Elad Gil Explains Why 90% of Startups Fail in Every Tech Cycle

0:28I was looking a little bit at the data from the 90s, subset of companies that are forever private because they can afford to be. That may be Stripe, that may be SpaceX, that may be some other companies. I don't know if you remember the direct listing wave of like 2020 or whenever all these companies started doing DLs and it was considered the next big thing. And then like five companies did it, right? I think it's quite possible that this forever private thing will be similar. And then I think there's a bunch of companies that will just do the normal IPO thing and all the rest of it. And it's interesting to ask, like, what percentage of future market cap will be these perpetually private companies versus not?

0:57And will they eventually go public? The HubSpot CEO tweeted out if you want to sell your company, sell it now. I think that's always true.

1:15Elad. Elad. Molly. Molly. Welcome to Sorcery. Thanks for having me. Okay, so I have like two sets of questions. One is the fun route and one is the serious route. Which one do you choose? I don't know. Maybe the fun route. We could do the serious route. It's up to you. I mean, it's your podcast. It's your choice. It feels like a very loaded choice. Like if you choose a fun route, but then you're not actually that funny or have that much fun, people will be like, oh, that person isn't fun. So the serious route is actually the safer route, but it sounds as fun. What if I told you I only prepared one?

1:51Let's do the serious route. That sounds amazing. Let's go. Okay. So doing some deep research on you. You have had a very interesting, unexpected career. Google, Twitter, Color Genomics. You then wrote a book. Then you were one of the first AI investors. And you have a podcast now. You're doing incubations. You also have a very successful fund. So how did you do all this? yeah i mean i guess i've just been around for a while so these things accumulate with time i mean i don't know if there's much more than that i think um uh the honest answer is um you know i have sort of a broader set of things that guide me in terms of um i view technology as a force for good i think it has helped raise um elevate hundreds of millions of people out of poverty out of famine out of all sorts of things that i mean technology in a broad way right Technology is the agricultural revolution.

2:53It's new medicines. It's biotech. It's running water. It's all sorts of things. And so when I look at the impact that's had on humanity, it's been very positive. And obviously, there's always the negative things that can happen, all the rest. But I think it's been very net positive. And so throughout my career, I've kind of asked myself, where do I think technology can be most valuable, most useful? How can I help transfer it in the world? And so that's driven a lot of the choices of where to be and what to work on and how to get involved with things. Not to mention monuments. And monuments. And so, yeah, I'm working on a project now to try and build a series of new monuments.

3:28So if you look at every society that's at Apex ultimately has built large public art to inspire the next generation to move forward for progress. Maybe it captures its ethical values. Maybe it captures its ambition. And I think the last time we built a large scale monument was Mount Rushmore, which was initiated in the 20s and was built up until the early 40s. And then since that time, we really haven't done anything societally, at least in the US. Maybe you could argue the sphere in Las Vegas is almost like a monument of some sort, right? But we used to do these really big symbols. And the Statue of Liberty, which is obviously a gift, is a great example of that.

4:05You'd get off of Ellis Island as an immigrant and you'd be inspired by this giant statue and this symbolic nature of like liberty and freedom and this new land that you've come to. And so we're working on doing monuments or public art across four or five key cities in the US. And we've been talking with different both artists and artisans around different materials. So we experimented with different bronze works. We've experimented with marble. We're actually looking at carbon fiber, which nobody's really used, which you think is really interesting for all sorts of reasons. And then we've provided proposals to a few places already in terms of some of the public art that we could build.

4:44And I think the smaller scale of what we want to do is probably 15 to 20 feet tall, which is kind of the scale of the Atlas in front of Rockefeller Center, which I think is a beautiful work. And then the hope is to eventually do something, at least one that's, you know, sort of Statue of Liberty or Eiffel Tower scale. Sorcery is brought to you by Brex, the financial stack trusted by more than 30 ,000 companies, including one in three venture-backed startups in the U.S. Nearly 40 % of startups fail because they run out of cash. Brex is literally built to help founders avoid that. Unlike traditional banks that let your money sit idle, chipping away at it with fees, Brex is designed to help you spend smarter and move faster.

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6:08I mean, in yesteryear's world, these things were polarizing. So the Eiffel Tower was considered very ugly when it was built, right? It was a giant steelwork. And Eiffel was actually a bridge maker, right? And he had all these divots and pieces of steel. And he's like, I'm going to make a big thing for the World Fair in the late 1800s. And it was actually meant to show off French steelmaking, right? It was an ode to technology progress. And apparently a big chunk of the city thought it was ugly and terrible. And they were looking forward to getting torn down. And so I think these things that we now view as beautiful and iconic and inspiring, and wonderful at the time were not viewed that way.

6:46And one thing that I thought was really cool, I went to see the Eiffel Tower actually recently as sort of a refresher over the summer. And he had his office on one of the top floors. And it was a power move for him to invite people to his office and they would take the pneumatic lift. I don't know if you've been in it. It's this very quiet elevator that was built 150 years ago using modern technology right of the day. And so the elevator takes you up there and you get in and you go into his little office and they still have the desk and everything set up. and it was him showing off like what he built, which I thought was kind of neat.

7:15I'm curious what happens because in San Francisco, do you remember that statue? Is that still up? Which one? The woman one in front of the Embarcadero? Oh, I'm not sure if it's still up. They also used to do a lot of Burning Man art like in Hayes Valley. And if you remember, they'd bring art from Burning Man right before they take it to the burn and they put that up there. But there's a lot of temporary art still. And so there's some in San Francisco, there's some in New York periodically, periodically where they'll sort of do some public works. There's a little bit in Miami sometimes, but I'd really like to move to like big permanent installations that have meaning that hopefully can transcend a really long time period, hundreds of years.

7:54You know, you want the thing to be relevant 200 years from now. And so then you ask the question of, okay, what are societally relevant themes over long periods of time? And what is actually forms of beauty that we will agree 200 years from now is still beautiful. Because if you look at a lot of postmodernism and a lot of architecture, I don't think it's that attractive anymore. Right. And there are things that are still beautiful, right. Gothic periods and art deco. And, you know, there's all sorts of people still love seeing Roman ruins because they're so beautiful, right. Even though they're ruins.

8:24So I think there's some things that feel like they're universal and there's some things that seem like they're moment in time from an art or architecture perspective. What do you think of, is it Bezos that has the clocks sculpture? Sure. Yeah. Oh, yeah. He has the basically he he tried to build a clock that would last for millennia. And I think it's very cool conceptually. I think it's really neat that he did that and he was thinking big. I think the hard part is it's kind of isolated. You kind of have to go out to get to it. And so what I'm interested in is can you do these societally inspiring things, but in major cities and major thoroughfares, like how can you be central to where people are spending time?

8:59Because if people don't see it, it kind of doesn't matter, you know. As a multidimensional person, you have culture, you have investing, you have technology and science. On the investing standpoint, you started off with angel investing. Apparently you're going to have a big fund soon. Yeah. How did we get here? So what was the arc from angel investing to this fund? Because the strategy is insane. Like you're doing seed and pre-seed and incubations, but you're also leading$100 million Series Ds. Yeah, I think basically we view ourselves as investing from incubation or pre-seed through pre-IPO. And at this point, have done every stage and have done very large investments.

9:43So I think we've now led a few rounds that are a half billion plus each. and um you know ultimately the the starting point to your original question was i was just investing my own money as an angel and i ran out of money like literally i just i ran out of money because i put all my money into startups and um so i started raising spvs which are these um single investment funds right you raise money to invest in a specific company and that was really tough for a couple years like nobody had heard of me it was very unusual for a single person to go and raise funds. Um, and I was, I was involved with a lot of the key companies who kept giving me bigger and bigger allocations like a Stripe or other companies.

10:23And I just couldn't, I just didn't have the money. Um, and so, uh, I scraped together the first few of those and then the LPs in those eventually asked me to, um, if I wanted to do a standalone sort of fund and I kept angel investing alongside that. And now I kind of do a mix of, I can still do personal investments. I can do things through the funds. I can do incubations, you know, it's, it's kind of multifaceted into To your point, we even do things now like AI driven roll ups, right? So we'll help actually fund an entrepreneur or founder who wants to go and consolidate an industry or buy into different traditional businesses and then, you know, modernize them with AI.

10:57How do you think about the categories? Because you're investing in many different things. As a solo GP, by the way. Yeah. Well, I'm going to have a small team. Okay. How big is the team? On the investment side, I have four people who are helping me and then I have about another six, seven people helping with back office and finance. And, you know, I tend to have always thought that it's really important to ensure that you're properly focused on compliance and accounting. And, you know, I'm very, um, paranoid about doing things properly and I'm always paranoid about, um, fraud or other things that can really be existential to a business.

11:29And so I view that in the context of what I do as well, like it's really important to get right. Um, so I have a whole team just dedicated to, you know, accounting and finance. Um, and then I have other people helping with a few other areas, events and, you know, things like that. You know, it's interesting that the, the, there's sort of two approaches to investing. One approach to investing is to say that you're going to be thesis driven and you're going to look for specific things. And then the other approach is you're just opportunistic and you wait for the best things to show up. And the argument for the first one is every once in a while there's a sea change or a shift in technology that's so important that it makes sense to just go looking.

12:02And so two examples of that in my career have been crypto where in 2016, 2017, I just started doing a lot of crypto investing because it was such a clear sea change. And I I wish I'd obviously started earlier. But that's when I invested in Coinbase and other companies in that area. And then I think more recently with the generative AI wave, I ended up getting involved with that quite early, 2021, 2022. And that was, you know, I played with GPT-2 and then GPT-3 and it was a shoot step function up. And all the scaling papers were out and you could just read them and see that all this stuff was coming.

12:34And so I just started looking for people working in the area. And so that's when I funded, um, perplexity and Harvey and eventually Decagon and a bridge and a bunch of other companies. And, um, so that was a little bit thesis driven, like, Hey, I think this big change is happening. So let me just see who's doing what there. And very few people were looking, but there's a lot of companies I invested in simply because I met the founders and I thought it was a really great company. You know, that was Airbnb and that was Stripe and that was Figma and that was Instacart and, you know, um, notion and all.

13:02And so I think some of these things in hindsight feel like trends, you know, oh, there was a FinTech wave. You know, in FinTech, I did Stripe Square, Affirm Brax. But I wasn't like, I'm a FinTech investor. I just thought it was like an important set of companies. And then in hindsight, oh yeah, of course there was this wave that was happening. So, you know, I think in general, there's thousands of great founders out there and you could think of them as a distributed search function, right? You have thousands of people exploring all the space of entrepreneurship. And so how can any one person or small group of people come up with better ideas and thousands of people in a distributed manner?

13:34You know, it's just impossible. But every once in a while, there's this technology shift. And if you notice it, you can, you can really get involved with important things. How many companies have you invested in? I don't know the exact number. So I've invested in say, I'm making up the number 10 to 15 companies a year, but I've been doing it for 15 years. So that's between 150 to 225, if you use that as an estimate over like a really long time span. So many of those are now sold or public or dead or, you know, all the various things that can happen to a company. can you name all of them oh yeah of course i can actually do it alphabetically and then reverse alphabetically are you serious no no yeah oh come on yeah so wow i was really excited there yeah it would have been a very long episode would have been great start to get bored they'd be like oh he's on the s's now it's always the worst letter so many s's it would make a good clip he just released that on twitter yeah that'd be really still going that's so viral I feel like, oh my God, the T's in this one are amazing.

14:58can accelerate your business growth. To learn more, visit turing.com slash sorcery, spelt S-O-U-R-C-E-R-Y. That's turing.com slash sorcery. So given the fact that you've invested into so many companies through different waves, how do you think about investing in competitive companies? I'm sure there's been some crossover across. I try to be really cautious about that because I've started two companies myself. And, um, you know, I want to be very respectful of, um, founders and what their goals are and their wishes are and everything else. And so I, I often ask both sides, I say, Hey, this thing has come up.

15:40Do you view it as a conflict? Is okay if I proceed, et cetera. And so I usually wait for that. Okay. Um, I think that, uh, there's a number of circumstances where people think something's I'd say 90 % of the time founders think that they're going to compete and they don't, they tend to grow in very different directions, especially if it's two early stage companies. and then maybe a few percent of the time things actually converge. And sometimes they actually converge on the companies that you don't expect. And so I've seen more conflicts and things that I didn't think would converge than things would.

16:11And I'll give you an example. I remember I was an investor in Square, and the Stripe founders pinged me and asked if I wanted to invest. And so I pinged one of the key executives at Square and said, hey, do you think this is a conflict? And he said, absolutely, this is a conflict. You shouldn't do it. These things are going to collide. And so then I texted Jack and I'm like, hey, is this a conflict? He's like, no, go ahead. And so I went ahead and invested. So I'm glad I did that extra ask. And then in hindsight, they didn't really end up competing. So is it harder on the earlier stage side? There's definitely more potential for conflicts, but I think most of the time it's less likely.

16:46I actually think on the later stage side is usually when it's pretty clear. Or suddenly the industry shifts and then it sort of crystallizes and you're like, oh, wow, like Cognition is now competing with Cursor. They bought Windsurf. You know, it's a more direct thing than maybe it was even six months ago. Do you think because we're in this wave of AI, you have to be an AI company in order to survive or even be relevant? Yeah. I mean, arguably anything software is to some extent AI now. And so I can't think of a modern new software company that isn't using AI. Maybe if you're truly doing something basic in fintech or some other area, although that fintech wave is, um, for chunks of it are kind of over, right there's still a lot of innovation in different areas and new things to do and there's a lot to do in crypto but fundamentally um you know traditional fintech isn't as active as it used to be um and so there may be some pockets where if you started a company today wouldn't the ai wouldn't matter that much and you could argue it two ways you could say well if you're in the middle of one of the most important technology waves of all times maybe you should be focused on that thing right um and in general uh early in technology waves that's when you have all the low hanging fruit.

17:52And so one of my pieces of advice to founders is often, um, who are doing really hard things right now. And I'm like, why are you doing the really hard thing? Just go do the dumb, easy thing that you think is non-defensible and build defensibility because the really hard complex thing is something you should do in three, four years when you've run out of the easy stuff. Right. And so it's almost like you're going for a walk and there's a giant mountain and there's a nice little path around it. And you're like, I'm going to go up the mountain. And you're like, well, you know, just take the nice path.

18:16Um, and so I think, uh, there's that sort of overlay right now, there's easy stuff in AI. It's a good time to go do it. You know, the flip side of it is there's lots of other areas that people are working in. Although again, often AI plays a role like defense tech is largely drones and intelligence and other things that are, you know, really important now in the AI world. But there may be other verticals where it's just a little bit less important, maybe aspects of energy, you know, like what base energy is doing with battery storage that isn't necessarily AI enabled, right. But it's a very different type sector or industry.

18:47How do you think about the bottlenecks in AI, one being energy? Yeah. I mean, it's an interesting question because energy is one of those areas where we have all sorts of solutions. We just choose not to use them, right? Nuclear is a great solution for all sorts of things in energy. And if you look at nuclear as an example, public opinion on nuclear flipped in the mid seventies, right? It went from something everybody was for to something many people were against. And that was probably a mixture of the environmental lobby and big oil effectively wanting to kill the industry. The U.S. is still 18 % nuclear despite not having opened a nuclear power plant in 50 years.

19:23France is 70%. Japan is 25%. So we know that we have a clean, abundant, very safe energy source, actually. I don't know if you've ever read the Wikipedia page on nuclear. That's how I spend most of my free time is actually on that page. Wikipedia? Yeah, no, the nuclear page specifically. Specifically? Yeah, just re-reading. I'm joking. I don't really spend the shit. Yeah, that'd be awful. You're pulling jokes on me. This is unexpected. I'll stop. So if you read that page, you basically see that a lot of the direct evidence on deaths from nuclear are very small. And in some cases, it's like in Fukushima, there was two or three deaths and they think it was elderly people who had heart attacks, right?

20:00It wasn't necessarily from the radiation, although there may have been one death there. Um, and so most of the deaths from nuclear that are clearly provably traced back to the nuclear accident are either Russian submarines in the eighties, which for all sorts of reasons, you can imagine. And then radiology lab accidents where, um, they misdose people. And if you compare that to stats of people dying, installing solar by falling off of roofs, more people per year die from solar installs. Um, and so it's very safe, right? And so we do have these things we could do societally. we choose not to, which is a different topic.

20:36But if we want to do something, we can. And the question is, are we going to constrain ourselves? And the best example of that is probably Europe, right? Europe's energy policy is really hurting their ability to win new data centers for training. And obviously they have extra regulation for it too, that makes it worse and all these things. But fundamentally energy costs in Europe keep going up. They shut down nuclear power plants in Germany that are working perfectly fine. They're dependent on Russian oil. There's all sorts of very bad policy decisions. But what that's doing is it's having this weird side effect of hurting their AI industry because you're not going to build new training data centers there because it's too expensive on a relative basis to run them.

21:14You may do inference because of GDPR forcing you to do it, but you're not going to do training. So all the training will probably go to places that have the cheapest, densest energy and then a proper fiber optic cable in for the data transfer. And so that's probably parts of the US. That's probably the Gulf. Five years ago, I never would expect it, but I think they're really going to end up with some of these data center build-outs potentially. The Trump administration, I think in their AI plan actually had the ability to sort of extend into UAE as effectively US land from the perspective of training.

21:48And so it's interesting to ask these questions of like, how do global energy policies impact costs and therefore impact where AI is going to be really important as an industry, right? Because if you look at these data center buildouts, they've added or they've accelerated some aspects of GDP in the US, right? It's actually a lot of money is being spent. And so Europe is shutting itself off from some of that money right now. How do you think about the new administration's approach to technology? We're going through many different waves of lots of support that to your point, nuclear AI, how do you view that?

22:23And then the action afterwards, because things come up and they're like trendy, they're cool, you get a lot of support. And then your 15 minutes of fame like dies out. Yeah. I think it's really sector dependent. So for example, I think in crypto, the main thing the crypto industry wanted for years was just certainty. Is this something that SEC regulates the commodities folks like where who governs what, what are the rules and how can we just follow the rules? And so I think a lot of the crypto industry just wanted clear guidance on what to do. And that was absent for many years. And then I think this administration has started to provide a lot of that clarity.

22:57To your point, you then need to codify it with legislation, because if you don't, it's just going to be dependent on who's in power. And so you want to remove that dependence. And so I think a lot of what the crypto industry, my sense of this, is thinking about is how do we pass certain bills or help certain bills progress so that we can end up in a situation where these things are codified in law and they don't just become executive orders that can be rescinded with the next administration. For AI, I think similarly, we have to be very thoughtful about it. And the dangerous part in AI was there's state level initiatives that have been very negative or could have been very negative for AI.

23:33I think Scott Wiener proposed one in California. I think there's others that have been proposed in other states that you could really curtail overall US progress in AI because you set the standards in one state where it's important to function. where most of the researchers are, right? Or most of the, where some of the data centers are, et cetera. So, you know, there's a national level of it and then there's a state level. And I think both are important for some of these topics. Yeah, I think about this a lot because I love the American dynamism movement and how that like propelled small tech as the Andreessen media empire calls it to now big tech.

24:07So as we think about the government's involvement in these different sectors, they're also putting dollars to work. So how are these deals, one, getting structured, whether it's MP Materials or Intel? And are you at all concerned about them and whatever happens with TikTok? Yeah, I don't have like deep thoughts on those things. I haven't spent a lot of time looking at government investment in some of these companies. And they very much are companies that I tend not to spend as much time with because they're much later on in life. I mean, Intel was started in the 70s and maybe it was late 60s. I can't remember at this point.

24:40And so... I just haven't thought about this very deeply. I think there's a slightly different question. And I think Andreessen Horst, for example, has been very good at promoting this concept of small tech and we need to advocate for that. I do think that one thing the prior administration has done, which this administration is to some extent continuing, is effectively curtailing some of the M &A activity you'd normally see big tech participating in. And I actually think that's negative for the startup ecosystem. I think it's good for companies to be able to exit. I think we're going through a massive sea change right now technologically.