Y Combinator CEO Shares How They Pick Winners, Advice For Founders + Lessons From Paul Graham | Garry Tan Interview

25:52That is a fair trade. Did he make a compelling pitch about the company, or was he just like, I don't know, this is just like a bet? Did he see the future in that sense of what it became? Yeah, absolutely. I mean, I think the thing I really learned from that moment, I mean, I was 22. I didn't know how the world worked at all. I mean, we had dinner at his French restaurant Frison. I think that's one of the things you do when you, you know, make a dissent to millionaires. You do something stupid, like open a restaurant. And I mean, the restaurant was terrible. Like the soup was really bad. And I mean, he lost like millions of dollars on that restaurant, right?

26:29I think so. I mean, today it's this really nice steakhouse, but yeah, it was bad. And then, you know what I should have done? I mean, I was so lacking in social graces. You know, they did the whole pitch. And then I think I said no, like before the soup came out even. And so we were just like awkwardly sitting there for the rest of the dinner. And he had actually reaped, he was like, here, like, here's a check, like$70 ,000. You know, how much a year do you make at Microsoft? Here's$70 ,000, cash this check. I didn't really understand it in the moment. And then I think in retrospect, like sort of the number one thing that I didn't understand that I do now sort of realize, like I have to tell everyone this is how it works, is I didn't join at the time because I thought that the world was sort of told to you or sort of narrated to you, I guess.

27:23I thought, oh, the Wall Street Journal isn't writing about enterprise software. This isn't a hot space. And so that was like fundamentally the backward way of thinking. The world doesn't happen to you if you are actually a prime mover in the world, like Peter Thiel or my friends. You go out and you go into the world and you discover something about the world. You actually talk to people. You actually talk to your users. And you sort of gather primary first source information on how the world works. And what they had done was realize that the world's biggest companies and the world's biggest governments had no access to software engineers or, you know, big data.

28:09Back then, people said like big data or data mining was like, you know, today we say AI. But either way, these were just buzzwords for concepts that are like actually pretty real. I think they went into the security apparatus of the three-letter agencies in D.C. and realized all the people they talked to, they were working. Even CIA, NSA, the people who we expect to have the world's best technology, they really don't. And Peter knew that because he somehow, the CIA, NSA, whatever, when PayPal was running, they're like, you guys want to have a conversation? How does a Silicon Valley outcast get a CIA tip?

28:53Yeah, I mean, I don't know specifically. I mean, how they described it to me, I think was like, they learned a lot about how the world works through the anti-fraud part of PayPal. And the core idea was that they could find these fraud rings just using a graph database. Just literally, you know, people make a bunch of fake identities, they send the money from one fake identity to another. And if you're just using SQL or a row based method, you just couldn't figure it out. But the second you like grafted out, you would find this ring. And, you know, what they found was that, you know, the three letter agencies didn't have access to that technology.

29:36So, you know, what I needed to do was instead of taking my worldview from the media or, you know, today from social media or from, you know, what reporters were sort of distilling for me, what I needed to do was listen to people who had actually lived direct experience in doing something unusual and strange. That's simple, but that's still really hard to like. Oh, yeah. Well, it was smacking me in the face and I didn't even see it. You had an L6 promotion waiting on you, right? Yeah, I was trying to make it to level 60. Level 60 is hardly level 3 or something. It's brutal. And by the way, Palantir, I've got friends that are there and I've learned a little bit about it.

30:16Peter Thiel, I think, it's easy for me to say, Peter Thiel back then seemed like an obvious winner. But the Palantir idea didn't. It seemed like it didn't work for two years or something like that. It seemed like it had this normal startup trajectory where it's like, it's not working, maybe it's working, It's definitely not working. All right. Now it actually has legs. You know, the YC Trophosaro thing. Like, it seemed like it had those normal, normal, like, issues, except for, like, maybe five years. Yeah, it took many, many years before it started driving revenue and, you know, became real. Yeah, the trickiest thing, like, YC companies always come to me and ask, like, what could I learn from the Palantir experience?

30:53And I'm like, is your name Peter Thiel? And are you willing to put tens of millions of dollars of your own money into it before and sort of wait and be incredibly patient and ignore all the signs that you weren't getting revenue and not actually working for so long to the point that suddenly it started absolutely working and working like 10 times better than you thought it would? That's just not a thing that people are really capable of doing on certainly their first million dollars or their first you know palantir is sort of like the the most amazing version of like the second or third startup that people do like your first startup you got to just get it out sometimes it's like how do you like get to your first million dollars right well that is the name of the podcast and so i'm curious what's your advice or take on that like how did you do it how did you think about it and knowing what you know now how would you go make your first million Yeah.

31:51I mean, what's funny is in the end, like Palantir ended up being huge, but it took, it didn't really IPO until many, many years later. It's like, I mean, I designed the logo in 2000. I joined as employee number 10. We would do these ridiculous things like go to Stanford and give out pizza. And then we were like 10 people, 15 people working there. But the pizza box would have our Palantir logo that I designed and like join the next Google. and people would like eat the pizza and they'd like give us dirty looks. Like, how dare you? What the heck is wrong with you guys? And then let's see. My first win, I mean, the Palantir shares did turn out to be something, but it did not seem like it was going to for a really long time.

32:34I think my first actual million dollars was selling a few million dollars worth of Twitter stock at IPO. And so it was actually really late, like 20. I mean, for me, I started working in tech when I was 14, so 1996, 1995. And then I think it literally took 18 years of working as an engineer and not having money and having$50 ,000 credit card debt coming out of college. And I think that might have even been one of the reasons why I didn't quit to join Palantir. I was like, it felt, you know, in 2004, I still had like$30 ,000,$40 ,000 in credit card debt and like maybe$50 ,000 in student loans. And I just like, I was like, well, like$70 ,000 is a lot.

33:22But, you know, how am I going to actually, you know, I don't know if this job will even exist in six or nine months. And like I could be a lifer at Microsoft. And of course, in retrospect, like being a lifer at Microsoft would be sort of like a life of torture at some level. So, yeah, my first million was actually Twitter stock. So I started a company in 2008 called Posterous. It was a blog platform. I used to use it. I love Posterous. Yeah, it was dead simple blogs by email. You just emailed post at Posterous.com. You didn't have to log in or learn how to use software. And then we just reply back with like, here's your blog.

33:57Here's your website. And you can send it to your friends. And it was sort of like an email list too. So you could do it with your family. A lot of people used it to share photos with their family. it grew 10x year on year two years in a row until uh instagram came out i remember when instagram came out posturus was actually one of the little check marks uh lost to the sands of time i think it was like you know posturus tumblr um foursquare twitter and i remember all the sharing page and um i remember chris sacca one of our investors emailed us about it and was like hey what do you think about Instagram?

34:33And before I could reply, my co-founder replied, it sucks. And we got a one-line reply from Sokka saying, I'm very disappointed in you guys. And then I just was like, you know, sleep deprived and think about it again. But like, I think about that all the time now, because, you know, when you're working on a startup, like, you know, we didn't actually even totally understand why we were growing that fast. In retrospect, it was actually because the iPhone was new and people were taking lots of photos and there were no apps that made it easy to upload. And then Instagram was sort of the first free app that created a network that also even had a little bit of utility with their filters.

35:13And it was all free. And basically, we got run over by the eventual winner. And I think that's one of the big dangers for founders, period, is when we launched in 2008, Michael Arrington at TechCrunch wrote about it and he framed us off the bat. He was like, Posturus is way easier to use than Tumblr. And so we sort of made a mistake and took that competition and then made it our identity. And it's something that, it's advice that I have to give to founders all the time now, which is like, we weren't competing against Tumblr. We were competing against how people were getting photos off of their phone, actually.

35:54But, you know, when you're not careful, you sort of allow media or other people to sort of frame your reality. And then you just play the wrong game. Like Tumblr didn't even want to be Tumblr. That ended up having zero enterprise value. I think that's also one of the cool things about Silicon Valley is like you can even sort of screw it up. You know, if I really introspect on what I wish happened, you know, we had about a million users who were like super dedicated to Posterous. We easily could have, you know, sort of charged$5 or$10 a month for it. We were a team of like 12 people. We easily would have been profitable.

36:34And then I remember because we were hanging out with our friends at Weebly, like David Rusenko and Dan Veltry, who were amazing. I mean, they only ever raised a tiny amount of money out of Demo Day and never raised a Series A. And what did they eventually sell for like$300,$400 million? Yeah, to Square, I think, pre-IPO. And then Square, of course, went on its crazy runs. So these guys made 100 times more money than me and my co-founder, Imposter. Rightly so. They did it not through continuing to raise venture dollars, but by being profitable, cash flowing, by compounding, by focusing on their users and playing their own game instead of playing the game that can be sort of chosen for you by either your investors or social media or by reporters and tech press.

37:28Just play your own game. Make up your own mind. So if I did it again, we easily probably could have done that. And then instead, I think we ended up pivoting out of that posturous idea. We were just wanting to continue to chase this idea that we could be the free social network. And I distinctly remember meeting Peter Fenton at Benchmark, and he passed on our Series A because we didn't have a good answer for this. He asked, you know, are you a platform or are you a network? And we said both. Because, you know, that's what founders who like don't have strong opinions end up saying, I think. It's a multiple choice test.

38:07You just circled A and B. Can't be wrong that way. But I don't know. This is all, you know, 20-20 hindsight. I mean, I use these stories all the time to try to help founders get on the right path to real enterprise value all the time now. So, you know, it's not just make something people want and raise a series A and B and like look like a successful startup. It's actually make something people want and that's the end in itself. And if you do that, like you're going to make money and, you know, hopefully you can compound that and like, you know, create real enterprise value for yourself. And that's sort of the game.

39:12of course, have your money there, but you can send invoices, you can pay bills, you can create reimbursements for your team, pretty much all of your financial needs can be housed under Mercury. And the product is beautiful to use. And the reason why is because it's a product that was not made by finance people. It was made by a founder, Imad. He's been on this podcast before. And he used tons of products as a startup founder. And this is the one that he wished he had. And I actually reached out to them to become a sponsor for this show, because I'm such a big fan of it. So if you need a banking product for your startup, use Mercury.

39:42You will not regret it. It's amazing. For more information, check out Mercury.com. Mercury is a financial technology company, not a bank. Check show notes for details.

39:53We want to ask you a bunch of questions about different stories because you probably have a lot of stories. But what's interesting about that story is you let Palantir is a very, I don't know if it felt it that way then, but now it's a very serious company where they prevent terrorist attacks at times so like it's a very serious product uh what you were working on after that you could like someone could be like well that's just like a blogging platform or that's just this like that's that's quote less serious did you ever like i mean i guess i'm self-projecting because i feel this way sometimes where i'm like i'm doing something that's not serious but you kind of have done both and you've done now you're back to a relatively serious thing it's a YC is a multi-billion dollar company.

40:34How do you balance working on something that seems fun and cool versus a serious big thing? I think that goes back to what we were saying a little bit earlier, which is just like, be careful what frame you accept. It's all made up, but you get to make it up. For Posturist and blogging, they said the same thing about Facebook. I remember spending time with Boz and a bunch of our friends who were early Facebookers, they never accepted the frame that Facebook was not a serious and important thing. Their narrative was very clear. They had a very strong cult. And the cult was just clearly once every few decades, I think very explicitly Zuck would say this, once every few decades, everything would change.

41:23Media would totally change. And they were right. Like this social layer came up. And, you know, this is sort of the reason why I feel like if you're running a business today, you kind of have to be a creator. Because if you're not a creator, you got to buy eyeballs somehow. And guess who's got the monopoly on eyeballs? You know, Larry and Sergey and Mark Zuckerberg. You got to go pay, you got to pay the toll to, you know, go across the bridge. Like, you know, the second price auction mechanism in the ad networks for all incremental attention is so valuable that these are the most durable, powerful network effects businesses that cannot be disrupted.

42:06So wait, are you telling all YC founders to go and build an audience online? Oh, if you're doing consumer, you basically have to, right? Sometimes even if you're dev tools, you actually have to. But yeah, would you say the same thing if you're a B2B? Isn't that even more valuable because you need a smaller, more targeted audience? Oh yeah, that'd be great. It'd be harder to target. That's a pretty interesting thing. You didn't say this. I'm putting words in your mouth. But if you are saying to all the... Oh, yeah. Yeah, we have Mark Tinkes coming to speak at our mini-conference later today. And, you know, we're going to talk about it.

42:34It's like, how do you actually get incremental customers? And distribution really matters for consumer businesses. But that's also why, you know, we've had a dearth in really breakout consumer businesses for 10 years. You know, I think that this will change. I mean, with AI, AI does change things. I don't think it's broken the distribution advantage. I think that the big tech companies have a total stranglehold on the incremental user and you have to pay them still. I mean, it's just purely market dynamic, right? Like, we're selling WidgetX or GameX or DatingSiteX or whatever it is, but our buddy from college or someone from halfway around the world in Eastern Europe can take what we've done and do the exact same thing or go to our supplier in China and get the same dropshipping relationship.

43:24And so at that point, the second price auction means like, well, I want that customer. No, I want that customer. No, I want that customer. Guess what? It's an auction. Every incremental dollar that is gross margin, Google or Facebook will just extract because it's a perfect marketplace. And that's just the world we live in right now. And then I think that the purest form of alpha that exists still is saying interesting, valuable things that, you know, and the YouTube algorithm and the X algorithm and, you know, to a less extent, like Instagram. I mean, I think TikTok is actually pretty wild. Like they're just giving away distribution over there, especially for brand new creators.

44:08I think Meta is probably really dropping the ball on how they're thinking about creators. They just like, I don't know what's going on over there. Seems like they only want to satisfy the people who are already big, which, you know, is not that helpful for people who are trying to do new things. But yeah, that's, that's sort of the regime we live in. You know, for B2B, what we see at YC is that, you know, probably 70 or 80 % of companies are B2B. And our most well attended mini conference every batch is actually the sales mini conference. You know, Pete Kazanji founder sales, like that book, we give a copy of that to like literally every founder.

44:47A lot of it is about a mindset shift. Like most people have never been rejected 95 out of a hundred times. Like it's just so like soul crushing to get no that many times in your life. But it's also, you know, for 80, 90 % of businesses today, you better get good. If your website conversion rates 5%, you're doing phenomenal. You go out and knock on a hundred doors and get 95 no's. you feel like you're the biggest failure in the world. And it's the same conversion rate. And you shouldn't because you got five. You have five enterprise contracts paying you$10 ,000 to$100 ,000 a year. You're the biggest winner in the world.

45:21That's how this stuff works. We got to ask you about some of the people that you've been able to meet. I'll tell you what I want. And I hope that you give it to us. I don't know if you will or you won't. But me and Sam are in what I'll call the way that most people live their life, which is you wake up every day. You got your project, your business. It doesn't matter if you're doing$10 ,000 a month or$100 ,000 or$10 million a month. It doesn't really matter. You wake up every day, and then we all look for this entertainment inspiration thing. And we get a lot of it from Twitter, from podcasts.

45:52And one of the best things is when you hear about the way that some of the people you admire operate or the way that they handle things or the way that they dealt with a situation or something about their personality. And of course, it's sort of a caricature. It's not a perfect picture and whatever. They're not perfect people, but it is badass to hear those stories. And we hear them about Elon, but you run in a really amazing circle where, you know, Paul Graham, Sam Altman, like all of the YC network are people you've been around. You've been around them before they were, you know, big and since.

46:23I would love if you could tell us a couple of like either personality traits or stories that stand out for some of the people. So I'm curious. It's a long-winded way of saying, can you tell me some cool stories about some of these characters that you run into? Yeah, absolutely. the funniest story I remember from working with uh Paul Graham in the office I mean he gave me my first shot as an investor and as an advisor to startups I was burnt out from imposterous we my co-founder and I had like a falling out and um he wanted to become Google groups and I was like dude I don't even think that Google wants to be running groups like we should just charge money but um yeah paul like i think really did like paul and jessica basically like did all the admissions work with all the companies just like 2011 you know even the whole yc campus was not a campus it was like a warehouse with some carpet and some like customs like very cheap i mean it's just tables and benches the benches were so rickety that like if you sat on one side like and the other person on the other side like you know stood up like you'd fall over like there's just like a bunch of funny things about YC early it was like this tiny thing um and to paint a picture like people still when I said I was going to go work at YC uh as a designer in residence my friends in venture or startups would say oh that's nice it sounded like I was going to volunteer at like a high school camp or something it was like a high school basketball camp or something it was like, oh, that's nice.

47:58I hope you enjoy that. Good for you. Good for you.

48:06Dropbox had happened and it had become a billion-dollar company, but Airbnb, I think, was just about to become a billion-dollar company. I think this is lost to the sands of time, but I remember Sarah Lacey had written a book called One Year Lucky, Two Year Good. So 2011, I think, was the one-you're-lucky-two-year-good moment for YC, where people realized, oh, this isn't some fringe thing. It's actually starting to churn out basically the most dominant startups that exist. It's like a very concentrated form of Silicon Valley. And about that time, yeah, there was literally one person who did all the books, all the finances, all the audits, all the CFO stuff.

48:51and she needed a copy machine. So she got one of those like sort of waist height copy machines that, you know, look corporate and it had like these little stickers on it. And then I remember Paul Graham came in. He's like, what is this? Why is this here? And it was like sort of this totem of corporateness. He's like, I remember seeing these at Yahoo and I hated them. He started like scraping off the sticker that had like the phone number of the little company that would maintain the copy machine. And I guess it just jumps out at me as like this very interesting quirk of Paul that was like absolutely right.

49:35And, you know, I sort of stay up at night thinking about like, how do I make sure that YC never feels corporate? PG, like PG would show up in like shorts and Birkenstocks all day. I think he wore khaki pants to my wedding. So my sister-in-law was like, excuse me, sir, this is a private wedding. And I'm like, no, no, no, that's my boss.

49:58So, I mean, there's this, I think what I learned from Paul was that I think there is an insidious nature to like formality and corporateness and just like having to wear a suit or the convention, right? I think there's incredible value in being very, very unconventional. Whenever there is prestige and or convention, you should be wary of that thing because there's got to be some other weird soul-sucking things that are associated with that. No one by default would sort of choose to have a dress code or like, what are some other examples of this? like you know basically you should beware of about your own formality and um try to fight against it it's just like try to be super matter of fact um and i think that that's that's one of the things that just makes companies bad i wonder like as people who run your own businesses do you ever think about that like you go into a meeting and you just think like was that a meeting that if i were not me running this place like would i want to be in that meeting well it's the same thing is what you said about the framing thing.

51:10You behave like you think you're supposed to behave versus what makes sense. You start playing business a little bit. It's sort of like when you start a company, a lot of people play business by getting a business card before they get a customer. And then you snap out of it. You're like, no, dude, I got to make the damn thing. You start making the damn thing and you start getting some customers. And then you go back to playing business again. Which is definitely part of the Silicon Valley thing. You know, like OKRs, measuring things quarterly. like there is a bunch of like lameness that I myself fall victim to and you have to like pull yourself out of that trap but but some of it is like useful I guess if you're Airbnb you you have if you have 6 ,000 employees you do slow down but it's hard to know what's truth versus what like or what you should do versus what you have to do type of thing I will say that I think um it's possible for people to do uh insane business now with like two pizza teams like I think that we probably in your community or maybe you guys yourselves will end up making these like 100 million to like billion dollar a year businesses that are totally empowered by large language models that like do not need more than 20 people working at them.

52:22I think that this is literally the most exciting news that, you know, we're pretty sure is going to happen the next few years, especially right now. And like, that is the one thing that these giant companies that have like thousands of people, like it is completely like corporate America is completely unprepared for this moment. Like they're just going to get run over by a thousand startups that are way more agile that, you know, aren't completely drowning in convention. They can just do the right thing for the customer and the cost basis will come down a ton. You know, the trickiest thing is like, I'm not sure if it's inflationary or deflationary.

53:00Like, what's going to happen here, right? Like, prices in theory should come down. Things should get a lot more competitive. I mean, on the flip side, like, the hope is that all of our, you know, products and services get a lot better, cheaper, faster, real fast. I mean, this is the moment. Like, literally, we talk to people who are eng managers and, like, CTOs and, like, even engineering teams. You know, I think that it's almost generational. Like we get, it's like in the water for us right now because we spend all of our time with like 22, 25, 28 year olds who were like the me from, you know, 15 years ago.

53:35Like we're just helping the next generation right now. And they were like born on the internet. They were born with large language models, you know. And then there's sort of, you know, frankly, I'm 43. My generation of C-levels, I don't think people are prepared or even aware of what's about to happen right now. And it's super, super good news for anyone who's running a business who's super agile. Because you don't have to be doomed to calling in the business process automation call center. You don't have to hire the team in the Philippines anymore. If anything, like that's one of the more direct advice we give to people looking for startup ideas in the batch right now.

54:16If people are pivoting, we're like, okay, well, you're selling to, let's say, like accounting firms, you know, but you're having trouble with enterprise sales. What if you targeted people who already spend, you know, hundreds of thousands of dollars a year on a call center in the Philippines or Eastern Europe or anywhere else? Why don't you just reach out to people like that and just replace what they rely on there with large language models that have great evals and great workflow? I think we will have many companies driving tens to hundreds of millions of dollars literally in the next two years.

54:55It's just like hundreds of them, thousands of them are going to pop up right now just doing that. That's so exciting. What companies are you super excited about that we should watch out for, or we should go check out? Because you live in the future. You're further in the future than we are. Obviously, the tooling for this is important. There's going to be a lot around helping people build this stuff. Evals in particular, doing it test-driven is important. The danger for most founders right now is it's very easy to make demo wear that you can use to raise money. and then you're tempted to sort of, you know, quote unquote, raw dog your prompts.

55:35Like you will just write code that has some prompts and you won't write any tests. And then the funny thing that we're seeing right now that I think is super true is, again, like going back to what we were saying earlier, like it's important to build your worldview on how the world works directly from customers and their customer data. So the sort of rinse and repeat thing that's like maybe 80 % of what YC companies are doing right now that I think anyone could do is go and find real people who like are running businesses and they're spending hundreds of thousands of dollars a year on giant teams of people doing like rote repeating knowledge work and then get access to their data get access to the flow of their work watch how they do it and then literally write test cases using and if there's hallucination or the LLMs aren't actually able to like consistently do the thing you want, you actually have to chop down the prompts more like you're asking for the LLM to do too much, like the LLMs are capable of maybe like 120 IQ level work right now.

56:42And if you're, you know, giving it like too much in the context window and asking it to output too much, it's just like, do it in steps, right? This is literally what 01 and, you know, reasoning already does using chain of thoughts. The interesting thing and weird thing that I'm tracking right now that I'm a little bit worried about is it is entirely possible that the next generation of large language models from Anthropic and OpenAI and Meta are, you know, one and then two orders of magnitude in like compute and number of parameters. And then we just get like, you know, the Daru Amadei scaling laws paper specifically says, like, you know, these big, large language model AI labs are going to spend a billion and then$10 billion on the next generations.

57:33And like, if we get like, continuous step function improvement, like, the trickiest thing is, like, all the stuff that even what we're doing as founders are doing, like, you know, maybe the models will just do for themselves. and you know I think that my hope is that you know there's not enough agency in these things and then you know maybe what will happen what we hope and what we think will happen is that the people who establish brands and moats and evals right now when the next generation models happen their cost structure just comes down by like 10x and then they already have like the revenue and the market captured in some way that they're like sort of beating the software incumbents that they're going up against.

58:20They themselves have like tens to hundreds of millions of dollars in revenue. And then like basically the standard moats apply, like look at Porter's Five Forces and you're like, you know, you have way better access to data, your systems are way smarter. It costs a lot of money to take a risk and switch off of those systems. And then you have a sales force that is way better and smarter. And so if you take all, you know, that's sort of the gambit right now. Like if you do prompts and evals, you're pulling forward the future by a few years. You're trying to like grab as much land as you possibly can right now.

58:59And then from there, like hopefully you can hold on and build the next Microsoft or the next Salesforce or, you know, the next 10 to$100 billion company. Was it obvious when Sam Altman left YC to do this? I wish I was smart enough to predict that this was what was going to happen. Did you think that he was going to be the man like he is now? Paul Graham has that essay where he's like, here's five people I'd bet on. And one of them, the fifth one was like a 25-year-old Sam Altman. And the other three were like Bill Gates and Steve Jobs. And then he said, this kid. So were you like, whatever Sam does is going to be a generational company?

59:40Or were you like, it might be, it could be mildly successful? I mean, I think it could be a bit. In full transparency, like I'm going to be super honest. I was like, man, I don't quite get it. You know, when he was sitting in my shoes as president of YC, he'd come back. And I remember sitting in the group partner room and he'd say like, well, this is what Elon was talking about. And this is what Larry was talking about. And, you know, they were all talking about AI. and they were sort of talking about these sci-fi scenarios. And I'm like, man, I saw Terminator 2 too, but that was a movie, okay?

1:00:18And I think that I'm changing my tune at this point. I wish that it was smart enough to be actually totally a believer. I'm a believer now. Do I believe that we're going to end up in a doomsday scenario? I still don't really believe that there's that much agency in these things, which is sort of the reason why. Yeah, but your judgment now is questionable. First Palatir, now Open AI. Thank God that you've already made so many other successful investments that I know that Gary's got good judgment and can predict the future a little bit because... I'll come around eventually. I'm just a year off.

1:00:56Yeah, he was Palatir employee 10. After he said no to the co-founder, he ended up there, right? I mean, now we're, you know, we are full believers in large language models. But, you know, I think the thing that's a little bit lost to the sands of time is that, you know, what Sam was absolutely right about was jumping on this thing that the smartest people in the world were already talking about, like, eight, nine years ago. And then he built it. You know, he invested the money. He brought together the people. it was no small task to bring together the smartest AI researchers in the world. And then not only that, it was like semi-miracle.

1:01:34You know, you could ask, why didn't Meta do this before? Why didn't Google do this before? Why didn't Microsoft Research do this before? Like all of those people had virtually limitless access to resources. And to weave this back together, I think there is something really terrible and limiting about like giant organizations that are not capable of evolving and making smart decisions. I mean, that's what big tech is like. There's sort of like big daycares for the most technical smart people in the world. And it's like, here's your, do you know, play some volleyball, we'll cook you lunch, like here, you know, here's do your laundry at work, you know, like, you know, let's totally infantilize the smartest people in the world.

1:02:18And that's a waste of time. What needed to happen was the ability... One of the things that got explained to me why it was OpenAI that came up and invested millions first and then tens of millions and hundreds of millions into the large language model and transformers for language. if you were at Google you needed to work this bureaucracy it was like highly political you know you had hundreds of other researchers all of whom were all as smart as you and you had a finite sort of limited set of compute and you know what you would find is that Google would do really breathtakingly amazing work but then you'd have like 30 different authors you know and if you'd read the paper, there'd be like these sort of like strange things that seem like it was a little bit tacked on.

1:03:13But that's the only way you could get the compute resources to actually pull off a training run on like the model that you wanted to do. Like you had to do some weird things to accommodate like people who were going to commit their training resources for their like random little thing. And so it's funny to see that, you know, human progress is more or less a little bit impeded by the bureaucracy and lack of governance and lack of agency that large organizations just sort of like impose on people like you don't have a choice isn't it crazy that it was easier for them to invent and discover transformers and this large language or a breakthrough than it was for them to navigate the bureaucracy to actually like create a product out of this or do anything useful with it like that should tell you kind of everything you need to know I mean, the wild thing is like, even with an open AI, like they did everything right.

1:04:06Like GP3 was very impressive. 3.5 was even more. 4 was incredible. But like, they were going to just put it behind an API and like explicitly for many years, open AI was supposed to be a, you know, we're a research lab, not a product company. and it took relatively Herculean efforts by product people inside OpenAI to even release ChatGPT which turned out to be the greatest consumer launch of maybe in the history of consumer launches actually. Hey you said, and I know we've got to wrap up a second but you said, you keep talking about this thing, it's pretty amazing about talking to the smart people and like what are they talking about?

1:04:49you have access to more of those types of people than probably most anyone on earth. What's the conversation right now? Or is it all AI still? Yeah. I mean, ultimately, that's sort of the number one thing that we're pretty excited about. I mean, that, you know, a few people who are really smart can sit in a room and, I mean, make a thing that literally does what humans do all day. You know, I would make a pitch that often the best things that could be automated are actually very rote. They're sort of the knowledge worker equivalent of like hand looming a carpet or something. It's like, all I do all day is look at an email box, see if someone paid their bill, reconcile that against a ledger in QuickBooks.

1:05:35Like, can you imagine, you know, millions of people, like tens of millions of people on the planet. Like that's their nine to five, you know, like that, that is not a good use of a very smart human being, generally speaking. And like, those are sort of the things that are most easily replaced by really great prompting, great evals. And frankly, I think, you know, there are going to be 20 person software engineering focused startups that basically turn, you know, billions of dollars in payroll into billions of dollars in software revenue. And hopefully those people go on to do much smarter and much more interesting jobs than like passing butter all day.

1:06:19That's amazing. Gary, if you have one minute, can you tell the spoon bending story? I think this is the very powerful story that you have. The spoon bending party. I don't know if you know. Oh God, it's hilarious. I mean, I, you know, I've been to Burning Man a few times. I love Burning man. It's my favorite place to take a break from consensus reality and realize that it's all made up, but you get to make it up. And, you know, there's a lot of like weird fringe stuff, a lot of like 60s, like esoterica, you know, you're just wandering around the desert on a bike with your buddies. And, you know, I think we randomly walked into a spoon bending party where they were, you know, it was a huge group of, I think it was almost like a magician at the front, like sort of helping people, you know, the shtick was that they were going to teach you how to bend a spoon with your mind.

1:07:09I was like, okay, that's cool. Like, let's go check it out. They passed out these spoons. And then it was like a magic trick. They said, okay, now bend your spoon with like, look at your spoon and bend it with your mind. And then in between they would say like, okay, well, sometimes you need to use your hands and like warm up the spoon to bend it. And then basically, I think what you're supposed to do literally is just bend the spoon with your hands. And that's what, you know, and then what's funny is by the end of it, half of the people, like I had, I had a bent spoon because I was like, oh yeah, like they said like, oh, I should, you know, sort of warm up the spoon with my hands and bend it with my hands.

1:07:52Just to get it started. Yeah, just, yeah, just to get it started. Right. And then by the end, like half of the room had bent spoons and the other half didn't. And the ones that didn't were like, how did you do that? That's absolutely incredible. And I was like, guys, it's a bit. It's a bit like you have to, you know, first know that you can bend the spoon with your mind, but then you bend it with your hands, guys. Like that's literally like the shtick, actually. And it's a little bit of an allegory for, you know, bias to action and what you're supposed to do in real life. Like real life is sort of like this exercise.

1:08:24Like they say, like, you can go change the world and you can do it with your, you know, with your very ideas. But like, you know, that alone is not enough. Like you actually have to go with your hands and go talk to users and, you know, sit and build a thing. And so, you know, don't forget the second half. And the wildest thing is like more than half of the room could not do it. And so if you are the person who's able to bend this, you know, bend the spoon with your mind, like, guess what? You also used your hands. Like you got to do that. And actually, that's maybe the greatest gift. Dude, Gary, you're the shit, man.

1:09:03You are the best. I love talking to you. You make me feel really great. You give me energy. And we're very, very, very thankful that you took the time to do this. Thank you guys so much for having me. Always great to see you guys. And congrats on all the success and excited to see where you and your community go. I mean, we're all building the future out here. Well, thank you for saying that. Take care, Gary. I feel like I can rule the world. I know I could be what I want to. I put my all in it like no days off. On the road, let's travel, never looking back.

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