Ep 113: Why Sam Lessin Believes AI Isn't Disruptive & Venture Capital Is Fundamentally Changing

21:38And this has been a narrative since Sarbanes-Oxley, which is the barriers of being public have gotten so high that people argue it's not that bad or it is that bad or whatever. It's a whole set of arguments, but there's just clearly going to be an entire separate private market ecosystem that's quite robust, that has nothing to do with the public market with different financial sponsors. That's like a separate market. Then there's seed and like early stage stuff where, again, what you're seeing is the seed funds might value things relative to each other in interesting ways, but there is no magic million dollar in ARR number anymore.

22:09I have things that are like two or three million ARR that are not hard AI problems. So they're like having trouble with their A's right now, which never happened a few years ago. And it's like, it's just the markets have gotten very bespoke in a lot of ways. That doesn't mean that companies won't be created. It doesn't mean there won't be value created. But it does mean that you have to be a little less brain dead about how you think about venture capital, what you're investing in, the narratives that matter. So the 2025 deck is about kind of that story of disaggregating markets. We're going from a globalized single market into regionalized, fractionalized communities and cults all over the place.

22:42It's not just global trade. Everything is tending that way and there are reasons for it. But that's what we're seeing in capital, right? You serve a set of LPs. Some of those LPs, they have different interests. Some LPs need to deploy gajillions of dollars, right? I'm a terrible capital allocator. I can't take that amount of money, right? And they don't care if it's not super high return because they want the volatility washing and they're 3X on paper, right? Because they're trying to get promoted internally, whatever it is. You just have to really understand the interests of the actual LPs and kind of the companies you're building.

23:14That's well said. We generally agree with you, by the way, that AI does kind of probably help existing dominant SaaS and dominant other companies. Although I am pretty bullish on the disruption in the giant parts of the services industry. So there's lots of old services companies. I do think you can build competitors too, by the way. Yeah, I agree with that. I think the question of like those service businesses, to what degree they are venture backable or what is like an interesting question. They're also just much more complicated, Joe. I mean, I think this is something we face. you know we've done we did years ago when it wasn't cool a bunch of like small business platform stuff so i see it at a company called team shares years ago when no one else would give them money which i love because it means it was cheap you know i like to make money now it's like too hot everyone's rolling up pool cleaners so it's like hard to invest in but like we were doing that when that was was harder i think there is leverage in these things but but the problem with a lot of them is they're a lot harder to diligence right and they're a lot harder to get right because they're just more complicated right if you're selling it's the operating side You have to actually have the tech and the operations and operations are something to Silicon Valley historically.

24:14Like when I do advanced manufacturing now, or when I work in some of these other areas, is it operations and stuff? It's fair. You got to get that right. A hundred. I mean, there's an argument that what we're, what Silicon Valley has always been good at is like, you get one thing so right, it swamps everything else and growth forgives all sins. And I just think that the reality is business is getting harder. Business is getting smarter, right? And as a result, it's not getting one thing right. It's multiple and it's way harder. I always say no fucking bank shots. Like it's too hard to do a thing to do a thing.

24:43Right. In most cases, I agree. You know, I like it when it's harder when the test is hard. It means I can beat everyone by a lot more with the curve, you know? So yeah, like I like it when the test is easy. I can just go to the corner where no one else is and be right. I want to speaking of tests this is a good transition point I want to talk a little bit about Harvard your alma mater um it is in the news a lot right now uh and you I think you spent a lot of time working to help fix it you campaigned for the board of overseers I think you were too disruptive they didn't want you on it I guess they want to keep doing things their own way uh you know I think it's in violation of lots of civil rights laws and did all sorts of bad things but I also understand there's different points of you on how to fix it like what can be done What's going on?

25:22Yeah. So look, I always say that my backstory on this is simple, which is I loved Harvard. I thought I had an incredible experience there. I met my wife there. I worked with most of my friends from Harvard. And I thought it was a great institution when I was there. For many years, I've been the Harvard apologist in my friend group. So in those private group threads and everyone's freaking out about Harvard doing X or Harvard doing Y, I'm like, guys, look, it's complicated. They're not perfect, but it's still a fundamentally great institution. Then 10-7 happened. And I said, oh my God, I might be the one that's wrong here, right?

25:54It actually might be way worse than I thought. And I hate being wrong, right? And so the question was, what do you do about it? And again, how do you kind of... Everyone's saying we're going to lean out. Some of the stuff you're working on, like your university, I think is great. I've given money to it. I'll continue to. I think it's a great effort to push on. But I also kind of from a contrarian perspective, it's worth seeing what you'd have to do. Everyone thinks this is unfixable, but what if it's fixable, right? And that's kind of the contrarian bet. And so how do you operationalize that? I ran for overseers, which is this kind of board that's...

26:26It's not the most senior board, but it's one of the two senior boards and the one you can kind of run for in some sort of a process. And I got more... Bill Ackman had some people running. I got more votes than him. I got incredibly close to getting it done, but didn't get it done. And then what I did is I said, let's transition that organization. It's something called 1636, which is I said, look, think about growth and engagement in 2025. There's this thing called the HAA, the Harvard Alumni Association. I'm like, I can outgrow them. I can be bigger than HAA, right? I don't need... Because they're sending paper magazines.

26:57Like, we're going to do a great weekly newsletter. We're going to keep alums informed. We're going to build power through that. And so fast forward a year, working with Allison Wu, who now is the COO of that organization, which is a 501c3, we've built for sure the fastest growing alumni community. I think it rivals HAA already in terms of engagement. 20 ,000 people read our newsletter every week. And through that, we've built basically most of the members of the corporation, most of the administrators read our newsletter. We've built a fair amount of influence. And the way we've done that is just by being true to our principles and honest, which is our principles are Harvard should return to its roots as prioritizing academic excellence in Veritas.

27:38None of this other stuff like that has to be... You have to have that single metric true north that you can be held accountable for because this double, triple bottom line stuff doesn't work, right? And then things like free speech, their inputs to that end, like free speech is not a right on college campus in and of itself. It's a right to the extent that it drives academic excellence from in the academic concept. Same with student safety. Like if students aren't safe on campus, they can't participate. If they can't participate, how can they possibly drive academic excellence? So we kind of put everything in that framing along with governance reform.

28:08And it's been really impactful. I mean, I think, you know, a lot of stuff is going on at Harvard. It's complicated. It's also there's a lot of unintended consequences, which is kind of a wild thing to be playing out. But I will say, Joe, I'm actually, despite all the FUD, reasonably optimistic that Harvard is moving in the right direction at this moment. But it's complicated. We could do a few hour podcast just on that. A few more on this really quick. One, it used to be for a long time, based on merit, over 20 % Jewish. it's very clear that along with this other kind of anti-Semitic stuff that was like not okay for the people running it.

28:42And they, they've pushed that down to, I think under 5 % now, like, like, is that going to keep going? Are they going to go back to merit and just see what happens? Like, like, it just seems bad, right? Here's what I'd say. The merit, this is the thing I think you and I probably most vehemently agree upon, which is we have to optimize for merit, right? That is it, right? And like, we can talk about what kind of where you take that and where you go. And that is the only possible true North. Now the complicated places come when people talk about anti-Semitism at Harvard, it gets really complicated really fast.

29:10So I'll give you just some data points. One is, yes, the Jewish population has declined at Harvard a lot. And people question why. One answer, which is true, it's actually not the Jewish population, it's the white population, right? So is it really anti-Semitism? Or is it actually the Jews are just a scaler on effectively the white population has come down? There's another thing in play is everyone looks at the numbers say, well, guess what? It's definitely anti-Semitism. Because how could it possibly not be from a merit perspective? Well, here's the thing. There's a strong argument. I say this as a proud Jewish person.

29:42Here's the thing. Jews in America have gotten pretty successful. We're now a few generations in. In a lot of ways, the Asians are the new Jews. That could be true, that the Jews are getting out-competed. Well, that's the other problem is that they're discriminating against white people and Asians. I mean, I started with the Jews, but it's all bad. It's all bad discrimination. It's all bad. So, long part of the way, there is a major anti-Semitism problem at Harvard. There's no question. In fact, there was just a major report that came out that no human is going to read because it's 300 pages. Allison read it.

30:08We've done a lot of good reviews in 1636 of what's in it and it's bad, right? So there are problems to solve without a doubt. But I also think you can't just look at the decline in Jews at Harvard in a vacuum and just immediately claim anti-Semitism, right? Because it is more complicated. It's definitely more complicated. I mean, I totally agree with that. I'm against what the Trump administration just banned this use of like statistics for racism. I totally agree with that. I'm just like, it does seem like there's lots of points. There's just dangerous. And like the number one thing is, I think in the end of the day, if you, Harvard does need a return to a place as do all these elite institutions where they say, look, our goal is truth.

30:44Our thing is merit. Like if you got back there, I think it's really easy for universities to justify their existence, to justify their tax status, to justify their value to society for sure. But I do think the problem is once they weighed out of that into a lot of other issues, we can get into why that happened and how it's very complicated. It's just a fraught relationship. And I don't think it's good for anyone. I want to pivot to merit, but I have one other question on universities because this is something I'm obsessed with right now. And I want you to help thinking through this in front of everyone.

31:12So basically, I'm I'm looking at all these universities, even in red states right now. And what happened the last 50 years is there's this this like some call it the march through the institutions. But whatever you want to call it, like a lot of departments have been conquered by very left points of view. Right. And you've had like you have like entire women's studies departments that are just all hard left. and they're anti-US, anti-capitalism, pro-socialism. You have sociology and history departments that used to be more about statistics and science and a little bit at least. And they're now like, you can't get hired as a story in any of the top 100 universities anymore if you're not kind of on one side of things.

31:49And you know what? It's free speech for private universities to do this. And there's a way to fix it at Harvard maybe, but it's hard. But at a public university funded by taxpayer dollars, my contention is there's nothing in the Texas Constitution, for example, that should require Texas to be funding these like completely captured departments. We should actually find a way to measure and defund them if they're this insane or force some kind of diversity. I mean, what's what do you think about this? It's like the principle is very hard because I do believe in free speech, but I also don't believe in just funding nonsense.

32:19Like, do you have an opinion on how this can be done? So I know less about the public side and a lot more about the private side. Right. And kind of have done a lot more thing. But I think you have to think about first why this happened. happened right like and and you just like scope way out like how did this happen like how did we end up with this and look i think part of it joe that's really important to understand is that the private sector has just gotten way better at employing intellectually minded people right it's just like the biggest scope out problem so like if you think about like my my grandparents are academics right and if you think about back to their generation you're like i'm really intellectual i care about these issues like what's a good place for me to work right and And it used to be like, well, universities are amazing.

33:00I can have tenure. I can pursue my research, et cetera. There is no Google, right? There is no place where I can go as an economist and do really interesting work and have freedom and a great lifestyle. The private sector has gotten so much better at employing people that are intellectually minded and provide such better jobs on a relative basis that really, as someone pointed out to me, it's like, if you believe in capitalism at all, why would you go work at the sociology department of whatever? There's like a thousand better places. So what you end up with is this like screening of who even wants these jobs.

33:28This is Neil Ferguson's answer is they're a lot dumber than they used to be, which is kind of sad. Well, it's just like there's just like a screening to this thing. And I think that is a problem. You know, what do you do about it? It's like, look, I agree. I mean, I don't see any reason that taxpayers need to be funding anything that's ideological or maybe they shouldn't be funding schools at all. Like, I think there's a strong argument. Everyone's talking about the private universities. Like, there's an argument that's like it was a mistake for them to ever let the government fund them at all.

33:53Like, they should just be independent. so they can be independent, right? And so I believe that. But I guess that's a long-winded way of going back to your actual question, which is I don't know enough about the bounds on the public stuff, but I would say, yeah, like the government should be funding things that matter to the government and the people broadly. They shouldn't be funding special interests. All right, well, we're gonna try to fix that. And we're also gonna try to fix this merit idea in general in society. It feels like things did get to be too extreme where we're focused on everything but merit.

34:19And it feels like the vibe is like shifted back to this. And like you said, private sector already kind of has a pretty good like sense of these things but i feel like it can go even more in that direction i think the top companies do the top companies are really focused on that so you and i uh helped create this company merit first tell me about this what how this come about for you yeah so this is like one of those things i'm a big believer in doing things you know and you find out right and so one of the things i was thinking a lot about at harvard uh in the context of working on this is like man if harvard had an exit exam right this would be a lot easier, right?

34:50If you're just like, look, you can do whatever you want. I can't be. You can do whatever you want. There's an exit exam. You have to pass it. You have to do a great job on it. Like what would that look like? And then you start thinking about my experiences because these experiences compound is for years, I was kind of running a lot of PM recruiting at Facebook and all the PM onboarding. I was like, how do we hire these PMs? Like we were hiring all these PMs from Goldman, from Morgan, from all these places. And you realize because when you touch it firsthand, how incredibly inefficient and imprecise a lot of the interviewing is that gets done, right?

35:18You're kind of looking from... You're saying, hey, who worked at Goldman and Morgan and Bain and McKinsey and Google? It's like not the best people. It's the people who happen to be credentialed, right? In a lot of ways. But that's clearly not the way to do it today. So you start mucking around with that. And I started messing around with this. This should just all be test-based, right? It's clear that you should just basically for every job or everything you're doing, just have a test. Whoever does the best, those are the people that you should hire, right? I don't care where they come from. I don't care what they look like.

35:46I care how they do on the thing that's necessary. And so you start playing with these ideas. And for me, at least, that's where I kind of came to merit first. I said, look, from a practical perspective, why don't we just run tests for all these things? Why doesn't that happen? And like, there's actually good reasons. One is, if you ask most hiring managers, write a test that actually represents what you need, they don't know how to do that, right? That's really hard, right? Two, if you said, hey, we're going to run a test, and anyone can apply, I don't care what your resume says at all. You're going to get a million applications.

36:20How do you filter through those? And then you have this big problem of cheating, which is like, if you want to administer a test, right now, it basically has to be some basic multiple choice test. Because how on earth are you going to grade that and prevent cheating and da-da-da-da-da? So you start looking at all those problems and say, hey, there's actually a lot of new leverage on this with AI. And again, this is where I think you can be super long the changes in the world in technology. Well, not everything is an opportunity. But I think in this case, we have this incredible opportunity, which is, hey, wait a minute, you know what AI is actually quite good at?

36:50If you told me some of the questions or even gave me some of the best examples of people who are great at something, generating good, meaningful tests becomes a lot easier. It's like, oh, I need to grade 10 ,000 tests. I literally don't have the manpower to do it. Ah, but I can do first pass with AI, right? Or even the anti-cheating stuff. It's a little bit of a war of attrition. You know, everyone's building these tools to cheat on tests. But you can say, hey, all of a sudden, let's not make them written. and let's make them stand and deliver. Let's make them video based. Let's add the right tools to check.

37:18So we kind of met, we started messing with all that. And I realized this is doable. And I think that this is a really important place where like the world can change for the better. And so, you know, in the process, like we started doing this for associates at Slow. How'd that process work? You actually hired a new associate. What kind of tests did you create? Yeah, we basically, I did. I mean, you got to dog food your own stuff to learn, right? So I worked with some friends. We built a V1, literally end to end. We built a test around it. instead of just hiring, calling my friends at Goldman and saying, who are the four kids that are interested in venture capital, which is what we've done historically, I posted it on the internet.

37:52We got like 1500 people to fill out this test. And then we talked to the best people and hired someone. And it was from a place we wouldn't have hired from historically. And so I think that's like, you're like, this does work. And this does feel like the way the world should go and will go. But in the end of the day, you still need to build this stuff. Right. That's like kind of, I think where the company comes from and what you and I are teaming up on. This feels like a really good way to find a lot more people is like have a contest for a really cool job. And then somebody wins. But then the next 10 top are also really impressive.

38:22And maybe there's other things you find for them, you know, a thousand percent. I think this is like if you think about the future of education, even like I'm not as cynical as some. They're like universities are irrelevant. No one's going to college. I think that's just not true. but I will say this if you need to learn a bunch of stuff you can learn a lot on YouTube you can learn a lot with chat GPT like you could basically get an incredible education if you were motivated to yeah for like what's the line from Goodwill hunting for like ten dollars in late fees at the local library that's actually realistic now right and so I think it's just a massive missed opportunity for all of society and for the best companies and for the best opportunities to not say, hey, the funnel is open, right?

39:03Like that doesn't mean it's the only way you hire short term. It might be that you're going to do your normal thing. But then you say, hey, I'm going to go do a second pass on all my candidates, right? There might be a lot of people that come into your funnel. And you're like, look, I'm only going to... Normally, I would review these 20 operative people. I'm still going to review them. But everyone else, instead of saying, go no, you say, hey, you didn't pass our first filter. But if you want, here's an amazing test. And we're going to look at the people seriously who do a great job on it. Why would you not do that this is my controversial point of view is that it used to be like 30 years ago is oh the sat it's kind of unfair if you're poor because you can't get as good of like a study tutor but like now there's things to study online that are free that i think it's i think there's almost no excuse not just to have agency now i guess some people are in some areas where they don't have access to computers or they're not don't have access to food or whatever fine like there's probably some extreme poverty that still blocks you but in america today i think it's more about agency and culture and then intelligence.

39:58Now, I want to ask about these tests. What should the best talent assessments measure? Because obviously, IQ is a very big part of this, but then there's other things as well. How do you think about that? What are the vectors you're measuring? It's a good question, Joe. And I think it's different for every role and opportunity. Not all things are the same. So I think it's a little bit hard to think about this fully in the abstract versus saying... I mean, in an ideal world, you think about it, in an ideal world, which I don't think is that far off, you as a hiring manager, someone who has an opportunity, you might not even be able to articulate what you should be testing for.

40:30Instead, you might say, hey, who are the 10 best people at my company? Let's just run AI with them and emergently figure out what the right questions are to ask. Because you might actually not know or even need to know. So I think there's a whole bunch of stuff that's going on that is the future of this stuff. But I think the reality is that for most normal roles or most people you want to work with, it's the same stuff that matters, right? Yeah, in most jobs, not all, but a lot of jobs, like, you know, how your IQ matters to a point. If it doesn't, then maybe not. But in a lot of jobs, it does, especially in an AI.

41:05Like grit, I've always cared most about gritty people, right? That are just going to run through walls because in my experience, even very intellectual jobs, and there's some balance to this, nothing's that hard, right? There's a spectrum, but like, Like, you know, maybe you can set aside some sort of super high-end physics or super high-end math. Like 95 % of jobs are not that hard. And the most committed win, right? And so how do you design tests, right? And how do you design things that, you know, figure out who's gritty? By the way, you mentioned before, you can just kind of get a study guide in the SAT.

41:40Let's pretend the SAT was really just a grit test, right? You're like, it's just anyone can do it. It's just like you have to commit hours of work to demonstrate that you did the hours of work. Like that alone is like an interesting thing to understand, right? From like a who do you want to work with, right? Because who wants it the most really matters, right? Yeah. So I don't know. I don't think there's like a single right answer. I think it's contextual. But I think knowing what you actually need specifically, and then, you know, be realizing you can now look at not just the people who happen to maybe be credentialed enough that they're worth your time and attention.

42:18It's very rough. You're just like, look, just look at everyone, right? Look at anyone who wants and like use the right criteria and find them. It's interesting. And how do you think how this changes how people hire and recruit from like a personal standpoint? Because you kind of get a bunch of people hopefully applying interesting things or passing people over from some other tests. And so, you know, they're qualified. You still have to kind of choose for culture fit or you think test measures that too? or how do you think about that? So I think it's just a moving line, right? In the end of the day, like you need for any job, a person who's going to work best with you or in the context of the job, right?

42:51And that is a personal thing. I'm not, I don't believe that we're going to cut to some magic machine that like just completely hires the right person and checks for culture and whatever. Maybe go find you a spouse while they're at it, you know, or something. It's interesting. There's some highly abstract thing you could think of that would get you there. but I just don't, I don't think that's kind of what we're at least optimizing for now. I think what we're optimizing for now is like, look, you're going to spend 20 hours interviewing someone for a role, 10 hours interviewing people for roles, like whatever the budget you have of time and attention to get the right person.

43:25Use it as best as possible, which means filter to the right people, right, that are going to like really be the right matches for the role. And then, yeah, like in the end of the day, there's always going to be some judgment involved and, you know, things like that. Awesome. Well, Sam, to wrap it up, I want to ask you, you interact with founders on a daily basis. What innovations excite you the most right now? Like what makes you most optimistic about the future? You know, it's funny. I've been thinking a lot about this because I wrote my 2025 deck and I really try to be thematic, like, you know, and kind of pattern match right back and forth.

43:54And, you know, I'd say what makes me pessimistic, I'll start with that, Joe, is there are AI is so compelling to so many people that you're seeing a lot of people who are kind of running like a cookie cutter playbook of plus AI on blah, blah. And they're like, it's this thing plus AI. And you're like, it's just incredibly boring. And like, I also think it's like, it's kind of like, you know, people like when if you have someone who theoretically could have written their pitch deck using chat GPT, it's like, forget about it, right? Because it's just like, there's this, it's just, it's so boring.

44:26But I'll tell you what is exciting. And what is interesting to me on the flip side is there is just new leverage in the universe with these tools, right? That you haven't seen before. And the level of creativity that some people are bringing to them, where they really are coming in and whispering a new secret of the universe or a new what if you haven't heard before, that's kind of mind blowing. It's a low end thing. It doesn't happen that often. The thing about being a seed investor is you have to listen to 100 terrible pitches in order to get the one gem, right? You have to be a shit shoveler in a way that later stage investors don't because they kind of have that pre-screening to some degree of like, well, you kind of made it this far, right?

45:04But I will say that the like, oh my God, you just whispered me a secret of the universe, right? Or like a mind blowing idea or a crazy idea. Like there is just new excitement and new ideas like that cropping up at a faster rate than it was two years ago when people kind of didn't have great ideas is my sense. I agree. We're seeing a lot of those too. Sam, I really appreciate you joining us. And I think we'll post a link from here at first. People want to check it out as well. I think. Yeah, no, we're excited about it. And Joe, it's good to be working with you on something in that context. All right.

45:31Thanks, man. Make it happen. Take care. Talk to you, dude. Bye.