Why Lightspeed Bet on xAI, Neuralink, Suno, Granola, & Pika | Michael Mignano

0:00This is like a very hot topic. I'm sure you have a lot of opinions. What did you think about the Sora launch? I think Sora is the next phase. It's a whole new chapter for the internet. You know, I hate to say it, it's almost like the end of the creator. Okay, so you joined Lightspeed,$30 billion fund. You've invested in XAI, Neuralink, Suno, Granola, Pika. So I'm curious, how do you see creativity as a moat? When you think about moats, I think what's really important right now, given how fast OpenAI can move, is getting to a behavior that is sticky and durable extremely early. So one lesson for me is Suno.

0:35It's producing the best AI-generated music in the world. They have a shockingly high amount of revenue that I will let them reveal on your podcast. I won't do it. But the thesis has been extremely validated. And I think you only get there by being creative and having the courage to go do it. What do you think the world's going to look like once we have super intelligence? Uh, well...

1:06All right. All right. Michael, welcome to Sorcery. Thank you, Molly. Happy to be here. As the godfather of podcasting, how does it feel? It feels good to be recording a podcast. I like podcasts. Did you expect it to be this crazy? No, absolutely not. When we started Anchor, it was a very niche thing, I would say, in the Apple Podcast Store, which Spotify wasn't even really a podcast platform at that point. It was just music. There were like maybe a couple hundred thousand podcasts in the store. And then, you know, we didn't even think it was going to be big. So we were actually trying to build a social network for audio.

1:44Like we imagined like really short form stuff, kind of like Clubhouse. But then eventually after a bunch of pivots, we just realized that, oh, wait, podcasts actually are a thing. We actually have to attach ourselves to this. We need to make this really, really easy. And then the whole thing just took off and ran away. And, you know, then there are tens of millions or maybe hundreds of millions of people that have now made podcasts. So it's crazy. We did not expect it. And you were head of Talk. That was the title? At Spotify, yeah. I think that was my title because Talk Audio encompassed podcasts.

2:17We were also doing video. This was the start of Spotify getting into video podcasts. And then back then, this was a few years ago, of course, we were also dabbling in live Talk Audio as well because after Clubhouse, everyone had to have a live play. The problem with all these live formats on the internet is that synchronous content is really, really hard because the beauty of the internet is that everything is actually asynchronous, so you can consume it on your own schedule, right? Like this podcast or all the podcasts you've done, anyone can consume them on demand. But if you have a synchronous platform, you're sort of forcing everyone to say, you must consume this at this exact moment, and that's just really inconvenient.

2:58So fast forward in 2022, you joined Lightspeed? Yes. Okay, so you joined Lightspeed,$30 billion fund, a mega fund. We had Bucky on, it was great. Oh, nice. Bucky's the best. He's the best. Yeah, we went into the economics of what it takes to return a$30 billion fund, which was really interesting. And I think we could relate this to some of your portfolio companies. So for you, you've invested in XAI, Neuralink, Suno, Granola, Macroscope, Pika. So you've done all of those. And then I've also read on you that creativity is your moat that you like to go after. So what is your investment thesis? My investment thesis, when I started, candidly, I thought it was going to be really focused on things that matched my own experiences and my background.

3:44You noted that I built Anchor. I spent a lot of time building consumer products for lots and lots of people. And I love those types of companies. I love founders that are super drawn to consumer and products for everyone. But the reality is after I joined, AI became a thing. And I think with each day that passes, I think we're realizing that AI makes it so that we know less and less about the future. And so I think, you know, every investor out there has some thing they're good at or, you know, some way they see the world that's different than other people. But I also think in many ways, we're all having to forget kind of everything we know and dream a little bit bigger because things are moving so, so fast.

4:26But for me, yes, I am drawn towards media. I'm drawn towards creativity. And at the end of the day, as like a product builder and a product designer myself, I'm drawn towards founders who just have amazing product taste and sensibility. You know, you mentioned Granola, the founder and CEO of that company, Chris Pedregal, with his co-founder Sam. I had known Chris for a really long time and I watched him build this company, Socratic, and I just knew that this guy had incredible product intuition. Just like I knew whatever he chose to build, something really great would come out of it because he had shown me that through his previous company.

5:03And so when he told me he was building something new with Sam, it was like, doesn't even matter what you're building. Sure, we will invest. And so I find more often than not, especially as AI, again, kind of makes you have to forget everything you know, it's really becoming more and more about people, great people. And for me, it's like product-oriented CEOs. How does XAI and Neuralink, those size investments, fit into this? Yeah, it's a good question. So maybe taking a step back, Lightspeed, as you mentioned, it's a large platform. Mega. 30-ish billion under management. The current fund generation we're investing out of is in the ballpark of about 7 billion.

5:43To do that, we're basically investing across stages. And I generally focus on early stage, but, you know, we're a firm that really prides itself on collaboration, working with our partners across different stages and sectors. And so if somebody has a great relationship or if somebody has a very specific point of view on the world. We're not a firm that lets sort of the borders of those sectors or stages be a barrier that prevents a deal from getting done. And so I generally focus earlier, but as a fund, we absolutely have a strategy to bet on the biggest and best companies in the world. And in the case of companies like XAI and Neuralink, it's like you got to back Elon Musk if you have the opportunity to.

6:26And so that's the idea behind those investments. But for me, I am more and more drawn towards the earliest stages. Again, as AI is making it such that you kind of have to forget what you believe. And when you're living in that kind of world and operating in a world that moves so fast, the best bet you can make is on people. And so right now I'm doing a lot of seed, a lot of like inception stage. This person's amazing. Let's give them a couple million bucks type of investing. I'm really interested to know how you think about this environment because Because OpenAI just had their Dev Day. Some would call this a Sherlocking event.

7:05That's what it's called, right? It feels like every one of their Dev Days or every one of their live streams is a Sherlocking event. I mean, good for them. Yeah, totally. Good for them. But I'm really curious how you even can get yourself to write a check and commit to something because there will be a funding. And this one generative AI company, I'm not going to name it, they had a big announcement the week before and funding and blah, blah, blah. and then Sora comes out. 800 million weekly active users, like insane amounts of like power law dynamics there. Like what, like how would the other one win?

7:40Yeah, I mean, look, this is, I think this is the thing that every investor is thinking about right now. And I think the best you can really do is invest in great people who are hopefully getting a way ahead of the curve before OpenAI or other incumbents are gonna be building something. And in the process, they're building some sort of moats and we can talk about what those moats might be. I mean, I think, yes, it's scary, but I should also point out that this is kind of always how venture has been. There have always been incumbents that can, you know, with one flip of a switch, send a team to go work in your space.

8:13I think the difference of what we're seeing here is kind of the ambition of Sam Altman and the speed and the kind of ruthlessness, and that's a compliment, to which his organization can move and can move fast. But, you know, when you think about moats, I think what's really important right now given how fast OpenAI can move, is getting to a behavior that is sticky and is durable extremely early. And so, you know, to bring it back to something like Granola, you know, Granola is doing incredible meeting notes for anyone that uses the product. Have you used Granola? Okay, you gotta use Granola. It's really, really good.

8:49Maybe. So Granola does these meeting notes and it's really, really good. And we find that when somebody uses the product, it's incredibly sticky, right? Like the retention is insane. I've never seen retention like this before for a product, because each time you use it, it just becomes more and more valuable for you. It has more and more of your context and history. And so at a time where all these companies are spending a lot of money for the latest and greatest AI tools, what you want to do is you want to get them to buy as quickly and as early as possible and get them as retained as early as possible.

9:21And the hope is that if you can do that, then even if somebody comes along and they build a better granola, you're not going to switch because it has all of your context. And so I think when you hear investors talk about like moats and data moats and things like that, it's that kind of thing that we're talking about. Okay, so is that the primary moat you look for? Like how are you evaluating these companies? So one of the things that I take a little bit of an issue with right now in venture is there's so much of a focus on this ARR number. Oh my God, it's fake. Yeah, and it's not even defined properly half the time, right?

9:57Like, you might just take, some of these companies are literally just taking, like, yesterday's subscription rate and, like, multiplying it by 365, whatever. I think it doesn't say anything about the durability or the quality of the revenue. One of my partners says this thing, that there's, like, high caloric revenue and low caloric revenue. And it's like, you want the healthy revenue, right? So I think a lot of rounds are getting done right now based on this revenue. But what I'm really looking at and what all my partners are really looking at is the same stuff we've always looked at, which is retention.

10:31You know, how sticky is the product? How often are people coming back? In addition to retention, is it growing organically? Is it growing word of mouth? Or have they just figured out a way to go viral on TikTok a few times? Because if you do that, if you can figure out how to go viral on TikTok and you have a very well optimized conversion funnel, you can quickly run up your revenue rate. Like it's actually like not that hard. That's how good TikTok is. But it doesn't really say anything about the durability or the quality of the product or business. And so for me, it all comes back to the fundamentals.

11:04Is the product retaining users? Is it growing organically? Like those are the two most important questions in my mind. And when you're looking at the early stages, what kind of check sizes are you writing? Yeah. So this is another thing that's changing as a result of AI. I think, you know, when we're doing really early stage inception type investing, it could be anywhere from a couple million dollars, maybe, you know, two million dollars to in some cases some founders are raising, call it five or six. I think when you're getting more into like a proper seed, you know, it's anywhere from four or maybe on, you know, maybe on the higher end, we're seeing some of these larger seeds come in at like 10, again, as a result of AI and the momentum.

11:46And then Series A's are sort of also getting bigger, right? A Series A, when I built my company, we raised a$10 million Series A and it was like a big round. It was like, wow, that's a big Series A that can last us a long time. You know, Macroscope, a Series A that I led a few months ago, we led that Series A with a$25 million check. So they're getting bigger. They're getting bigger. Carta just put out recent data in their fund performance report and Series A's are getting a 30 % premium. Wow. What do they attribute that to? AI. So AI companies get a 30 % premium versus non-AI companies. And it's just like the biggest difference in this new cycle.

12:28And I would say you can imagine that power law dynamics will seek in there and the delta is probably much greater between like the good teams and like, you know, the average teams. Because once you get into competitive land and you're going after, let's say, like another like huge megafund and there's competition, like you're going to run the price up. Totally. Yeah, that's actually the dynamic we're seeing a lot. And definitely one of the things that's making us want to go earlier and earlier. Some of these companies, you know, they're growing revenue so quickly that the rounds are happening in such quick succession.

13:02And oftentimes, if you're the seed investor and things are going kind of well, you might quickly do the Series A. And then by the time a new investor has an opportunity to come in, it's the Series B. It's priced really expensively, but nothing has been de-risked yet. So you're paying this really premium price. You're having to write this gigantic check. And you don't know anything more about the business, whether or not it'll fail or succeed. And so I think the natural fallout of that is you have to go earlier and earlier. And I think to do that is a new muscle for a lot of big funds. And I also think it's why you're seeing more and more of these accelerators pop up and do so well.

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15:06With Turing, discover how AI can 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. Are you concerned at all with that rapid deployment? Going back to this report, like, There was a slump in VC, but now we're seeing dry powder deplete within these funds. Like people are really allocating capital and fast because it's so competitive. Are you concerned at all with that? I think it's definitely probably a concern for broader venture capital. I think at Lightspeed, we have always maintained a very, very high bar. You know, even in this environment, even at this pace, you know, investing partners are still making the same amount of investments on average per year as a partner as we would a few years ago.

15:58And I think the only way you can do that is if you hold a really, really high bar. And again, don't get caught up in some of these kind of vanity metrics that we talked about and you go back to the fundamentals. So I think it's really just about keeping the bar high. Yeah, I want to go back to your point on moats because I'd also read some tweets like you've written about moats a bunch and one of them was on creativity. How do you see creativity as a moat? Yeah, the way I think about creativity as a moat, so I've written a lot about creativity in terms of making stuff and tools and art and music and that form of creativity.

16:35I think when I talk about creativity as a moat, I'm talking about creativity in a business sense, right? If you look at every business, every great company, whether it's Apple or Nike or Amazon, and you really study the story of these founders and how these companies came to be, there's something really creative about what they did. There's an ingenuity. It's not something that can just be written by ChatGPT in an AI-generated business plan. And so I think as it becomes easier and easier to make businesses, which it will because of AI, right? We keep hearing about, you know, the one person billion dollar company.

17:15I'm sure everyone tweets about that. Sure, it's going to be easier and easier to execute on business. But I think the thing that will remain rare and special is creativity in business, right? Who is the person or company or set of people that is coming up with something really, really new and novel in terms of a business model or an approach to go to market or an approach to how they do their product development? I think the best companies are still going to have that quality. And so at the end of the day, maybe the only thing that's durable at this point is creativity when everything else can be automated.

17:52What's a lesson you've learned from one of your founders on this? So one lesson for me is actually Suno. I think something really creative and genius about what they've done. They have a ton of subscribers and a shockingly high amount of revenue that I will let them reveal on your podcast. I will do it. But, you know, I think when you're looking at that business early on, what you're saying to yourself is, okay, they really need to mirror the consumption businesses of the past, like a Spotify, like a YouTube, like a TikTok. They need to get a bunch of people creating on one side, and then they need to get a bunch of people creating on the other side.

18:32And to be clear, that is happening. But what the founders of this company, Mikey and Martin and Georg, a belief they had very, very early on, which I would characterize as super creative to both believe this and then pursue it, was that actually in the future, AI is going to make it so easy to create and such a personal experience to create that these people that are creating, they're going to listen to their own music. and that's a business right there. We're going to, yes, we're going to get these other consumers over here and we're going to monetize them just like Spotify does. But we think there's also an opportunity to monetize consumption behaviors over here and not just for creation.

19:10And I think that early on, I was skeptical. Some of us around the table were skeptical. But it was a really creative and sort of bold bet on the future and a creative business model to pursue. And the thesis has been extremely validated. And I think you only get there by being creative and having the courage to go do it. Mm-hmm. I've had so much fun using Sino. It's a blast. It's so much fun. In the world of generative AI, I want to go into Sora. This is like a very hot topic. I'm sure you have a lot of opinions. I have some, too. But I want to hear your stance on this. What did you think about the Sora launch?

19:46Yeah, I thought it was incredible. I thought, first of all, they did a really good job on the product. Just even the onboarding experience of scanning your face was really seamless and fast. And I think they're able to discern a very, very high quality of you just from a very, very brief scan. I think the other thing they did that it stuck with me was when you first onboard, you encounter a screen. And a bunch of people I've talked to don't remember this screen because I think everyone just clicked past it. I'm curious to know if you remember it. There's a screen that says everything you're about to experience is not real or something like that.

20:23It says, you know, like, the feed, nothing in the feed is real. And my guess is they introduced that as a sort of disclaimer, right? Like, hey, reminder, that's not your friend actually stealing that TV from Walmart. It's not real. But to me, it almost came off like a mission statement. Like, this feed, you're stepping into an alternate universe. You're stepping into another galaxy. You know, it's, Ben Thompson, I think, made an interesting comment about Meta's Vibes app, where he said something along the lines of, this feels like Meta's first real step into the metaverse. It's a completely different universe, right?

21:03Nothing is real, but it's people we know and we identify with, or we may even know personally. So I think that alone just kind of blew me away. And then I also think, obviously, the Cameos thing was just incredibly smart for a lot of different reasons. I think it's the first time we've seen a new type of social dynamic built on AI. We've seen a lot of these platforms out there try to make the new AI-first social network, where they just basically replace humans with AI bots or avatars. And I think that's boring, and it doesn't really tap into kind of some of the new and native and interesting things that you can only do with AI.

21:42But avatars is like, it's a purely new social dynamic. So I think that's really interesting. I think the biggest takeaway for me, though, is what it means for media and the business of media and the economics of media. Do you remember a few years ago when Adam Masseri, CEO of Instagram, put out this video and he said, starting now, we're going to be leaning into recommendations. We're going to move away from your friend graph and we're going to start doing recommendations. and everyone was up in arms. All the users, especially the influencers. I remember Kylie Jenner put out this huge thing about how she was so upset.

22:23And you could understand it, right? Because she had something like 900 million followers. It was a business, right? If she could put out a piece of content, tap a button, and it reached 900 million followers, that is immense pricing power and the ability to advertise. So for her to learn, And actually, those 900 million followers, they matter a little bit less. That's a big hit to her business. And so I wrote this piece, which I called The End of Social Media, and it was all about this new form of media, which I had called Recommendation Media. And it was really just kind of the TikTok algorithm and how the TikTok algorithm was sort of the next phase of media.

23:02The follower graph was going away, and now the platforms were going to get to decide what somebody saw. far more efficient way of content distribution. I think Sora is kind of the next phase. It's kind of, you know, I hate to say it, it's almost like the end of the creator. Like if you play this out and think about where this goes, platforms want to amass a huge catalog of content, and then they want to program each piece of content such that when you're in the platform and you're swiping, your attention is captured for as long as possible. And that's why the TikTok algorithm is so powerful. But it still requires that human beings make the content.

23:42And there's a cost to that. And so I think where we're inevitably headed is now when you're swiping TikTok or Reels or Sora, we're eventually going to end up in a place where most of that content is generated on the fly, specifically to target you and to capture your attention as long as possible. And unfortunately, like the individual creator just becomes far, far, far less valuable in that dynamic. And so to me, that is the biggest impact of Sora. It marks the end of the creator, unfortunately, which obviously I find devastating in many ways. You know, I spent my career, the first part of my career, building tools for creators.

24:21And it's a whole new chapter for the internet. Yeah, I think I read a couple posts on different creators saying like, this is a cataclysmic event. Like you should like really come up with a good strategy going forward because it is a doomer standpoint for like creators for sure. But like, I think like with all of these things, you do need reinvention. I was talking to PJ who creates all those like extremely viral AI videos. They did one for Kalshi. It reached like over a hundred million people. Like it's truly insane. Like he's very talented. And when he did that, I was like, okay, I got to learn how to do that.

24:58And this was when like Gemini's model was taking off. And so I like spent the weekend like, okay, I'm gonna learn how to do this. Like, you kind of have to, like, mix-match on all these different platforms and make something in the end. It was, like, the, okay, defensibility for sure there. Like, I did not want to do it at the end of the day. Like, and then with Sora coming out, I DM'd him and I was like, hey, what do you think? Like, are you still, like, hiring and training people to, like, do this and create these viral videos for your huge, by the way, like, corporate customers? He was like, no, the game's changed.