that with Steve Carell?

17:27The Big Short. Is that the one? Yeah, yeah, yeah. Big Short where there's like this scene where he's like, you know, we're in a bubble. And so that got us chatting about, you know, are we in a bubble? What are some signs from past bubbles? And if we think that we're in a bubble, like what can you actually do about it? Or is there anything to do about it? I feel like a lot of people are talking about Andre Karpathy's interview from this week on Darkesh Patel's podcast, just about how he threw a lot of cold water on a lot of the things that are happening or the pace at which it's happening, including that HEI is like 10 years away.

18:05But I think the one bit about the bubble piece is just the valuations of some of these companies. It's really just like a fundraising tactic, more so than underlying fundamentals. As we were alluding to at the top, I was just in Paris at a conference, and we were just talking about various valuations. And it was just as if everyone was just casually acknowledging that there was a bubble. Like we were like, OK, the bubble is here and we just need to be more disciplined on the companies we invest. And so I think we're just waiting for it to tip. I saw an interview by Howard Marks, who is the founder of Oak Tree and like a very well-respected investor.

18:47And his comment was everyone's saying we're in a bubble. But like if you actually look at the valuations, they're expensive, but not bubble like yet. So it was interesting to hear his take. Like, I mean, he's generally a conservative investor to say that we're not in a bubble. I also saw, I forget which venture firm sent this out, but I was just reading this morning, like a state of the nation in terms of valuation. And they had two planets. There was planet AI and then planet Earth. And so even within the realm of what's happening in the market, there may be more exuberance in one segment of the market.

19:24But then there's all these other companies that are not in planet AI. They're just in planet Earth that are definitely not in a bubble. I think that's something that feels different, right? Because as we were sort of like going over what are all the signs of being in a bubble and like, you know, that there's like valuation capital flow mismatches. It's like, is it the whole market or is it just a segment of the market? And I think that we've talked about there being barbell in place right now, right? Or like the haves and the have nots. And it's just being really stark. So if you take that on average, then maybe like the valuations like on average are actually not that outrageous.

19:58Right. We're just selecting kind of like the or following like the sort of like the top of that to show that the valuations are crazy. But it's like, well, maybe maybe everything else. Right. And it could also just be tipped towards private market valuations, because I assume Howard Marks is talking a lot, mostly on public markets, I assume, or on the growth stage. And you look at private market valuations where you might have a trillion dollar company soon that will just remain private for a long time. And is that like sustainable for the valuations that it has, which also is an interesting like side conversation around this debate of, hey, should you have quarterly earnings as a publicly traded company?

20:46because, you know, the metrics are, or like the measure at which these companies are measured against is different public to private. When it comes to earlier stage companies, I feel like we're still, just because these companies are growing so quickly, and I think it was like Brian Kim from Andreessen and some of the other folks, and Heymont, obviously, from General Catalyst, is talking about what metrics needs to happen in order for you to get to the next round. And we're seeing a lot of these experimental accounting and things that are kind of also helping support or inflate some of these numbers.

21:26So I think private market valuations, at least for me, it feels a lot more frothy than probably the public side of things. Yeah. And I do feel like for non-AI companies, I mean, I think that there is more scrutiny than ever, actually, on the health of the business and the metrics. So it feels like truly that if you're on one segment of the market, you know, it's very planet Earth and, you know, people are asking real questions and rooting things in like, you know, sort of like real metrics. And then if you're on another, if you're on planet AI, like the ability to tell a story and like, you know, paint a vision for the future is really like taking, you know, sort of like the investment there to new heights.

22:12And so, yeah, it feels like two very separate worlds. I'm curious if you're like a, just like earlier in your career looking to join an early stage AI company and you see these like bubble headlines, what would you do? because I think I'm more skeptical now of these companies getting funded because you just all of a sudden get like really quick traction in three months and you're you know you have top tier funds going in but a lot of it seems to be I mean some of it seems to be a lot of smoke and mirrors but I think it would matter on the like the total comp breakdown on what's cash and what's equity right I think it depends more on just your conviction and the team and the longer term value of the company.

22:56And in many ways, like valuation is just a measurement moment in time. And if there is a bubble and it collapses, then as long as you think that this company is going to be one of the winners, it's actually an opportunity for you to get more equity at a cheaper evaluation when things crater. It's sort of like, you know, buying the dip in that way. And so I think it ultimately comes down to your conviction in the team. Know your value, renegotiate your equity, TLDR. are. But I also think that bubbles are referred to as bad things, which, you know, there's a lot of negative impacts from bubbles bursting.

23:30But I also think it's very necessary for tech to progress because you need the excitement and the catalyst and the energy of bringing capital and talent and founders together to move things forward. So it feels like there's also a lot of positive of association with bubble that, you know, gets lost in the mix. People talk about how the dot-com bubble was a huge bust, but it was like tiny in the grander scheme of where, you know, internet adoption and mobile adoption went over the long term. So I think we probably all believe that Gen.AI is here to stay and the bubble is more temporary in terms of the zigzag up and down on the overall upward trajectory that's up and to the right.

24:15So if that's your belief, then I think join the company that you have the conviction in. And as Sally said, make sure to know your worth and negotiate for your equity through the cycle. Yeah. So, I mean, Angela, do you think we're in a bubble? I think that there will probably be bumps along the way. But as I said, I think I believe that the trajectory of Gen AI is that it's here to stay and it's overall like up and to the right. It's like one of those like infographics of when you zoom up close, that's like down, up, down, up, and I zoom out, and it's clearly right. What's interesting about that is we were supposed to have a market correction a couple years ago.

24:58And I feel like depending on where you were, like situated in the market, like how you felt that, what that looked like. I think there are some people who didn't feel it and got to just like kind of ride the AI wave. I don't know if you call that a soft landing or if you call that just sort of like escaping, like a reset. But I agree that like resets generally are good and healthy. Things cannot always just continue up into the right. But I think that this one in particular, you know, just from the vantage point of funds, I think somebody did the math on like that. Even if Gen AI is here to stay, it's like the enterprise value that would need to actually come to fruition, like that would need to be created to like return some of these funds or sort of like numbers that are beyond our wildest dreams, right?

25:50Like we're talking about like trillion dollar outcomes for a lot of the money that has been put into Gen AI. And so that TBD, I mean, I remember when Facebook went public and then I went to business school the following year. And there was this corporate turnarounds professor who just gave me a really hard time. Every day, you know, I'd walk into class and he'd tell me about like the price to earnings ratio and how Facebook was just so silly. It's so it's all fake. It's crazy. And this is a, you know, somebody who's been studying economics for like 50 years. And I felt I couldn't like argue with him.

26:26I was like, but then every now and then I think about it, I'm like, well, he turned out to be really wrong, you know, and he's probably well retired and or not even with us anymore to see that. But I'm reminded of that in this moment where it's like maybe something's possible. We just just because it hasn't happened. Right. I think that's the whole that's the whole point, which is when things are backwards looking or you're looking at a regression, you're constrained by what's happened in the past. And I think what we're seeing now with companies is something that's been unprecedented. So it's difficult to use that lens.

27:00Well, so like, if you are, if you believe we're in a bubble, what are the some of the things that you might be able to do to like, I don't know, safeguard yourself? I will say even not in San Francisco, friends in Chicago, I was in Chicago last week. I think people are thinking about like, oh, maybe I pull out or convert to cash everything that I have in the market temporarily. And then if I'm right and there's a dip, then I'll buy back in. Right. Like, so there are people who are thinking about this right now. And that got me wondering, like, well, what are some other like classic things that people do when they believe that like a bubble popping is imminent?

27:41Was it around the time when you were mentioning like a few years ago when we thought we were going to have a recession or a dip that people were buying gold bars from Costco? You can absolutely see us talking about that. I don't think that was me specifically, but that is funny. Yeah. Is it on a call? Yeah, they were selling gold bars and they were flying off the shelves. There are definitely like moves to like reallocate, you know, to crypto and things. I think what's also just interesting, like juxtaposition is, again, in this like small silo of San Francisco and Silicon Valley, just because there's so much capital in the city right now and with all the secondaries, the like it is impossible to get your hands on real estate whether you're renting or you're buying it's flying off the shelves i was i was just casually looking at you know looking for a new apartment in in like various parts of the neighborhood and they were saying that these apartments were going for like three four hundred dollars above asking before you know without seeing the apartment um before they even hit the market i think the housing market's a little bit different like that the buyers market for these people in particular because interest rates are like mortgage interest rates are so high still that like renting continues to make sense so i think that if you're like in the market to find a new place to rent like yeah it's really bad right now um but i but i also think that that is explained by the like how high mortgage rates are um but i i also believe i'm one of those people that believes like the mortgage rates that we have right now are the ones that we'll probably have for a couple of decades.

29:22Like this is the new normal. I don't think that waiting for it to drop to, you know, back to the twos and threes. By the way, not financial advice. I don't know if we need a few closures. Very, very anecdotally. Anecdotally. Should we go to our rapid fire? Yeah. So the question we got this week, I'm an informal person. Basically, I'm a hugger. how do I maintain the line between personal relationships and professional? For example, if I'm giving serious feedback at a board meeting, it feels weird to give a hug. Like, do you give a hug right after you give the feedback or like after? That's funny.

30:01Actually, this is kind of interesting. Yeah. I'm curious what you've... I have this recruiter who's now a friend. Her name's Alice. She was my recruiter when I was interviewing at Facebook in like summer of 2008. And it was probably the first time I ever did It's something like a intense all day on site, you know, and at the end of it, I was just so excited that, you know, I was like and she was walking me out. I'm like, thank you. Can I give you a hug? And she was like, yes. And we hugged. And like to this day when we see each other, I'm like, can I give you a hug? And she's like, yes. And yeah, that was super weird.

30:35So like thinking back to that, no, I don't think that was appropriate, but I did it and I got the job. So what's the takeaway there? And I have this lifelong friend, which is cool. But no, I think that like I'd be wary of giving like a hard and fast rule around this because I feel like the context is so important. Like and we see on LinkedIn and Twitter all the time, like investors and founders hugging or, you know, taking selfies together. And I just feel like we're, I think a lot of people, especially if you work in, yeah, if you work in tech, you know, in venture, I think that you're still taking a path that's a little bit less formal and not, you know, kind of off the beaten path.

31:15You don't wear a suit to work every day, right? Like it's, there are all these sort of like, you're probably wearing sneakers and jeans, you know? Like, so I get why the lines are blurred and it's confusing, but. I find this question fascinating because I actually haven't thought about it. And I'm a hugger. So you're just like hugging all the time. Well, so I normally handshake if I don't know the person. But then when I leave, I end up hugging that person. And now I'm starting to question if that's weird. Well, what? OK, you travel to Europe a lot. And even in business context, I feel like there's the, you know, kiss.

31:52Yes, they're very much more intimate. of it. So yeah. And that's in a business context too, right? Yeah. Okay. So yeah, non-answer, but context, context really matters. Maybe I need a question of my own. Well, anyways, this is probably a good, good place to end. Yeah. See you next week. All right. Bye. Thank you for listening to Great Chat. Have questions for us? Make sure to submit them at anothergreatchat.com. See you next week. Thank you.