Crémieux, Tess Cameron, Eoghan McCabe, Pippa Lamb, Jack Dreifuss, David Tisch, TJ Parker, Surprise U.S.-China Trade Deal, Trump EO on Drug Prices, New Air Force One in 2025?, Perplexity Valuation Surge

28:17Brutal bodybuilder. The bro science always ahead of the curve. It is. Yeah, one analysis I got that I don't think is public at this point, but I think a number of people have had this reaction is that MFN pricing in general will likely face lawsuits on constitutional and administrative law grounds uh if congress can pass a new law this would change uh but an mfn like benchmark uh could be folded into legislation as part of some type of like medicare price negotiation right which happens frequently or international reference pricing and um people are kind of theorizing that you could roll this like idea into legislation and the reconciliation bill in the house but then that's just going to be another factor that could potentially get that not passed yeah in the first place and so i think people were posting yesterday when this news rolled out like drug prices are going to drop tomorrow and i don't see that happening but i'm interested to talk to tj later and just get a sense of how real price drops are going to be, if they're going to happen, if they are, what is the actual schedule, things like that.

29:34Well, if you're trying to save money, switch your business to ramp.com. Time is money. Save both. Easy to use corporate cards, bill payments, accounting, and a whole lot more all in one place. Thank you to ramp. Thank you to ramp. Switch your business to ramp. I mean, it is a controversial decision because it is government price setting. the Wall Street Journal has this quote from Alex Shrivner, the senior vice president of pharmaceutical research for manufacturers of America trade association representing major drug companies. Government price setting in any form is bad for American patients.

30:05At a time when we are facing growing competition from China, policymakers should focus on fixing the flaws in the US system, not importing failed policies from abroad. Yeah. So an example here is rent controls so uh rent control in many cities have if anything been detrimental to the poor a meta-analysis of over 100 studies showed that rent control often leads to reduced supply of rental housing as it discourages new construction and investment so that the uh comp here would be if pharmaceuticals can't charge what they want to charge they will invest less in r &d uh whether or not that that ends up being true.

30:44I'm sure it could be debated as well. But a 2017 study by Stanford Economist found that after rent control was expanded in San Francisco, landlords removed 30 % of the newly controlled units from the rental market, leading to a 15 % decrease in the city's total rent housing stocks. Property owners are more likely to neglect maintenance of their apartments. And a National Apartment Association study in 2024 found that doubling the number of rent controlled units in a metropolitan area correlated with a 16 % increase in severely inadequate housing units, indicating a decline in housing quality. So again, just a good kind of reference when thinking about price controls.

31:27Yeah. I mean, one option is that they lower prices in America, but the other option is that they just raise prices everywhere else. Yeah. And if they do that, they might sell less drugs overall because people can't afford them in other countries. Although when the examples of like Switzerland and Japan, I feel like if Americans can afford$611 for a diabetes medication, like the Japanese should be able to as well because they have similar cost of living and similar GDP per capita. So I wonder, would they really see a drop off in consumption or would they just see higher overall revenues and ultimately higher profits?

32:06Well, it's possible. It's possible. I mean, there's so many different factors but one scenario is that there are alternative drugs in those countries that you can get that are generic that are very inexpensive and so the only way these american drugs can compete that aren't generic is to just have massively reduced prices and so if you're a you know pharmaceutical company you're going to say well we're making this for the american market and then as a bonus we'll sell it over here because even at 35 a dose or we still have amazing margins yeah right it does it is always odd when you run into something where it's like you know yeah like you buy a car you know it's a big vehicle it has a lot of metal so you kind of expect it to be like tens of thousands of dollars you go to the gas station like the the gas costs money and it's very obvious that's like well it costs money to pump it out of the ground deliver it to you so it costs a certain amount of money but people always said this was like facebook where it's like why don't they charge you like if they if you're not being charged like you are the product and with healthcare it feels like sometimes it's the opposite where it's like did it really cost ten thousand dollars to drive me in the ambulance two miles like how did that happen and i get that my insurance paid for it but like something weird is going on here because like it just doesn't track at all whereas with many other things that you buy you're like yeah it would basically it would basically be like if people were this reason if people were paying out of pocket they would be like wow i'm getting scammed by this company exactly but they get the bill and the insurance covered it so they're like oh like yeah strange but it is it is very odd even even with like like there's a lot of r &d that goes into the iphone and you buy it and it's a thousand dollars and you're like okay yeah that actually kind of makes sense that like checks out yeah like like sure you know they they can manufacture these for 300 uh and they're charging 900, but that margin goes into the R &D.

34:00And I get that. But it's weird when it's like, you know, something that costs two cents to make and they charge$10 ,000 for it. So, I mean, healthcare's always been like an odd quagmire. And clearly, I mean, everyone seems to agree on both sides of the aisle that like something's off in America and that it's not particularly working well. And maybe that's, you know, hey, we need to just be healthier and eat healthier. Maybe it's we need different drug prices or different insurance policies, but I'm sure there'll be a lively discussion this week all about it. But if you are long biotech, you're short biotech, you got to express your views on public.com investing for those who take it seriously.

34:39They got multi-asset investing, industry-leading yields, trusted by millions. Let's hear it. Public.com. Anyway. Let's go. They have a big launch this week, which I'm excited for. let's go into another trump story there's so many this has been a busy weekend uh trump administration in talks to accept new air force one as gift from qatar uh the qatar government says possible transfer of plane for temporary uses under consideration uh obviously this is burning up the timeline people very uh very very confused about this because apparently america has two brand new 747s that they're actively retrofitting did you see this take yeah that they're like actively working on getting up to par and the plane is like the least expensive part of air force one it's like all the military equipment and stuff on there so this feels like it was designed just to cause chaos basically or something but it's like of all the different things anyway the the article here is uh uh they're in talks with the qatari government in into about accepting a luxury qatari plane for his use as president and potentially beyond according to people familiar with the matter.

35:50Under the potential arrangement, which is raising legal and ethical concerns, the plane owned by the Qatari royal family would be used as Air Force One while Trump is in office. After being retrofitted by a US defense contractor, the US wouldn't pay for a luxury 747 style jumbo jet. It might then be gifted to the Trump presidential library for Trump to use after he leaves office. And so obviously people are very up in arms about this. Sean McGuire said, the mainstream media has been wrong about so many things over the last few years. So I hope this is just more fake news. But if it is accurate, it would be the first of Trump's actions in this term I find unequivocally wrong.

36:25Qatar uses money to silence people and buy favor. And Josh Wolf is quote tweeting Sean saying, Qatar played him perfectly. We will get you the American hostage. We will get you a new shiny plane, the best plane, bigger than any other presidential plane, not just Air Force One, Air Force One mega supreme. And then you will retire to your library. No president will ever afford such a beautiful huge plane we will help you bring peace to the mid-east and help you win a Nobel Peace Prize a lot of that sounds good I want peace in the Middle East the the Obama book deal they could have gotten a private jet but it would have been probably yeah you know more in the this one's complicated not flying international yeah it's complicated definitely flying through regional airports obviously I think like foreign governments should not be trying to curry favor with our electric officials period.

37:12Yes. But I'm a huge, huge fan of giving your friends planes. Totally, totally. And we've actually put planes on our gift guides before. I realized that. So we're kind of to blame here because we advocated for this. I believe a 747 BBJ was on our Christmas gift guide. Probably. What's a better gift? I know. To the right person. I know. And so we kind of laid the playbook for this and then the Qataris just picked it up and they were like, oh, well, you know, TVPN saying this, like, we should give it a try uh but we'll see yeah i mean the the good news here is like yeah when you think about the scale right it's like well this would be like me getting you like a a red bull you know it's like literally like hey john are you thirsty you want a little pick me up do you want a red bull right it's like currying from a balance sheet standpoint from a bad now that you got me the red bull i'm i'm in your pocket value of the gift in con in the context of the balance sheet yeah it also is just so funny because it's not like it would be one thing if like uh i've seen some supercars that have been made in in like in like foreign countries that don't particularly don't typically produce they don't have like large auto manufacturing segments uh and they look very cool and it almost makes sense if you made a plane to gift one to america to be like hey like there's a there's a there's a kenyan supercar company that looks very cool i I was like, this is interesting.

38:35It's mostly like a retrofitted Lambo, but it has like a very unique design and it has like, you know, all the, like the colorway is designed to like mimic, like I think it's from Morocco. And it's very, very cool. And gifting something like that to America would be cool just to say like, hey, we appreciate you, America. You can put this in one of your museums. We're entering this industry and we're excited to partner with you. Hopefully we can distribute these in your country. We can make these. That would be one thing, but it's really just like, it's an american company boeing that makes the 747 you bought the plane and then you guys have to the president and then america has to retrofit it because boeing has a contract for 3.9 billion uh to deliver a bunch of planes to air force one and then l3 harris is a smaller defense contractor an american company that has to overhaul the boeing 747 that was formerly used by the car so it's like i mean the big the big thing here is just like in the middle being like hey we put some nice leather seats in here.

39:29Yeah. I mean, where the plane gets retired to is a big question. Sure. It was given to the White House and it was going to be effectively, you know, a presidential plane on an ongoing basis. There would not be a lot of issues with it. You could argue, okay, Trump's getting it when it's brand new or whatever. But yeah, we'll see how this one plays out. The other downstream thing about this is like, as we're talking about, okay, maybe we shouldn't accept this plane. Is it time to give back the Statue of Liberty to France? I think France has had such an amazing monument. But every time you have to ask, like, are we making shrewd decisions with regard to France?

40:12Totally. Are we being too nice to them because they've curried favor with us by sending us that monument? And so if we send it back and say, hey, we're done, it's going to be a clean relationship by the numbers from here on out. Yeah, it's surprising you'd think that Trump would maybe try to draw attention towards that. Give the Statue of Liberty back to France. Build one that's, you know, potentially five, ten times as big in its place. I like that idea. Honestly, I mean, I would be way more down for... And it's actually just Trump holding an American flag. I would be way more down for Qatar to give America a monument like the Statue of Liberty.

40:50Like, we could have a Statue of Liberty all over the place. There could be one in Florida. there could be one in alcatraz we've talked about this catalina island uh put a ramp put a ramp card in the grand canyon a ramp card swiping the grand canyon that's a good idea that's that's actually genius lifted by blimps just cruising swiping the entire that's america runs on ramp that's that's a very that's a very american thing something there and if qatar could help finance that so ramp doesn't need i'm so yeah you know more growth equity for it and that feels like something that you know it wouldn't it wouldn't be like oh like you know trump would have paid for that anyway like like because the whole thing with this plane is like it takes something off of his personal balance sheet right because he gets a free plane yeah but he was never going to buy a ramp card that swipes the grand canyon yeah even if he should he should he should objectively should uh so yeah I mean, I think that's a great idea.

41:51Anyway, speaking of sponsors, Linear is a purpose-built tool for planning and building products. Meet the system for modern software development, streamline issues, projects, and product roadmaps. Also, put your sales tax on autopilot. Spend less than five minutes per month on sales tax compliance. Go to numeralhq.com. Sales tax, AGI, benchmark series A. Thank you to Numeral. Numeral's, you know, all these. Oh yeah, they're on the hat. They're getting there. Not on the V1 hat. But we got Ramp on there. We got Public. We got Wander, Bezel, AdQuicks on there. Even Roar right here. It's always in my vision.

42:29Yeah, you can see it, right? It's kind of crazy. Anyway, speaking of news, AI started perplexities valuation surges to$14 billion in new funding around. You'd think this is from R4Rock, but it's in the Wall Street Journal. Berber Gin got the scoop. Yep. And to be clear, they are in advanced talks for a new funding round. They've advanced from talks to advanced talks. So it's hard to know if this means they've signed a term sheet, if they've done any type of handshake deal. But venture capital firm Excel is set to lead the new round, which is expected to total 500 million. People familiar with the matter said the raise underscores investor enthusiasm for general artificial intelligence companies, some of which have begun to challenge Google's longstanding dominance over search.

43:13perplexity was valued at 9 billion last november its fourth round that year that was crazy that really went on a wild run insane it is one of a set of ai startups that have grown quickly after the launch of chat gpt three years ago the san francisco-based company sells an ai-powered search tool that provides summarized answer using information gathers in the web perplexity is launching its own web browser called comet yep and that is that is what got uh we were talking about Comet with Arvind on the show. And he answered your hypothetical and got a hit piece out of TechCrunch for it. It's not a hit piece unless it comes from the hit piece region of the New York Times print edition.

43:55But it was close. And it's not a docs. It's not a docs. Unless it comes from the docs region of the Washington Post. But Eddie Q last week made news at Apple when he said that Google searches over Safari web browser fell over the past two months for the first time in more than 20 years. and he attributed that drop to more people using generative AI services such as ChatGPT and Perplexity. And so Q said Apple has held conversations with Perplexity, OpenAI, and Anthropic about adding AI search features into Safari. And so that would be a big deal if the iPhone kind of migrated away from Google. But it's interesting to see where this goes.

44:35I'm excited that they have so much money. I like Arvind. it seems like a really, really tough market to compete with. Even in this narrative of like the application layer will be what's valuable. It's like, that's true, but you still have to aggregate enough demand to drive so much traffic to your application and have a flywheel there. When you're in consumer search, it's not the same as, oh, like the bull case for Harvey is that they hire a bunch of great SDRs who can go sell into law firms. That's something that they can just scale up, I feel like, versus changing consumer habits from google.com or Google is my auto complete, right?

45:13So huge challenge in a huge market. Yeah, the stuff that's interesting to me is they're doing these live earnings transcripts, which are cool. I saw that. But is that a$14 billion business, right? You know, sort of subscale providing this sort of type of information that that's not necessarily hyper relevant to the average. We'll have to get Samir Gandhi from Excel on the show because he's joining the board and we will see what he has to say about the deal once it closes, hopefully, and hopefully the rest of it goes smoothly. But we have Kermu in the studio here to break down drug prices. Welcome to the stream.

45:53How are you? Can you hear us again? Hi guys, can you hear us? Oh, wow. Voice changer too. Okay, let's go. We're honored. We're honored. what's new oh i think i'm using a voice changer clearly we can't hear you at all with that thing uh is there any way we could turn this off yeah let me just check if i can use a pitch it's it's strong it's it's a little too powerful it's a little too being overpowered by the ai yeah uh we wanted to read through some of your posts see if there's anything that we could uh break down that sounded a bit better let's hear Gotcha. Can you hear me? This is amazing. This is way better.

46:35Thank you so much. Tremendous. Okay, great. So yes, what has been your take? Yes. Absolutely shocking there. Anyway, thanks so much for joining. Can you break down the news, the Trump executive order? How are you interpreting the news? How would you explain it to a layperson? So the idea behind the executive order is that we are getting ripped off because other countries are paying far, far less for the same drugs that we buy in the US for huge amounts. We pay$1 ,000 for Zempik and Denmark pays$40 and that's just not fair. So the idea behind this is that we're banning geographic price discrimination.

47:15We're making it so you can only sell at the lowest rate that another developed country is willing to pay for a drug. And how real is that? And what drives that? The Olympic example, that's developed by Novo, a Denmark company. Are they just doing their friends a solid by discounting it in their home country? Or does this apply to American companies selling abroad? And is it just like trying to capture any possible market at whatever price the local market will bear? Or is there something else going on with the dynamics of insurance companies? Bladder is exactly right. It is a group of largely American companies that are maximizing profits by selling at prices that allow them to, as I said, maximize profits.

48:03They're just selling at whatever the market will bear. And if a country will not bear American level prices, then they aren't going to be selling at those prices there just for the simple reason of supply and demand. Why does America like why can America bear such high prices? We were looking at the Wall Street Journal article and they were saying that For a particular drug for diabetes Americans are paying six hundred and eleven dollars in Switzerland It was 60 bucks and in Japan it was 35, but Japan has a similar Similar, you know economy to America on a GDP per capita basis. They should be able to pay six hundred dollars in theory.

48:38What's going on there? So the thing is that GDP per capita is actually not a very great way of getting at consumption. The Japanese save more. They actually are quite unproductive in the service industry. Other countries tend to have far, far lower levels of consumption relative to GDP. And this is especially true if they're in a country like Ireland or Singapore, for which a lot of their GDP, their exceptionally high GDP, seems to be driven by profit shifting, where companies bring money over and doesn't actually affect the incomes much of the people who live there. So you'll see that Ireland, for example, has very relatively low gross national product relative to their GDP.

49:13They are able to consume considerably less than their GDP might indicate. But the U.S., on the other hand, consumes a lot more than you might expect because everybody else's GDP is kind of out of whack compared to ours. We are the world's consumers, and as such, we consume a lot more. And the prices we pay are actually quite in line with what you would predict given our consumption. just to say that prices grow a little slower than household income growth, and the U.S. has exceptionally high household income. The high prices and the fact that they are relatively low, both are facts that stem from America just being really, really rich.

49:49Why do you think the market, the NASDAQ biotech index is up over 4 % today? Why do you think that is? I was actually just about to do a differencing exercise with that to see if the biotechs were up more or less than the rest of the market because they are benefiting from the fact that the tariff barriers are actually going down as well today, which is wonderful news for them. They, however, might not be benefiting as much as the rest of the market, so I'll have to go check that afterwards. Another thing is there is a considerable expectation that this will fail. This was attempted. There's actually a CFR entry for this from 2020, and it was shot down by courts.

50:29And then the Biden admin came in and they ended the whole thing. And there are a lot of people who believe that this will not be able to go anywhere because it'll run into some sort of issue. I'm going to tell them, no, the opposite. It will actually succeed and it will have pernicious effects because this is totally legal. Yeah, interesting. Can you talk a little bit about the US as an early adopter and how that shapes drug pricing? Oh, yes. So a large portion of the reason that the US pays so much for drugs is because our launch lag, the lag between, you know, getting the drug developed and getting the drug to market is so, so much smaller than elsewhere.

51:05To take an extreme example, the US's launch lag for new drugs is about six months versus the UK's, which is about six years, which means that if there's some new therapeutic that you really need, they'll probably approve that one pretty soon. But if there's a thing that's like an improvement on insulin, it'll probably take them many, many years to actually get that drug to market. because they're just not willing to pay for it they have considerable cost controls because they are a more managed care system um they provide a lot less care and if there's something new that like rules but it's like a slight improvement on something else they're going to go for the thing that is uh less expensive they're just gonna we are uh aiming to maximize our tech adoption whereas they are aiming to maximize to you know constrain their prices and do as well as they can under a certain set of a certain budget.

51:52You talked about potential pernicious effects if this goes through. Are you using what happens when rent control is implemented in cities as a comp here? Do you think there's just gonna be less R &D spend, less investment? What does that look like to you? So two things. We actually have wonderful models of this now, and we know how this played out in 1991. I'll talk about the models first. The model suggests that this naive expectation that we're going to lower our drug spending by 50 to 80 percent just cannot happen. And because we're going to dynamically adjust prices, prices are determined in equilibrium.

52:31And we're probably going to get about a 10 percent reduction in the U.S., but we're going to see a very, very large increase in a bunch of our allied countries. So, for example, Canada should be expected to see something like a 90 percent increase. They're a small market and they're going to be facing a lot higher prices. That's not going to be very good for them at all. The total pharma revenues as a result of this will fall considerably because this forces them in order to comply with the regulation to price above the profit maximizing level in most other countries. This is bad for their returns and it's bad for the health of those countries.

53:04Now, when this was attempted in 1991 with the most favorite consumer model for firms, the prices didn't change for drugs that were under patent with no generic competition because everybody's already paying those. And it's just that the reason that we pay more for those is because we're the ones actually buying them and the other countries aren't really buying them very much at all. They don't do new drugs as quickly as we do. We do it way, way faster. Like sometimes it's an order of magnitude faster. There also was no change for just generic drugs in general, but there was a backfiring effect and prices rose about 4%, which is not huge, but it's something for drugs facing generic competition with because of the uniform pricing under MFN.

53:40The compliance costs were really bad. And there was an IRR shock such that the returns for the firms went down as a result. It was just not good for anybody. No winners. There are some winners. I should say that back. There are some people who do win from this. They're a minority. And the future loses out because the returns to R &D go down and they're already very low. And if you get less R &D, then you get less improvement in the future. Can you dive deeper into R &D? as I understand it, there's basic science research that's done at universities, kind of the foundational research on DNA might come out of a academic lab that's funded as a nonprofit.

54:19Maybe there's NIH grants that go in there. Then at a certain point, a biotech company raises essentially venture capital, maybe gets acquired or IPOs and rolled into one of the big pharmaceutical companies. There's losses and losses and losses for years and years and years. And then at the last second, there's a blockbuster drug that makes a billion dollars and the math works out. But on a 10 year, 20 year time horizon, is that in a good place? Should that change over time? Like, what is your view on on how we as like humanity are paying for drug development right now? We are paying way too much for drug development.

54:57We are paying out the nose for something that is not nearly as efficient as it could be. And we know it could be a lot more efficient and a lot better targeted and everything else because we know that other countries are doing it well. For example, China in 2016 introduced wonderful trial reforms that we should have had. I don't know why we never even had this, where you can recruit people from across the country to participate in your trial. In the U.S., if you want to do that, you're going to be constrained to one center. And if you are constrained to like one hospital, you are probably going to be flying people in.

55:25That adds a lot of extra cost. You are going to probably be constraining your sample as much as you can. that adds a lot of uncertainty that makes your trials less reliable. So you're more likely to have a trial that produces a false positive or a false negative. We have these reforms have been implemented in China and they've worked wonders. China is actually ahead of us as of this year in terms of the number of trials they have going. And beyond that, they have a higher number and they have a higher number of people in each individual trial. They are beating the hell out of the U.S. because of some simple reforms that the FDA could actually implement right now.

56:00They could go in, they could have a direct final rule on a bunch of these things and change this overnight to make stuff less expensive. They could also reform GMP, the good manufacturing practices, in ways that take off a lot of the costs from, for example, gene therapies, like having to produce tons of placebo ahead of time is a very silly rule. We could actually mimic countries like Australia, or we could do follow the WHO's, the World Health Organization's GMP guidelines and cut costs right away. The wonderful thing about the U.S., though, when it comes to R &D is that we have a good way of directing R &D funding.

56:32We have lots of connections between the public sector and, well, I should say the sort of quasi public private R &D drives. Like we have universities with a lot of industry directive, a lot of industry grants, a lot of knowledge of where they should be focusing and whatnot. And this leads to a situation where even our publicly public funds are able to be allocated to things that have good returns. That's why it's going to be very difficult to replace whatever happens here with public funds, because it's you're going to have to figure out how are you going to distribute that money? How are you going to do what the industry does, which is to find areas with pretty good returns pretty reliably?

57:16When we, the elasticity of research funding to the returns is very, very high. It is very considerable. So we're going to see a very stark reduction in R &D, and that's going to have pretty major effects in the future. It's also going to lead to R &D outsourcing. It's going to move to other countries because of the cost angle. It will very likely move to China because they have the best R &D environment right now for pharmaceuticals and because the U.S. is doing this. And additionally, the manufacturing is likely to move there, too. Yeah, as you work through the effects of this executive order, if it goes through, is that good for America?

57:55Is it good for humanity? Are we closer to a cure for cancer? Does this like accelerate or decelerate overall biotechnology progress in one way or another in your opinion? Unfortunately, this is very likely to massively decelerate things. This is likely to be something that causes a lot of harm to research for many years to come. The IRR for biotech is, for pharma, is already below the average cost of capital. And we've recently had a little bit of rebounding, but people were expecting it for many years to go basically to zero. A little bit of rebounding due to COVID. There was a blip and that was okay.

58:30There was a lot of funding going into biotech for COVID reasons. And then there's been a GLP-led boom in returns as well. And that's been tremendous. But that has an expiration date because we know what's going to happen with the patents. And we know that people are very likely going to go for cheap generic Ozympic when it comes about in 2033 or whatever, rather than the better terseptide or retitutide based products, just because it's going to be so cheap. And at that point, the GLP boom will be over and we'll have to return to the state of what's going on with pharma. and what's going on is very, very low IRRs that are going to go even lower due to dysregulation.

59:09So it's unclear if pharmaceutical research can actually survive in the U.S. given this because we're already teetering on the brink and moving even lower is, well, it imperils the whole thing. Brutal. How much did you read into the timing of all of this? Initially, it felt a little bit random because so much conversation had been on trade issues, But then once I sat with it a little bit, it felt conveniently timed, given where Trump has been polling and things happening in Congress that they would like to get through. Yeah, I actually don't know when I expected this to come out, but I did expect it to come out because it was an old thing.

59:53And they are trying to introduce a lot of the things that they tried to run near the end of the previous admin. And this was just up there. um they're basically going to redo the same thing they're going to fight the legal battles and then implement this and i don't know if there's anything in particular that prompted this right now but i knew that it was coming and i didn't know exactly when but i expected it like within a few months of the admin actually coming in anything else dory brutal uh i was hoping for a white pill in there somewhere but uh Didn't get it. I do have a white pill. Please.

1:00:24Please. Just one, sir. I'll give you a few, actually. So there are a lot of efforts going on right now at the FDA and at HHS more generally to promote price transparency, which will help with the PBM-based delta in price. They are looking to accelerate manufacturing and approvals for nearly genericable drugs. They're going to be participating in generic drug user fee amendment reform, which is massive. I can go into that. There's GMP reform happening. and there are people looking to actually lower the costs of some of our most expensive drugs in a way that is not bad for innovation by implementing Louisiana's purchasing model across the whole country.

1:01:02There are a lot of really great things happening and it's likely the situation will be better in the long run, not because of this, but because of everything else that's going on. What would the Louisiana plan look like? I'm not familiar with that. Ah, so Louisiana did an amazing thing a few years ago. they basically went to every manufacturer of ebclusa this wonderful drug for hepatitis c that is a cure and it's it was super high cost i think the cost is actually around 27 000 right now for 28 days so it's not able to be done for medicaid at a like meaningfully so what they did is they negotiated with a producer of it and they said you're going to be the exclusive provider for as much as we want we're going to give you 30 million dollars and you just give us as much as we want and they they looked for people and they said okay you look like you're going to produce it all they agreed um and they just produced as much as they want they could wanted if the state demanded more they would get more that was part of the deal so they started screening prisons they started screening medicaid patients they started screening everyone in order to get as many people as possible this prescription for a formerly very high cost drug that had to them zero marginal cost because of the deal yeah lots of pharma companies are actually willing to engage in this deal.

1:02:16They're willing to provide zero marginal cost drugs if you give them just one big contract and exclusivity. And this seems to be amazing. It worked really, really well. They reduced the rate of hep C in the state, the hep C death rate actually, by about a sixth in about a year, which is incredible. They actually saved a ton of money on it. They reduced the number of organ transplants people needed. They did just lots of really, really wonderful things and all they had to do was ask a manufacturer hey will you provide as much as we want if we pay you a set amount and give you exclusive rights in our state and yeah yeah businesses love predictability right what's that yeah businesses love predictability like it's predictable revenue and so even if it's at a lower margin it's more guaranteed and higher volume and so all the all the math works out in the irr increases yeah and when that model goes national it's going to basically make our high price drug problem a thing of the past if there's generic.

1:03:12That's fantastic. Well, that's a great white pill. Thank you. Thank you for that. This is great. We'd love to have you back. This is a fantastic, uh, I'm so, I'm, I'm so glad you were able to join really quickly. Yeah. Thank you for making the time a lot. Thanks so much. And we'll talk to you soon. All right. Have a good one guys. Cheers. Bye. Uh, we have our next guest hopping in the studio, but quickly let me tell you about Vanta automate compliance, manage risk, improve trust continuously. Vanta's trust management platform makes the manual work, takes the manual work out of your security and compliance process and replaces it with continuous automation, whether you're using your first framework or managing a complex program, go to Vanta.com.

1:03:45Anyway, thank you so much. And welcome to the stream, Tess. We'd love to chat with you. If you're here, let's bring you in. Can you hear us? I sure can. Can you guys hear me okay? Yeah, you sound great. Welcome to the show. Great to meet you. Thanks so much for hopping on on short notice. We're trying to make heads or tails out of the news. We were just talking to one guest about the latest executive order around drug pricing. And we'd love to just get a little bit of your introduction and then how you are processing the news today and what's going on in the market and just kind of your high-level take.

1:04:22Absolutely. So thanks so much for having me on. So my name is Tess Cameron. I'm a principal at RA Capital Management. And RA is a leading life sciences investment fund. We make investments across all stages from seeding and building new companies, all the way through to investing in later stage companies in the public markets. And I think this whole concept of most favored nation for drug pricing, it is not something new. It is something that we saw in the first Trump administration actually several times in 2018. It came back in 2020, first in one executive order, then in another executive order, and then in a rule from the Center for Medicare and Medicaid, a rule that ultimately did not get implemented because the rule was actually, you know, knocked down in court because they didn't follow, you know, certain procedures that were required from an Administrative Procedures Act standpoint in order to get the rule through.

1:05:24So I think that broadly there being some rumors among the, you know, biotech investment community that this is something that was coming back, right? Trump had made some statements about it's not fair that we are paying so much more than these other countries. And so I think investors were anticipating that there might be something. Do you think it was priced in in some way? So right now the NASDAQ biotech index is following the overall NASDAQ perfectly. Yeah. And everyone last night, at least the peanut gallery myself included were predicting bloodbath in the biotech markets that didn't happen um are we just really stupid or do we get something wrong i am totally with you um so yeah i think this just shows the value of predictions in this kind of market where um but i think it's i think it's for fundamental reasons that uh you know biotech stocks were like biotech and pharma stocks were like actually up this morning so like my goodness like why the heck is that?

1:06:31And I think the reason is because the executive order and particularly the administration's language around the executive order was actually much more positive than I think people were anticipating. This doesn't necessarily mean that it will be positive, right? But I think it's being interpreted positively. And I say that for a couple of reasons. One is that, you know, I think the, you know, Trump made it very clear, like the focus is on other countries that aren't paying. Right. And the focus is more on those countries than the companies. And I have to say, as a biotech investor, you know, I think all of us are like totally behind that statement.

1:07:12Right. Like, you know, the fact that the UK and, you know, a lot of Europe benefit from these like super low drug prices like that isn't, you know, they should be paying a lot more. There's actually a study that came out just a couple of days ago that looks at the ways that a lot of these European countries set price, which is through these health technology assessments where they basically, you know, say that patients' lives aren't worth particularly much. And they very narrowly value, you know, the benefits of these drugs in a way that, you know, undervalues the societal benefit of medicines by like more than 90 percent.

1:07:48Right. So these are not, you know, I think I think what was really positive to hear is, you know, hey, the focus on getting other countries to pay more. You know, someone said I think it was Trump actually who said, you know, hey, if you want to sell your cars here, you have to buy, you know, our medicines that, you know, at like market price. Right. And in the U.S., like we do have a competitive market. I think also as a biotech investor, key thing is like we want to keep that market competition going in the US. That is what drives drug prices down over time is like generic entry. It's like more branded competition.

1:08:27Much, much, much better than like importing foreign price controls that essentially are based on math that like undervalues human life. Right. So good trade stuff, but like bad if it results in like importing foreign price controls. I think the weight of those changed based on the language that we heard this morning. Sure, sure. Are those effectively the price controls that they have already, are those happening at the EU level or country by country? It is country by country. And it's a very nuanced and very complicated process. But essentially, like when a drug gets approved, U.S. is almost always the first launch, right?

1:09:09So 85 % of new medicines launched anywhere in the world, those are available in the US. And then it's a question of what other markets do you go to? And it's really complicated because all of these different, many of the different countries, they reference price each other, right? So you don't want to like start in a country that like is reference pricing another country and it's like, oh no, like now, like, you know, our pricing is all, you know, messed up. So typically what companies do is they start with Germany, right? Maybe they consider Japan and then, you know, after they get pricing in one of those markets, then they go to these other markets.

1:09:41So this is why like these countries are so staggered and they don't get the benefit of these medicines like nearly as soon as the U.S. does. They're usually delayed several years, but it's a very country by country, you know, decision making process. And it's not really a decision making process. It's kind of a take it or leave it, right? Like drug company, do you want to launch in this market or not? If you do, like here's your price, take it or leave it. And so actually having the U.S. government step in and say, like, hey, you're not just negotiating with a drug company, you're negotiating with the U.S.

1:10:13government now. And like, if you want to sell your cars in our country, you're going to have to pay the price that I want you to pay. Like, that becomes a more powerful statement where like, now companies can actually be in a position where they can, you know, start, you know, seeing the benefit of, you know, more, you know, more deliberate, you know, trade negotiation by the US in favor of, you know, getting other countries to pay their share of research and development. US has been 75 % of like, you know, drug biopharma research and development is what the US funds, which is just incredible.

1:10:48It's like defense, right? It's like similar to the NATO, similar to the NATO issue. Yeah. Is there something at the political level that the biotech community broadly, both the large pharma companies and maybe even the more startup focused companies, agree on in terms of changing regulation or how the government interfaces with the biotech community? Like, for example, I mean, we cover tech a lot and there's been a lot of rumblings about the government blocking acquisitions. In general, big tech companies want to acquire startups. startups want to sell themselves to big tech. And so tech as a whole has been pretty against the blocking of acquisitions.

1:11:31But is there an analogy there to how the biotech community broadly thinks about their list of priorities in Washington? And is this anywhere on that list? I would say like across the board for, you know, big pharma companies and like little biotechs alike. It is all about like, let us compete, right? Like market competition is like such a great force for access and innovation and, you know, bringing prices down in the US, like let us compete and, you know, enable that. And I think we have, you know, I think we see it in our access to medicines. It is because of the dynamic US market and market competition that we have so much access.

1:12:17It's because of U.S. market competition that when generics come in, you know, prices will go down sometimes like 98 percent. Right. Like Medicare pays 30 cents for like, you know, or even less. I think it's three cents actually for like each like Lipitor pill. And so that's great. Right. And so let us compete. Let us compete. You know, there should be government mechanisms, you know, we think for drugs to actually go generic on time. Right. So like, yeah, you don't want like drugs hanging out for 20 years, like on patents, that isn't really, you know, part of the deal, right? But when we think about like, you know, what makes the U.S.

1:12:53so dynamic and what brings patients a lot of benefit, it's like it's having that innovation and ensuring that that innovation is driven by market competition rather than government price controls actually helps like instill more natural mechanisms for prices coming down, more branded competition, more generic competition. If the U.S. government just comes in and sets price, guess what's going to happen? You're not going to have, you know, a second to market branded product that's launching three years later, you know, coming to market and, you know, competing against this price set one, because they're like, I'm not going to compete against the US government, right?

1:13:28Like US government is going to get, you know, going to get what it wants. So I think that is somewhere where, you know, biopharma as a whole, big company, small company, I think all aligned on that. We had the Inflation Reduction Act, right, which essentially instituted price controls in the Medicare market. And, you know, the big inefficiency there was setting price for small molecule drugs at nine years. Biologics are at 13 years. Usually as investors, we're counting on like 14 years of exclusivity before a drug goes generic and drops off, obviously dependent on the quality of that patent. That's a price control that we don't want, you know, that's already had an impact, unfortunately, on small molecule innovation.

1:14:12So pills instead of, you know, shots. And, you know, we don't think that's good, you know, for Medicare beneficiaries. And we don't want to see more price controls, you know, coming into this market, because, you know, it could really cause something very special where, you know, America leads, which is biomedical innovation to, you know, have a lot more, you know, challenges and less investment. So, generally, the, our last guest was, was sort of disappointed with the EO. He thought it was going to have negative implications, but generally felt fair. You know, he seemed somewhat unfazed. Can you talk about investor sentiment in biotech right now?

1:14:57The industry has had, you know, a rough few years. And in many ways, you know, you could kind of just shrug this off and just say, all right, you know, just got to get through it. But I'm curious, you know, from your point of view, are there what what are the sort of positive outlooks right now from from your standpoint? And what should people be paying attention to outside of this? Yeah, absolutely. So, I mean, I think the reaction, you see it in the stocks, right? I think that, you know, there's there's optimism that the impact of this policy may be a lot lower than people thought. And indeed, I think some of that is just, hey, it looks like this is going to happen through rulemaking instead of through, you know, some other kind of implementation that might be more top down.

1:15:51And that, you know, may impact the probability of actually getting something that is like super broad based and like bringing pharma prices down across the board that that may lower the probability. So I think that's kind of what we're seeing in stocks. You know, I think in terms of just the sector, there's a lot of like amazing stuff happening fundamentally. Right. And that's why as investors, when we see periods of volatility like this, it's very exciting from an opportunity set perspective, because you have companies that have made incredible scientific progress. You have companies that have, you know, that are launching, you know, transformative medicines that are making really good progress.

1:16:32And we're seeing some real disconnects, you know, across the board for many, you know, for many companies. And that, you know, that's a great set of opportunities for investors. And, you know, ultimately, I think America does really value biomedical innovation and, you know, will be rewarded for, you know, companies that make fundamental progress. Can you talk a little bit about the life cycle of a new drug or new biotech company? Comparing it to tech again, it feels like there's companies older than us that are still private because the nature of the tech market is that there are venture capital firms that are set up to do$5 billion injections at$100 billion valuation.

1:17:19And yet it feels like in biotech, there's been a long history of going public at a much lower market cap, the stock moving based on FDA trials very early before revenue, years on the market pre-revenue. Is there some sort of fundamental reason why companies in biotech go public earlier? Or is that life cycle changing? Do I even have that characterization? You are so right. No, you were absolutely right. So it is a very different life cycle. I mean, you know, it can take like, you know, 10 years for a drug to get to market. Like, you know, even when you've gotten into the clinic, 90 % or more of, you know, what you're working on is going to fail.

1:18:02So it is a really, it is a really tough sector. You know, we're talking numbers in the billions, like, you know, on a probability adjusted basis, it's like, you know, over two and a half billion to actually get a drug to market. So we're talking big investment, very high risk. And as a result, yeah, so you're like, why is anyone doing this? You would think it'd be the opposite. You would think high burn, high capex, high risk, leave that in the private markets. But then Stripe, which has been making tons of revenue for a decade, get them in the public markets. And yet it's the opposite in America.

1:18:37Yeah, I'm curious if there's any type of disconnect between the public and the private markets in the sense that, hey, you can buy shares of a private company that has zero dollars in revenue at X valuation, or you can buy shares of a company that's public, that has drugs and that has, you know, that are in market, that has revenue. Can you talk about that? You know, is that correct? Incorrect? Typically, what we see is that, you know, it's very unusual for any drug company that has a commercial product that is like marketed, very rare for those companies to be private, right? It exists in a few spaces, but like very, very unusual.

1:19:19They're almost always public. And the reason that biotech companies tend to go public so early is because, you know, it takes so long to develop these drugs and the depth of the, you know, capital markets for the, you know, biotech market, it's just deeper on the public side, right? There's a lot of investors who are like, hey, we do like public market investing, and maybe they do like a little tiny bit of like private market investing, but like the pools of capital on the public side are just much larger. And so you see a lot of these companies going public very early. And the private company valuations, they tend to, on a lagged basis, follow the public market somewhat, you know, curious if that also happens in tech.

1:20:06But it might be that after you see like a real drawdown in the XBI, like six months later, if the XBI is still low, like private companies will be like, hmm, you know, maybe that stuff up isn't going to be as big or like, maybe I have to be like a little more flexible on like valuation. So it usually takes some time. But like everyone is usually looking at that because that is the exit typically before an M &A. There is, you know, certainly, you know, strategic M &A activity that happens for private companies. But usually it's after they've raised enough money to get to a point that, you know, a strategic is like, cool, like, I think this drug is going to work.

1:20:46I'm going to take that risk now. And usually the company would like to be public to be able to raise the money to get to that point where they can be bought. So, um, you know, it's a, it's an interesting dynamic and certainly different, I think, than, than the tech world. Can you talk about the longevity market from your point of view in, in our world? Uh, every single, once somebody has at least a billion dollars of paper returns, they become very obsessed with longevity living forever. And so in tech, the companies that get attention, we had, we had the, the, uh, one of the co-founders of new limit on last week, which was an exciting conversation, but I'm curious from your point of view, more at a high level, how, you know, give us kind of, kind of a broad overview of, of the longevity market, which I'm sure is just one area that you guys invest.

1:21:35Absolutely. Yeah. So the longevity market can mean many, many different things. Every, every drug, every drug is a longevity drug. To some degree. Yeah, exactly. And also with many different levels of scientific validation. Sure. So RA Capital, we are like a very data driven, like we're a very data driven organization, right? A lot of the people who work at RA Capital are like PhDs or, you know, former physicians or sometimes even current physicians. and so very scientifically rigorous. But, you know, I think we're developing and, you know, have developed a lot of like really, really interesting research on, you know, scientifically oriented ways of extending like not just lifespan, but healthspan, right?

1:22:24So when we think about longevity, we tend to think about it not in terms of like, hey, do you want to be like, you know, hanging out on a couch, like not really able to move, but you're like, I'm alive. I'm alive. Like, you know, ideally as long as my Neuralink plugs in, I'm good. As long as I can use the internet at 150 as a vegetable, I'm good. You're like, that's probably not my jam. Just being able to like use it. I mean, using a computer with your eyes at 150 would still be pretty cool. But like, if you could do more, that would be even more fantastic. Right. And so our focus has actually been more on like the health span side of things.

1:22:59I'm really thinking through like, you know, we actually think that there's a lot of like existing technologies and existing, you know, it's not, it's also not just about like treatment, it's about, you know, prevention and how do you identify, how do you diagnose, how do you kind of manage risk factors like very, very early. And so a lot of that involves having like algorithms for identification, having algorithms for like, you know, disease prevention and identifying where there's a lot of like existing stuff that you can put to work in combination with novel agents to really improve healthspan.

1:23:36So that is an area that we're very excited about and certainly doing a lot of work in. What does deal flow look like for you? I know a lot of the best biotech companies, it seems like there's some tech transfer point out of a university lab. And then I've seen like flagship pioneering is like incubating stuff and Moderna came out of that. And there's just so many different formats. And RA has an incubation arm too. Yeah, yeah. There's so many different formats that you don't see a lot of like, oh, you know, kid in the garage said, you know what, I have a problem and I'm going to solve it myself.

1:24:09It's a very different pattern of entrepreneurship. So what does the life cycle look like for you these days? It is very different. I will tell you, I would actually love to see more like garage biotechs because I think like there's, you know, some more, like, I think that there's actually, you know, in some ways, like the entrepreneurial process for biotech has been a little too like institutionalized, right? But let's, let's talk about it because, um, you know, the deal flow for biotech and like how companies get formed can be in a number of different ways. Um, academia, right. Ideas coming out of academia is like a big one.

1:24:44Um, ideas coming out of, uh, you know, venture funds is another big one. Right. Um, and then you have like, you know, business people, often people who've like, you know, they've worked for a company, that company got sold, and they're like, hey, I want to come back and do another one. Here's like these other areas and other problems to solve, right? Or maybe someone's coming out of big pharma with like an idea that they couldn't prosecute in their big pharma company because they were too risk at first and they want to start something new. But because biotech is like so high risk and requires so much capital, that process for like getting a company started is often, you know, I'd say there's like a bit more like institutional like process around that then I think you see in tech because it just like takes a lot of money to like go from hey I have this idea to like oh I even want to like test this in animal models and like try and get a drug out of this like that is like millions of dollars um so I think that is something that is actually a real challenge for the uh and that we at RA think is like a real challenge for like the biopharma ecosystem is um you know look like Like we have to, you know, find ways that we can be more, you know, be more efficient and like try and get to some of these answers more quickly.

1:26:02Because when, you know, when you when you look at, you know, when you look at the pace of innovation that is coming out of China, which is really, you know, pretty astonishing for biomedical innovation. It's like that is a fundamentally different cost base and fundamentally different pace of iteration. and we, you know, there's a lot of work that I think we need to consider for our biotech ecosystem here to adapt. Can we do a quick round of like overrated, underrated? I'd love to know artificial intelligence broadly. Is it speeding up drug development? Is it overhyped? In Silicon Valley, everyone says, oh, we're just going to, you know, ask ChatGPT to cure cancer.

1:26:42It's going to happen next year. It's a convenient line if you need to raise 30 billion yourself. But what is the mood in the real industry from the folks who know AI? I would say that AI is like, it's overhyped in the sense that like AI itself is like not like discovering and developing drugs. It is underhyped in the sense that like, oh my gosh, like what a powerful tool. Like we absolutely use it. Every single company worth their salt is using AI in their drug discovery process, right? So it's a little bit of both. Usually when someone is talking about themselves as an AI company, you should approach with like, how different is this really?

1:27:22And like, but if a company is like, no, we don't use AI for anything, I would also be like, huh? What about mRNA broadly, Moderna, Stefan Bissell was on a TED Talk saying before COVID saying mRNA is going to be a cancer cure. The stock's kind of gone up, gone back down. is mRNA a technology that we're going to be seeing more of in the future in different applications? Or should we be thinking about Moderna really just as like a pandemic frontline defense firm? So let me talk about RNA therapeutics more broadly, because actually mRNA therapeutics are like one flavor of RNA therapies. And I would say like RNA therapeutics overall, like huge, huge potential, Right.

1:28:07Huge opportunity. I think that the challenge has been delivery. Right. How do you actually get these to the right biological target? And there's a lot of really awesome work being done that can hopefully improve on that. Yeah, that makes a ton of sense. What about GLP ones? I feel like everyone has heralded them as like a cure for everything from diabetes to obesity to gambling to just anything being lazy, I guess. It seems to cure everything. Overhyped, underhyped, overrated, underrated, or kind of - Underhyped, underhyped. Phenomenal drugs, phenomenal drugs. Lots of problems to solve, right?

1:28:48The market isn't rewarding a lot of that now, but I think the market will in future. So lots of problems to solve, need to improve on accessibility, right? So how do we get like pills and patches instead of needles? And how do we improve tolerability, right? so that people are actually staying on these drugs. And, you know, a big part of that is insurance coverage as well. Last one for me. Are you worried pharma IRRs on average have been low? Our last guest was talking about how if you look at average returns, they're below the cost of capital today. Are you worried about net new investment in early stage biotech funds?

1:29:29Obviously, if there's less investment, you could imagine the returns actually going up because there's less competition for deals, maybe. But what's your kind of high level take on incremental investment in early stage biotech? You know, my take is that there is a lot of, you know, there is a lot of great work to be done from a fundamental standpoint, but we need the incentives in place. Right. So we've got to have a functioning market. We've got to have, you know, you know, competition in order to incentivize that. So, you know, I think that's the best. That's the best thing that the government can do is ensure that there's, you know, strong market competition for pharmaceuticals.

1:30:14And, you know, loved hearing this morning that there's a real appetite for trying to get other countries to incentivize that innovation as well. Do you think biotechnology process is overall accelerating or are we heading into a period of kind of rebuilding and stagnation? What's your overall optimism on the industry broadly? My view is accelerating because we have to, right? We have to and we have better tools too. The thing that causes biotech to take such an enormous amount of time is clinical trials. And like the clinical trial system in the U.S. is just like clogged, right? Everyone's trying to recruit the same patients at the same hospitals.

1:30:53So I think we need different ways of doing things. But I think that we have a lot of the tools to actually accelerate some of that innovation. That's exciting. Awesome. Well, thank you so much for joining us. Thank you. Yeah. Leaving on a high note. Thank you so much. This was really enjoyable. Thank you. Thank you, Tess. Well, the market's up, so we have to celebrate. Yeah. It's a white suit day. Great to see you both. Yeah. thanks for coming on cheers thanks so much uh that was great i i feel like i'm learning a ton from these interviews yeah we've been meaning to have a biotech day this is kind of the informal biotech day oh uh yeah kind of triggered it but i'd love to go deeper here because there's it's such a every answer is something where i'm like i've never heard this particular take before i'm learning a lot so it's uh it's interesting that commued what didn't bring up the price controls in the European market, right?

1:31:45Because that does feel like a factor. He was saying that, you know, European country or that the pharma companies are selling at the rate in which the profit maximizing rate. And it sounds like there might be some other factors at play. We have Jack in the waiting room. Let's bring him in. Welcome to the stream, Jack. How you doing? There he is. There he is. I changed my shirt when I saw that you guys went light. When you went light today, I had a dark shirt on. Can we get some sound effects? No suit though. Hey, he's in the studio. Welcome to the stream. Let's go get the Ashton hall. Yeah. One more.

1:32:21Let's go. He's got news today. He's got news. What news do you have? What's going on? What you got for us? You guys are getting the first look at this. It's a pleasure to do it here. We are announcing impatient ventures. Fun one. Let's go another air horn. Another air horn. How big is it? uh so we we set up to do 20 million right away we had set up to do 20 million we ended up over subscribing and doing 23 and a half million so congratulations you know it's uh it's it was a tough market to start in february 2023 was basically the rock stone cold bottom adventure have you thought of concentrating the entire fund into a single foundation model company?

1:33:08Just putting all 23 million in one deal? I basically was hoping that that would be the case. I was just waiting to YOLO in with Josh Kushner and something. I never found it. Next fund. Why don't you give people a little background? Talk about AUM too, because I don't think the first fund tells the whole story. I was lucky enough to start investing, honestly, during ZERP when it was a little bit easier to raise capital. And so we did a series of SPBs while I was a founder in 2020, 21, 22. First deal we did ended up being a CPG company. It might be the first and last CPG company, but it's my best investment, which is a high protein oatmeal brand called Oats Overnight.

1:33:54I met the founder. He was a pro poker player. I was a very serious poker player once in my life, which I think is an amazing skill set to have as a founder is that sort of decision tree between luck and what you actually did impact an outcome. But yeah, we did about 30 million bucks of SBBs before the first fund. And then along the fund, we've done probably another 50 or 60 million. So AUM is north of nine figures. But we're definitely, as they like to say in the industry, just getting started. Just getting started. That's great. Portfolio construction for the new fund. What's the average check size how many deals are you trying to do are you leaving some on the table for pro rata and follow-ons will there be a growth fund an ipo a special situations fund debt fund are you getting into uh uh structured uh structured credit private credit at some point what's going on i mean i'm you know import export you know it's like you know when you have those friends where you ask them what their parents do and they don't know and they say import export and you're just left wondering but like everything's import export everything's important it's true import the capital exported to the founders.

1:35:04Yeah, exactly. So we're a concentrated fund. We're going to do probably about 20 to 22. We're actually at 20 right now. And so we're just deciding kind of the last few that the nice part about being a first fund is you can not only make a lot of mistakes, you don't have to be as kind of like letter to the law of how it's done. I think as you scale AUM and you have institutional investors, we were fortunate to have an institutional investor as a top and down and I need permission to say publicly. Unfortunately, I don't have that permission. But as I've been told, I can say it's a Boston-based endowment that's in the top quartile of investing.

1:35:43So we have a generalist approach. How I think about it is, I was reading somewhere the other day that somebody talked about how specialist funds actually outperform generalist funds for only fund one. But then as soon as you escape fund one, you start just getting decimated. And basically the articulation was, if you're focused, it's because you're investing in whatever's of the time, right? Right now at the time, it's foundational models and deep tech. So everything from AI to robots. But three years ago, I saw a lot of people saying, we're Web3 focused. And then they kind of like branded everything that way and then slowly walked off stage and pivoted as that industry changed from where it was three years ago.

1:36:23So I like to think of us as a generalist fund that dynamically invests in what the best categories of today is. And so right now that is robotics, that is deep tech, that is advanced manufacturing and defense. But we're also doing consumer. I think consumer is permanent. It's a permanent category. I think we have yet to do a Web3 deal. I don't want to write it off. We did some pre-fund stable coins that we're excited about. But I think it's still a sort of to be determined what's going to work in Web3 because it's still just tokens with not a lot of value. How do you find... There's been a number, full disclosure, I'm an LP and impatient, but how do you think about investing in companies before there's any heat on the deal?

1:37:14I can think of a few companies in the fund that couldn't have been less hot at the time of investment, And then a year later, you've got, you know, tier ones, you know, leading and they become super competitive. But what what's your kind of what are you looking for in a founder to get a sense of their abilities, oftentimes before there's any revenue or sometimes not even an actual product yet? Yeah. Yeah. I mean, that's that basically is kind of where I think our edges is what we invest in, which is you always hear it. It's about the people. But my line is I can't underwrite a business if I can't underwrite the founder.

1:37:55And so it's those characteristics of that founder that I feel like are a winning, you know, sort of profile. Because, you know, comically, the word pivot is so often used in startups because the beginning lifecycle of a company is one continuous pivot. it. And so I love the Mike Maples quote, 80 % of his best investments were pivots. Mike Maples being the, you know, the floodgate founder. And I think that that couldn't be truer about so many of our best deals versus sort of the business change later. And so what I'm really looking for is that the founder has, there's a line that I like to use, which is never uncertain, often wrong.

1:38:33And so whatever they believe to be true at that point, they believe it with 110%. But as soon as new information enters their their head that that might change the way they you know go to market that might require them to need to shift their team i'm looking for a founder's ability to be dynamic at as the sort of uh the information changes uh break it out john let's do it i don't mind i don't mind taking the suits to the dry cleaner after this in the next studio i think we will be i wish i bet you remember you guys remember there's like at least two or three COVID startups that were like, I think there's still one that does it where you can get like 10 minute delivery or something like that.

1:39:12Cigars. I mean, that might be the next great consumer business. Maybe. Yeah. Go puff for cigars. What is your take on these, like on these new zoomer companies, these, these young entrepreneurs who seem to be really good at like going viral on day one, vibe reels, take over the internet. And then they kind of got to build the plane. after they're already flying versus the Dylan Field story of Teal Fellow in kind of private beta for three years raising money, then launches Figma and goes on this generational run. The fear and the vibe is like, hey guys, you're taking the marketing a little bit too seriously.

1:39:56Maybe you're too good at going viral before you really have any product, but are we just being boomers if we're like, hey you know get in the get in the garage and start coding i love that question one of the companies that uh you know jordy knows is in our portfolio um and uh we're all big fans of in fact i think you both have the fish uh as shinke oh yeah yeah yeah so i think they're out there they're they're they're at 40 michelin stars of sort of uh their fish uh being distributed to restaurants i thought it only went up to three michelin stars but they got 40 they're hogging all the stars that's incredible really one of the things i really appreciate about the ceo is quite young and you know we backed him uh you know when he had two roommates from college working on the idea with him and actually the original idea he wanted to make autonomous fishing boats and he wanted to build the fish processing robots that kind of you know execute the fish when it's uh caught and then get it the narrative the the narrative violation there is that shinkai is a yc company that really graduated yc and still had and this is this just goes to show how not hot robotics were in any type of sort of more antiquated industries that they could that a founder of safe's category could get out of yc and just be out in the free market building in relative obscurity for i don't know how long it was exactly but if i remember it was it was a few years but but just to even finish john your question one of the things i like about the ceo is there's a lot of pressure for him now that he is a you know tier one backed uh um startup and has you know some of the best from spacex and andro working there to really scale revenue the thing that he's focused on is quality revenue and i think in the age of ai being able to pump numbers up quickly i don't know what that company was i don't want to say the wrong one it was 11x or 11 labs or something that had like 10 million in revenue.

1:41:56Two wildly different companies. They're wildly different. There was one that basically had like a 10 million in revenue in like three weeks or something crazy. And it was just turns out it was like all turned over like 90 % churn. And so I think, yeah, I think in this age of, of, uh, of being able to scale as fast as we've ever been able to quality revenue is really the most important thing I look for. And does that founder understand what that means? So understanding economics are still in right now. And I think the founders that don't understand Hot take. I mean, hot take, you know, margin profile, basic finance 101 stuff in conjunction with a market insight and the ability to scale and execute.

1:42:34That's an important thing that we underwrite is I don't know what your ultimate business is going to be, but will you know it when you see it? Last question I have. Are you a long or short Burning Man? You've been a vocal proponent of Burning Man over the years. Every year that I've known you, you've gone. uh i i'm short i gotta say i'm short i think it peaked a couple years ago uh but but what's your take i got bad news for burning man i this will be my first year in which i do my hot vc summer in europe and out of burning man okay um and so this is my first year taking off could be a death i think i will be back i will say i have gotten deals and lps out of burning man every year i've been there.

1:43:22So, you know, I have a good batting average and the productivity, but it definitely feels... Actions. What's that? The actions are speaking louder than words here. You're short. Yeah, the revealed preferences. The revealed preferences. Mega short. I'm currently, I'd say I'm currently, I'm currently, I'm staying in cash. I'm not long

1:43:49awesome uh well it's great to have you on congrats on uh the milestone and uh yeah good luck to you looking forward to fun two announcement i'm sure it'll be not too long around the corner it'll be sometime after burning man which is great great anyway great all right we'll talk to you soon all right fellas thank you thanks jack see ya let's talk about eight sleep go to aidsleep.com. I'm going to keep the cheering guy. Five-year warranty, 30-night rice free trial, free returns, free shipping. It's clinically back. I got a 90. I'm back. Wow, you're back, John. I'm climbing the ranks. I think I actually put up a 90 too.

1:44:2999 or 90 on the dot? What you got? No, actually a 90. Because we got Pippa from Sweet Capital coming in the studio in just a minute. Let me also tell you about AdQuick. Out-of-home advertising made easy and measurable. Say goodbye to the headaches of out-of-home advertising. Only AdQuick combines technology. out-of-home expertise and data to enable efficient, seamless ad buying across the globe. Pippa, are you here? Welcome to the show. Hey, John. How's it going? It's good. Would you mind kicking us off a little bit of an introduction on yourself for those who don't know you? Absolutely. It's great to be with you guys.

1:44:59I know we've been wanting to do this for a little while, so it's great to be with you. Yeah, somehow we missed you at Hill and Valley. It was a crazy day, but it was good seeing you there nonetheless. You guys were overrun. We were. The hottest spot at the conference. A tiny room in the corner. Everyone was beating down the game. It was good. It was a crazy day. Those guys did a great job. Yeah, fantastic. Yeah, so my name is Pippa Lam. I am a partner at Sweet Capital. We are a private investment fund. Clue is in the name. Sweet Capital, my colleagues started a gaming company, Candy Crush, most famously King.com, which they sold to Activision and then subsequently Microsoft.

1:45:37I run a huge game. I run the private investment fund for those founders. And we sit between the US and Europe and invest sort of broadly multi-stage. Again, we're private capital, so we can sort of invest across a whole wide range of sectors. And I'd say we're about 70 % US allocation at this point. My background, I actually started my career working for the British government on trade relations between the West, UK, US and China, which obviously... quite topical today. And I then sort of moved into equity research, covered large cap, China tech, US tech, JP Morgan for five years. So pretty much just doing Publix, covered a lot of macro, which obviously is now increasingly relevant to sort of the tech world and private investing now, but been in venture and private investing for about five, six years now.

1:46:31So yeah, great to be here with you guys. Yeah. How are the founders thinking about investing in gaming technology. I feel like every successful founder, they sell their company and they're either like, I'm never doing that industry again. I know too much about what can go wrong. So I want to stay away from it. Or they're like, I'm an expert and I'm going to dominate the next generation of generational companies that come up in the industry. I know so much about, obviously, there's a lot of value add there. So what's their feeling on gaming startups right now? and are you doing any deals in that area broadly?

1:47:07I'd say it goes both ways. So there are five founders of King. So I'd say a couple of the founders are like, send me back in, I'm ready for more gaming. In fact, one of our colleagues actually started a new company as soon as his non-compete pretty much ended with Activision and Microsoft last year. So he's straight back in it. He's operating sort of in stealth at the moment, but he's kind of straight back into operating. so very much uh bullish on gaming and i'd say on the other side it's a little bit of a range between wanting to invest alongside more the gaming ecosystem not so much purely on publishers i think that um obviously king and candy crush were such an incredible zeitgeist and breakout success i think match three and sort of casual gaming really rode the the kind of mobile transition that we saw be so large for them and when they were coming up.

1:48:02I think obviously the gaming industry has moved a lot. And of course, you know, my colleagues are still, you know, very interested in what's happening. I think a lot of what's happening obviously around AI and sort of the broader ecosystem, you know, still extremely tapped in. So we do look at gaming deals, but I'd say that, you know, it was partly the thing that you allude to about having, you know, knowing too much that has meant that we've, you know, with the private investing we do on the side, we've really moved out of purely doing gaming. We did also have a non-compete for quite a long time with Activision.

1:48:36So we were sort of forced in my earlier years to do sort of the gamification of adjacent sectors versus, you know, competing immediately with their former company. Yeah. How did you guys react to the news last week around the App Store and the changes to the App Store's payment or the forced changes to the App Store's payment policies? Look, I think that, you know, I don't want to speak for them, but they certainly had an ongoing, very interesting relationship with Apple throughout the course of, I guess, as Candy Crush was coming up. I think also, you know, they really began at a time of sort of the internet portal.

1:49:20They really had to deal with how they were dealing with Facebook at the time, Meta, and also Apple. So I think that broadly, we're hopeful around changes coming out. But I think that certainly the issues that we faced as operators certainly are, the world is drastically different now. We're no longer really at the fight to try and win mobile, which is really how they were having to come up at the time. So I think it's too early to say, but it's certainly something that my colleagues are tracking very closely. And certainly Sebastian Knudsen, who I mentioned has started his own new company, is actually facing now directly as they launch their first game.

1:50:04So let's see. Gaming is such an interesting venture category because I feel like over the last five years, there's been a ton of breakout games. But very few of them were true venture-backed, like seed Series A for main funds. like Fortnite came out of Epic Games. It's like a 30 year old company. Roblox had this venture story, but all the early backers, they became rich off of Roblox. Roblox was kind of like their main win. Then Among Us and Bellatro were these huge successes, but they were kind of just like random indie developers who just kind of got lucky and weren't really like financialized in like the, oh, we're building a team.

1:50:40And then a lot of the game companies like pivoted, like Slack was originally a game company and stuff. If you go into Silicon Valley, they eventually push you into B2B SaaS. class if you're a gaming company. But anyway, I mean, we can talk about gaming all day, but I want to hear your take on the UK-US trade deal. That was the first one to fall last week. You had a great breakdown on X about it. I'd love you to take me through kind of like, what was your expectation? How do you process the news and what do you see going forward with that particular trade deal? And maybe before you dive into that, even kind of the on the ground opinion in the UK, how how uk citizens have viewed this whole trade debacle given that they they have a we have a the us has a trade surplus with the uk right yeah yeah it's it's funny i know i know a friend ryan from flexport tweeted you know um the uk is the only country to have a trade surplus oh the us have a trade surplus with the uk so it doesn't bode well for other countries right if we manage to like you know that is that is the beginning point but i think yeah of the top 10 uh countries that the u.s has a trading partner with the uk is is the only one that um they don't have a trade deficit with so so let's see yeah look i think it's a i sort of find myself putting back my macro hat on again these days so much because we had uh finally this trade first trade agreement between the u.s and the uk announced last week and of course this morning with the news coming under Geneva of how the US and China are hopefully going to move towards closer bilateral trade dialogue.

1:52:14So I think first on the UK piece, I know that sort of from behind the scenes that this has really been something that has been in the minds of the UK government ever since sort of mid-February when we had, or end of February when we had that very sort of, you know, very productive and positive meeting between Prime Minister Keir Starmer and President Trump at the White House. I think that there has been on both sides a real determination to work towards a some sort of bilateral trade agreement that, you know, went beyond the Liberation Day board where I think we were, you know, 10 percent with some of the lowest countries.

1:52:50So this has been in the works for weeks, certainly a few months since then. And I think the reception has been broadly positive. You know, I think that, of course, there are still talks to be heard. I know Ambassador Peter Mandelson has said that this is not a still picture. I think he said it's a movie. The trade will continue. The trade talks will continue. But if you look at the headlines, it brings down to the average, I think, tariff to somewhere between 1 % and 2%. That is the aim, which, of course, is hugely beneficial for both when we were really sort of stuck at the 10%. So I'd say it's been broadly very positive.

1:53:31Obviously, markets reacted well to it. And it really hits some of the key points around sort of steel and autos, which I think are in both sides views, potentially a blueprint for how the US is going to engage with other trade partners. I think that's where I would like to see things move next is really expanding this into a broader dialogue around UK and US tech partnerships. I think that that is certainly something that we should keep our eyes peeled on over the coming weeks and something that, you know, I think there's a lot of interest on the UK side about really firming up our relationship with, you know, US big tech.

1:54:12We already have a fantastic working relationship with many large companies in the US. But I think we could really push the needle on some of the sectors that have become issues of national security, be it, you know, AI, defense, robotics and stuff like that. So, yeah, broadly, broadly positive. And I think it's been interesting to watch how we've seen, you know, the UK public and also UK big industry react to, you know, the new administration and what the White House is doing. Do you think the UK will be kind of a net importer or exporter of venture capital over the next few years? Obviously, there's a lot of LPs there that would love to invest in American companies.

1:54:56There's also new projects to invest in UK based entrepreneurs and new startups. So what is the trade balance look like from a venture capitalist perspective? I think it depends who you ask. I think that traditionally we have struggled in the UK. And I say we, obviously I'm British. I have personally, as a microcosm, spent about 70 % of my AUM on the US. So I think it's clear sort of how I voted with our wallets. But I think certainly if you look at Europe, there has traditionally been a issue with getting scaled capital to the pre-IPO stage. So you had a lot of this homegrown seed capital and sort of, you know, of course, US counterparts setting up their UK offices, be it Accel, who's done very well there in Index, who are still big firms in the US, but they really found their footing in Europe.

1:55:47And then in recent years, you had, you know, Sequoia come in, you had, you know, Andresa Horowitz do a big crypto play, NEA and many others. So I think that there are certainly continue to be sort of a, well, you know, the UK has really wanted to welcome US venture capital. But of course, it has also raised the question as to why isn't there more homegrown European and US funding at that later stage. So I think, you know, in some ways, the industry is just more nascent there. So the law has taken time to scale up these funds. But yeah, I mean, I personally think that we should continue to try and push for greater collaboration on the capital side at those later stages as well.

1:56:31Do you think the UK is a good kind of launchpad for investing in the Nordics broadly? Because the Nordics seem to be a little bit of violation of the narrative that Europe isn't producing generational companies. You have Spotify, Skype. There's tons of stuff out of Sweden and Estonia. And there seem to be pockets of like really entrepreneurial cultures there, even if it doesn't fit like the traditional Euro narrative. So is that an interesting angle to go set up in the UK and then deploy into the Nordics broadly? Okay, first of all, I want to know if my colleagues have been texting you because four of my founders are Swedish, the other is Italian.

1:57:12So this is definitely like a setup. But yeah, look, we're a big fan of obviously investing in the Nordics. I think that my general view and, you know, John, I saw a lot of you lost at the end of last year when around the US election, I was I was on the ground in the US for a couple of months during that ramp up. And I think I remember on election night being at a sort of election watch party and a lot of people were saying to me, OK, well, this is great, you know, in many ways for the US tech, US tech scene. But how will this impact the UK and Europe? And I was the one going around saying, look, this is a fantastic chance for, you know, the UK and, you know, the US's closest allies to also benefit from some of these, hopefully, blockages that are moving, especially within the tech sector.

1:57:59So my view is that, you know, the UK is still a fantastic place from which to welcome, you know, tech companies as a gateway to broadly Europe. I do think the Nordics are definitely a sweet spot. So King obviously basically also being a part of that. The Nordic gaming community is huge. Well, they didn't even make this list. I'm looking at this list. Cursor, MySQL, Minecraft, Spotify, Skype, Aura. Yeah, King, I mean, King invested on the New York Stock Exchange, but its headquarters were in London, but its co-founders were, a lot of them are Swedish. But certainly we, you know, our second office really is Stock Home.

1:58:40So yeah, big fan of that. And I think that it's proof that both in the Nordics and also in Eastern Europe, you've had some really breakout sectors, including gaming. So, yeah. What about foundation models? Has anybody kind of raised around like, we're the UK, OpenAI, let's raise, this has got to be worth a billion. Got to be worth at least a billion. Yeah. So, yeah, we haven't had our own sort of foundation model in that sense. I think that's something that the UK is seriously considering. And as we think about this theme of sovereign capital and secure capital and how the UK is actually going to be able to compete at that level of this sort of AI ecosystem.

1:59:26Of course, across the channel in France, we have Mistral. And, you know, famously, we've had incredible generational AI talents on the engineering side in the UK for a long time. but DeepMind was started in the UK and obviously moved over to Google. So I think that certainly as the UK government thinks about this next generation of AI companies and sort of technology companies in general, it's certainly something that is very top of mind for how both DSIT, the Department of Science and Technology, the Foreign Office, and also Number 10, think about these things. Have you thought specifically about like expatriating entrepreneurs?

2:00:10I mean, just go find the best entrepreneurs, set them up with the first round, take a huge chunk of the company and then say, hey, go to San Francisco. That's where you need to be. Go build the company. Because there is the aperture widens when all of a sudden you're talking about, yes, American companies, but founded by European entrepreneurs. Then you're in the trillions of dollars of market cap, right? yeah sure we could i mean if you we already look at companies that sure that that then we get we sort of we can draw a line nowhere i mean stripe in theory has british like you know founders or irish irish let's not i know i know i know i don't get the separatist i am against i think what's important no is is you know it's keeping i think the uk government but would be also keeping its homegrown talent in the UK.

2:01:01I think that's obviously a very sore spot as to why DeepMind did leave. And I think that the UK, in my view, needs to look at itself and consider what are the requirements that you really need to build multi-trillion dollar market companies in the UK and Europe more broadly. But I think that there is, if you look at this current administration, There has been a lot of really encouraging signs. Early at the beginning of this year, we had the AI, an AI act that PM signed off on where, you know, 20 new ideas around how to enable AI progress in the UK specifically were announced and adopted. And that really came from a lot of great work from, you know, collaborators in the venture capital industry in the UK.

2:01:53A friend of mine, Matt Clifford, who has been advising number 10 on, you know, really the opportunity around AI and AI security. So, yeah, let's see. but I think that my hope is stepping out more broadly that the conversation between the UK and the US can also start a bit of a blueprint for how the US starts to work with some of the other allies on tariffs and also on tech partnerships. That's great. Well, thank you so much for joining. This was fantastic. Well, you are our official UK correspondent. Yes, let's get a sound effect for that. Let's get an air horn for you. We need the great music.

2:02:31I'm honored to do that, guys. Yeah. Thanks for coming on. We'd love to have you back soon. We'll talk to you soon. Good to see you. Awesome. Guys, good to see you. Really quickly, let me tell you about Bezel. You can shop over 25 ,500 luxury watches, fully authenticated in-house by Bezel's team of experts. Go to getbezel.com. Tell them TBPN sent you. And we have our next guest ready for us to join the show, the founder of Intercom. Welcome to the stream. Yo, yo. Gentlemen, how are you? Look at that microphone. Look at the lag time. You were ready for this. Terrible? No, it's good. fantastic it's good it's fantastic uh good i i don't want to mispronounce your name can you pronounce it for me well before i tell you there are two types of people in this world i found out there are those who guess and then there are the rare few fucking gentlemen but thank you because you'll never guess um it's pronounced so kind of like o h n own wait you you you You kind of cut out.

2:03:28You lied right as you said it. You give it to us again. What is it? It's pronounced own. Basically, own. So as if you spelled it O-H-N, own. Own. Awesome. A lot of people say own, and I will accept that. Okay, own. Well, thank you for joining us. It's great to have you. Would you mind just giving us a brief interview of kind of a brief intro to your kind of entrepreneurial journey and the company that you built? And kind of then we can dive into a bunch of the hot topics. I'm sure we'll be talking about AI, venture, all the typical topics. But I'd love to know kind of like your story. Yeah. In a nutshell, I moved from Dublin, Ireland in 2011, a long, long time ago, to the Bay Area in San Francisco.

2:04:11And we started Intercom around then. Intercom at that time was a general purpose customer communication platform. We had a cute little messenger, the first of its type. you put it on your website in your app and it was great for sales support marketing use cases and it blew up um two or three years into intercom we were the fastest growing software companies in salesforce slack subsequently beat us but that was our that was our hot start and um yeah it's been a an incredible part of the whole journey snippet trend right like you were able to boil down installation of your product to just like a few lines of HTML or JavaScript And so the integration all of a sudden went from get a Foyer deployed engineer build on top of our API to drop this snippet into your website and you're good to go with some basic functionality.

2:05:03Is that correct? Yeah. Yeah. There was other people doing it. There was a company called Olark years ago that had like a kind of a live chat thing. We were a little different. We were a messenger. So it was a mix between live chat and kind of, you know, asynchronous. But what was different about our approach was that you'd install the JavaScript and it would start to learn about your customers. And so you had a really data rich customer experience. So in many ways, it was almost like a CRM for digital businesses, but at core to it was all the communication stuff. How did the business model evolve?

2:05:31Were you on kind of just like a monthly plan for a little bit? Did you go monthly based at some point? We tried approximately 14 trillion price plans. Most of them were unsuccessful, but we, you know, we charged per seat and per message. the problem with a really horizontal product like ours was, was that you're trying to capture value in a dozen directions. So you have a super complex pricing model if you're really trying to do all the things. So we did that. And then eventually we picked a lane. So these days we're in customer service. Okay. So you've tried all these business models. I have to ask you about Salesforce.

2:06:05They're moving to this like ticket completion pricing, getting away from seed pricing. Is that a reasonable strategy? Is that the future? Like Mark Benioff has kind of said. Are you testing that? Do you have any information on what we should expect from future pricing of these types of services in an AI driven world? Yeah, I think it'll stick. We were the first to charge per resolution. Salesforce came to me. Oh, there we go. Yeah. Hey, hey, what do you guys think about this? Does it work? Yeah. And, you know, we like it. We like it because it's aligned with our customers. We don't charge you if we don't do work for you.

2:06:44And every time we do work, we charge you and when we make our technology better doing work we earn more money and right now uh forgive the plug finn our ai agent is the highest performing uh agent in service and so we more we earn more per customer at least when you charge for resolutions than the other guys because we just do more work oh interesting wait so it's highest performing not on a particular benchmark but on just how much money it makes? No, well, yes. Because I've been saying that's actually the real measure of AI is how much economic value can it create. And it's weird to say because we want to be like, oh, it's really good at math or whatever.

2:07:23But I'd much prefer like, no, it actually does a job. Solves real problems. It solves a real problem. And there's no better measure than that than economics. Yeah, absolutely. Work in some sense is a bit of a commodity to a degree, right? And so if you can charge more for your work than others or if you earn more from doing work, it means that you're providing more value to the world. Yeah, totally. So yeah, we have more customers than anyone else in the AI service agent space. We have more revenue than anyone else. We have a higher average resolution rate. Have you been, in general, applying AI to customer service makes a lot of sense.

2:07:57There's a lot of spend there. It's just a generally good application of LLMs. Were you surprised at how many companies came in to try to compete in the category, given that the intercom of AI, I imagine, is intercom, right? Because I feel like a lot of companies came out and just said, like, oh, we're making AI agents for CX or we're making more native experiences. But in this case, it feels like there's always been this debate, right? Is AI a disruptive innovation or is it an extending innovation? and I'm sure as the models have gotten better and better, you've just gotten more excited about their potential at Intergom.

2:08:41So maybe talk about the kind of market dynamic. Yeah, it's been interesting. So in hindsight, I'm not at all surprised because it's a giant category. I mean, the space we're eventually going for is all customer experience, sales, marketing, success, service. There's certainly trillions of dollars spent on salaries globally doing all of that work. So of course, many other people are going to chase it. I do think that categories are going to be more you know they're going to be shared in a way that they weren't in the past there's no way one company gets half of that trillions it's just not the case there's going to be many different players in the space at the time I was a little surprised we were first out of the gate and we had so many different advantages but I was only surprised because I had yet to realize that the times are changing the the technology world is just so much more competitive now like when we started in 2011 you'd pick your lane you you probably would have a direct competitor if you were doing something interesting but you wouldn't have 16 like that just was not the case and i don't have a hypothesis for why that is i mean if i had to guess i guess i would say that ai is most likely the biggest innovation the world has seen since you know the internet maybe way bigger than the internet when there are new technology changes opportunities open left and right and um opportunists come out of the woodwork i mean opportunists in the busway wonderful entrepreneurs yeah come out of the woodwork to go and and and and pounce on those in that moment so i don't know it's fascinating it's incredibly competitive and not just our space every single category in ai i mean think of like note taking think of you know you just make anything up ai's fault let's just say it i mean i love the guy but you know we gotta we gotta hold him accountable for all the competition wait who is that i was saying i was saying i love gary tan but it's clearly his fault so there's so many startups now i mean uh half half the intercom um competitors are yc companies yeah i mean you you know that like something like three or four of the top payroll companies all went through yc deal for a while there was this there was this narrative of like, OYC doesn't fund competitive companies.

2:10:55It's like, no, they fund a ton of competitive companies. Totally, totally. But it's great, yeah. I mean, competition breeds innovation and breeds these huge power-lite outcomes. It's all good stuff. But it is very competitive right now. I want to hear about your evolution with artificial intelligence. Take me through, were you tinkering with the GPT-3, DaVinci, API, Playground? Were you trying to implement that stuff? were there times when it was unsuccessful and then it became successful? Is reinforcement learning and reasoning the critical turning point for you guys? How have the different eras of AI over the past few years played out into your product strategy?

2:11:38I will answer that question. I first do have to mention that I think you just heard a burp live on air. Did you hear that? No. You didn't hear that? Okay, good. A lot of LaCroix. It was just like a burpy moment. I heard it in my ears. I'm like, oh my God. We're all getting carbonated. Yeah. Good thing we're going to cut this out, right? Yeah. So, yeah, good thing it's not live. Yeah, good thing it's not live. Thank goodness we didn't randomly choose to live stream the show. So to your question, you know, so there hasn't been, for people in our space, major innovation at the model layer or within the model providers that has dramatically changed how it is that we function.

2:12:20So much of the innovation is in the orchestration around the models. And a lot of ways in which we've got these massive performance gains over all of our competitors is that we've built a lot of our own AI to allow us to do more sophisticated RAG and use multiple models in different types of ways. We've needed to be very experimental. We've run something like 200 different A-B tests to eke out different improvements along the way. going forward the next innovations will likely come by way of these application layer companies starting to work in their own models at least right now and this space is so dynamic so I may have a different opinion in just weeks at least right now it looks like the biggest leap forward for the verticalized AI application companies will come by way of building verticalized offerings where they have applications and models working together and somehow leveraging that interconnection.

2:13:15Yeah, we need an application layer sound effect on the soundboard. Yeah, I wonder, I imagine that there was an era where you were effectively building AI agents or AI chatbots back during the chatbot boom that were defined much more like linear business logic, if-then statements, and you layer those up. And that might be derided today, but it was value creative back then. I'm wondering if there is a world where having done that work results in a better product today because you can slot LLMs in to the business logic or train a model to interact with some of the business logic because I imagine customers and companies do want to enforce some rules and restrictions around the interactions.

2:14:08And so if you already have those those bumper lanes on the metaphorical bowling alley, you're going to be able to deliver a better product. But can you talk to me about the evolution of that rules-based chatbot development to modern, oh, I just have an LLM that one shots it? Yeah. Well, you basically said all the smart things I could say, but I'll just repeat it. There was kind of three generations. We're on the third generation now. The first generation was all the conditional stuff. And we had pretty sophisticated conditional stuff where you could build big, beautiful graphical diagrams that showed exactly how the customer would flow through your machine.

2:14:48Yeah, that was great. generation two uh used machine learning and it used various heuristics uh that learned from all the human data points we have about conversations that uh happen to try and route people to the right answers in your knowledge base and would pull out little snippets so we had a thing we ended up calling a resolution bot um because i can share um exclusively here that Zendesk threatened to sue us because we had an offering called AnswerBot. And little did we know, apparently, they also had an AnswerBot. Oh, no. Yikes. Yikes. Generation 3 now is LLM-powered. And so that is one that uses AI as we know it today, and it does away with everything in Generation 1 or 2, except, as you say, there are some companies like us that can leverage those innovations.

2:15:42so we sell to banks we sell to businesses with highly restricted uh operations in regulatory environments that don't allow them to make mistakes you know you get it our customers very much want um confidence that the llm is not going to just hiccup and bump its way in the wrong direction you know hallucinate even though you know we've managed to squash out pretty much all Yeah, the classic example would be, you know, somebody gets the LLM to refund them a huge amount for some purchase that they don't intend on. The prompt injection. I heard about that at an airline. Yeah, I think a big question I have is at what point is your AI actually better than an agent that would use the platform, right?

2:16:32Because right now, over the last few years, as AI got kind of good, but maybe not great, I would still find myself in that sort of cycle of being like, you know, kind of getting frustrated and just saying, talk to a human, talk to a human. But you could eventually get to the point where somebody would actually just prefer to talk to an AI because it's instantaneous and you can really potentially move a lot faster than an agent who's working across multiple open tickets. So I'm curious, what is the point where it kind of flips where the average user is preferring to talk to artificial intelligence?

2:17:13Yeah, the world is coming to exactly that point for the average user, but it's there for a lot of people already. We have multiple funny instances where we see people asking for the bot. We see requests increase when people realize that they can ask quick questions and get quick answers. We see resolution rates and kind of response times improve dramatically for certain categories of questions. the dirty little truth in the era of ai is that well-applied ai is far better than humans it is always available you know always stays on script is never rude you know often gets the answer far more right than the humans we've run a couple different studies where we've classified the answers that human agents provided using internal you know llm um um products that we've built we we found that only 65 % of the tickets that humans marked as resolved are actually resolved.

2:18:15So the humans are way worse than they think, way worse than they report. And just anecdotally, you will have far kind of messier experiences than humans than you will with a very good AI agent. The problem is that still most AI agents are not very good. Most of them are in fact GPT wrappers. And so there is a lot of kind of crappiness to the very big consumer products that already provide shit support. don't really mind, but in the future won't be acceptable. But we are nearing that point. Yeah. Has it been a challenge figuring out the right way to message Intercom's products, given that many of your actual core DAUs on the customer side, the actual reps, are people that over time, they have to be using the software and realizing somewhat slowly or maybe quickly that they aren't as good as the underlying system.

2:19:08And that's kind of a difficult, very human question, crisis. Yeah. Look, the reality is there's a couple of realities. One reality is that those people on the ground and even the support leaders are often not those buying these technologies. You know, there's a vested interest in those two groups of people not adopting them. And so a lot of people adopting these technologies are CTOs and CEOs that realize their operations and customer experiences could be dramatically improved by bringing these agents to the fore. I will say that often these agents are almost sugar on top. They resolve, at least right now, some of the easier issues and the humans are still needed for the harder ones.

2:19:49They're serving on met demand. So sometimes people will deploy FinR agent to their free customers that they never gave support to before. but often when they deploy it like i mentioned earlier people will ask more questions and so it increases demand too so you're not really seeing we haven't seen big mass layoffs where the humans are just obsolete yep that said all of that said it will compete with human work and ai and robotics is simply going to compete with the most repetitive most demeaning least enjoyable uh least purposeful work out there and if you talk to customer support reps very few of the wannabe customer support reps long term.

2:20:28It's a great way to get into the tech world, earn a tech salary, learn what you want to do, but pretty much all tech people have their mind and eye on something else. Yeah. What are your high-level thoughts on the AI sales agent market? You know, we've seen hundreds of companies at this point. The face says it all. The face says it all, but yeah, I mean, you said earlier in the call that you guys will eventually get into sales and marketing, And so I'm sure you have a ton of opinions on it. And great customer service is often a sales role. You're closing the customer as they ask questions. And the best customer service reps I've ever worked with have always been able to turn a customer interaction into a sales interaction.

2:21:10Yeah, and it's just a much different dynamic sort of taking inbound concerns or feedback with a product, trying to solve it with AI and then passing it to a human quickly versus spamming somebody with just nonsense. sense uh my favorite one was a sales agent that was like reaching out to somebody in new york and it's like hey have you what do you like you should try to go to the opera and central park the big apple the city that never sleeps i'm i'm ready to close anyway yeah what's your take on the ai bdr race i don't know it's it's you know you know the way they say marketers ruin all channels you know all all channels get you know exploited and trashed and spammed and completely destroyed by marketers because the job of marketing is to find you know the frontier like white space where it's not flooded by other marketers so all sales and marketing is really exploiting to death all opportunities until people are thoroughly fucking sick and sick to the teeth of them so so that's going to happen with ai you know unfortunately um and it's already happening you know i've gotten tricked a couple times with some emails i open them some of them are kind of on point and you're like fuck you this is god i don't even know if i'm allowed to say this f word i've said it three times we're working on getting a bleeper but we are family friendly show we don't swear but we we won't hold it against you okay thank you for not holding against me i will try my very best to not use it one more time um but i i i don't i don't know if it's going to work but like you said there's a full spectrum there there's a massive spectrum and yeah no it's the The challenge is any tool that's decent will get such rapid adoption because of the internet being the best distribution channel ever.

2:22:52And X even. It used to be faster than Adams. Yeah. So I think the issue is any tool that's worth anything will just be used so much that it'll quickly lose any type of real edge. I have a follow up on the cost side of things. obviously some of these API calls are quite expensive especially if you're doing 03 level reasoning test time inference like everyone knows that it'll get cheaper it'll get baked down into ASICs or there'll be specific chips that run these things really cheaply in even six months even a few years the cost per token's dropping but at the same time we've heard about startups that are like yeah I burned through 500k of open AI credits in a couple months testing this thing out so So is there a world where you've actually seen an impact on your cogs or your margins in the short term?

2:23:41And have you had to work with the board or investors to kind of think through that cost benefit analysis? Or have you always been able to kind of dance around it so that the business always feels like a software business and feels like it has very high gross margins like any other tech company? or is the fundamental gravity and the laws of physics around building a software company changed or at least temporarily changed? I think it's too early to say. And I think it's a really pertinent question, obviously. When we started and we launched Fin like four months after ChatGPT came out, each resolution cost us$1.20 something cent.

2:24:19And we charged 99 cents. So we decided to take a loss on that. We don't share our margin at the moment. It's very, very healthy now. Yeah, of course. I think businesses that, like ours, build very deep applications on top of these base level models will be able to extract plenty of value because of what makes them unique. Those that are simply GPT wrappers will need to charge something closer to GPT prices. But model prices are just going to continue to come down. so in the same way that SaaS companies were able to make 80 % margins on AWS in the future pretty much Evan will be able to make 80 % margins on OpenAI or AWS when they run their own model I actually will see but I don't think it's going to net out where the margin structure is completely different how much have you followed the Klarna CEO one day he says oh we fired everyone now he says oh we rehired everyone next week i think he just found the the ultimate attention hack is we gotta have him on the show yeah i'm on the show but it's you know basically just just flip on risk off yes risk on risk off nice um i don't know yeah he's really good at marketing yeah yes yeah uh what what has your kind of founder journey been and where do you see the company going over the long term.

2:25:45Like, uh, from the outside, I think it's, you know, there's a lot of people that would see intercom and just think like, oh, like venture back, they're going to sell and get rolled into something else. It seems like you've been in founder mode for a long time. And it doesn't seem like the writing's on the wall for you to stop. You're enjoying what you're doing. Uh, what do you see your, the rest of your career looking like? The company, the biggest opportunity is still ahead in terms of being perfectly positioned to roll out. Where we talk to a founder and we're like, wait, like if he's really going to work on this for like 20 years like it's gonna be insane so yeah i'm interested to hear like what do you yeah talk about your ambitions yeah yeah i mean i'm 14 years in now which is long you know most people are like success overnight success well you know we were an overnight success two years in and then we just did it for another 12 years that's great yeah maybe we messed that up yeah you know there have definitely been periods certainly near the tail end of our first chapter where we were all tired.

2:26:44I actually was off for two years. I was sick and tried to run away and ended up coming back. That's a whole other show, perhaps. But the AI thing definitely reinvigorated us. Totally. I won't deny that I'm 41 now. I was 26 when I started Intercom. It's a different thing when you're a little older. AI, give or take, is a young man's game. Certainly now that the world is so competitive, People are working their damn asses off. And a lot of our competitors, they're in their 20s. They're working literally seven days a week, 12 hours a day. We don't do that. So we have to take advantage of the things that make us unique.

2:27:21But the thing that keeps us going and that keeps me going is just the scale of potential. You know, our business is accelerating dramatically now. I think next year, our growth rate, our annual growth rate will have doubled three years in a row. And these are very significant growth rates. so for yeah thank you that was all that was all i was looking for there we go i mean i guys chill he's still talking he's still talking come on thank you thank you thank you well yeah for for a company at scale you know in the hundreds of millions to accelerate at that pace is just insane and it's because of this ai stuff and yet very literally we've just scratched the surface yeah i mean if we're gonna do the future of work then we're only getting started what do you think about the early stage AI market, the rapper market, people were very bearish on it.

2:28:12Then we saw OpenAI acquire Winsurf for$3 billion. And it felt like, you know, it's very special company, very incredible team, but it felt like it could be game on for every big tech company needs a rapper or a startup in every single category. And so all of a sudden you could see, sure, maybe some of companies don't become massive public companies but if if a founder out there is building a narrow ai solution for something that can slot very neatly into aws or azure or or microsoft office you could see kind of game on in the mna markets and some good outcomes for the founders and maybe even the vcs what do you think yeah i mean from what i hear their mna activity is picking up certainly from our perspective all sorts of bigger companies have started to ping us um it's it's kind of a thing you know that what i respond to this channel question is is is is i just ask how how big is this market really i mean if we are doing the future of work if

2:29:19oh we lost already there we go sorry if chris or wayne surf are doing a big majority of future development work these things are insanely valuable so all of this is just way bigger than software like ai applications wrappers etc maybe they're a hundred x the total software market maybe they're a thousand x maybe that's way too much but think about it they're doing all of work that's great i really uh vcs get you know so much shit but i would love for all the vcs swear jar buddy yeah yeah yeah i gotta put one in that's a swear jar uh but but i would love for all the vcs to just be right this time oh yeah like all the rounds you know the perplexity of 14 billion.

2:29:59Like if, you know, if they're just, what if it all works out, right? It'd be amazing. What did you do before founding Intercom? And would you do anything different or would you recommend that path to the next generation of entrepreneurs? I was starting companies. I was doing consulting, software development design. I don't know. There's a dozen paths, maybe a hundred paths into this. At this point, I wouldn't do anything differently. You get to a certain age in life where you love all your mistakes. Maybe you like look at your younger self and you're like, wow, look at you. Look what you did. but it made you who you are.

2:30:29So no, no regrets. And people should just follow their own pots, follow their hearts. I love that. Follow your heart. Well, I am so excited for you and the whole team. I'm so bullish. I'm actually extremely bullish. I love when we have these conversations where you're just like, oh my God, what a beast. Yeah, no, I mean, you guys are, you guys basically, you know, 14 year overnight success in the exact purpose. Definitely in the conversation. Definitely in the conversation, but no, just in the perfect position to take advantage of a massive trend, but then also deliver that value back to all of your existing customers and all your new customers.

2:31:05It's a great time. Let's hit the Ashton Hall effect and thank him for joining the show. Thank you for joining the show. Thank you, gentlemen. It's great chatting. Come back on again soon. Yeah, yeah, we'll have to have you back on soon. There's so much more to talk about. We'll talk to you soon. Bye-bye. And I think we have David from Box Group in the waiting room. We'll bring him in, chat with him. We love when a venture capitalist yaps about venture capital. It's one of our favorite activities. We got a plan. I would love to get his take on what are we going to do in August? Because I think August might be an existential crisis for the show.

2:31:38As all of you know, every venture capitalist takes all of August off. And so we won't have nearly as many guests. I think we go to the south of France and just do man on the street interviews. Yeah, what do you do for a minute? Hey, what do you do for a minute? Multi-stage venture capitalist. I think we have to. What about getting in a scuba diving suit and swimming up to boats and say, hey, what do you do for a living? Let's bring him in and we'll get his take. David, welcome to the show. How are you doing? Why limit it to the south of France? There are a lot of destinations. You guys are being quite isolated in your perspective.

2:32:11Okay, so give us the full tour. How do we make sure that the show doesn't implode in August when all the venture capitalists go on vacation and we have no one to yap with? I think you need a yacht. A yacht, okay. Like you guys need a yacht and then you travel from port to port in search of the VCs. Bring the show to the VCs. Yes. Okay. And what ports are we hitting? Take the show on the road. We're going to San Tropez. I mean, there's a base level VC. And then as they get more advanced, I feel like you can find new destinations. Antarctica for the really successful adventurist. Yeah. If your yacht doesn't have an icebreaker, I'm sorry.

2:32:47You're not ready to lead the Series Bs of 2025. I think we should get into halo jumping. So when we get Intel, hey, there's a big VC in Antarctica, we're just pulling the parachute minutes before hitting the ground, seconds before hitting the ground, show up with the mic. What do you do for a living? And if this period, as you alluded to, works, I mean, the destinations we're going to expand to, tremendous. I think so. I think so. There's something here. There's something here. We'll keep noodling on it. Anyway, how are things going? Wander location in all the places you need to go. I mean, let's get the plugs going.

2:33:24We do need to wander. We do need to wander in Antarctica. They should definitely get some of those locations on board, the Greenland location, the ones that just pop up purely for marketing mostly. But I would take them up on that for sure. But yeah, how was your weekend? How are you processing all the flurry of news and business and trade deals and biotech? Do you have any exposure in your portfolio? What are you excited about right now? I think we, my wife makes clothes in China. Oh, okay. So that's my main exposure. So I live with exposure, if you will. And making clothes is not a good business for anybody.

2:34:04And then when you get tariffed aggressively, you start doing math and your math already doesn't work. And you're like, oh, what if we make it worse? And so I think I live with her emotions, which impacted me. I think as a venture firm, we're generalists. We have exposure in all different categories. I think, you know, TJ, who's joining you after, I think we'll talk about the pharmaceutical side of this. I think you're in a world where reading headlines, reacting to them, and then waiting until the news comes out, right? You read about the China deal. It's like, we made a deal. We'll let you know the detail.

2:34:44yeah okay no market market immediately starts pricing it in zero rush just let us know whenever you get a chance and then we'll understand things better um and i feel like all of the news is getting rolled out like that where you're like here's the headline more to come um and i think reacting again reacting to that as an early stage vcs is important for twitter or what we call X. It's important for podcasts and really unimportant for the actual job. So you have to balance these two stressors out, which is like, how do I get engaged and sound like this is really impactful to me and it matters and I have to overreact and then on the same time, just doesn't matter.

2:35:29Well, I think for you, if you're a true contrarian, which every VC should be, everybody's bearish biotech. you know they've had a bunch of you know issues over the years you should just invest in like 30 new biotech companies today even without any sort of real insider edge just probably did i was on an airplane today and there's a chance that we did that happened like 30 new 30 new deals yeah we're investors in zach weinberg's curie which in fact does 30 new biotech yeah regularly so we have achieved your goal yeah i think he's hopping on the show next week to give us his his take Yeah, there's going to be three more news cycles.

2:36:09It'll be tame and chill. Yeah, I'm sure. Yeah, I mean, talk more about that idea of like patience and venture. There was this headline recently that Tiger Global, they got really stung during the Zerp era, but they're looking a lot better because they put a bunch of money in OpenAI and that eventually seasoned. we saw the same thing with the FTX fund buying a big stake in Anthropic and the deal winding up looking great over time and they invested in Cursor too oh yeah Cursor is a huge fund open AI invested in Cursor yeah yeah didn't FTX as well? yeah they might have yeah I think so but they sold that that got sold by the way yeah yeah yeah it got sold in like the bankruptcy no one knows who bought it yeah I mean that that that ftx's investment was not one of the best investments ever it was the person who bought it out of the cursor math on twitter that was shared made no sense yeah the 200 to 500 million that that's not how math works yeah like there's no equation that equals that like you can't get there so i was confused by that but i didn't want to keep my mouth shut maybe they invested like a fifty thousand dollar post money oh three is not very good at numbers yet yeah we invested in the pre-seed, pre-seed of cursor.

2:37:22And I, that math wasn't correct. I can tell you that. Otherwise you wouldn't, you wouldn't be doing podcasts anymore. From a hotel room. I would be on my yacht. Yeah. I mean, speaking of like cursor and just like the, the, the AI application market broadly, how are you thinking about demand from the hyperscalers for finding a dance partner in the application layer companies. There was a big meme for a while that all these companies are just going to get steamrolled by the foundation model companies. Now we're seeing deals get done. And I've been, you know, arguing with Jordi about, you know, what if there is a world where every hyperscaler needs a dance partner in the AI application layer?

2:38:10And there's just a flurry of M &A deals that seems plausible, but Jordi's a little bit more hesitant about that? What's your take on how the M &A markets look for application layer AI companies and big tech now in the new era? I think application layer companies is a catch-all of so many different behaviors and paths in. Does every application layer company look the same? No. I think what you're looking at is in many ways a brand and there is like a speed, momentum and scale advantage to not being first mover, but to being fastest mover. Is there a barrier to switching like there has been historically in software?

2:38:59Probably not. But in many spaces, barriers haven't been the thing that defends winners. It has been brand and it has been sort of recognition. And I think that that piece has been under sort of underappreciated. And OpenAI is the perfect example of that, right? ChatGPT, the idea that that like name created, it became a household. It's like hard to say it's weird. I don't think technical people understand like, why is that the name? But yet here it is, household name. It's very hard to disrupt that on a better model. Yeah. A better piece of technology isn't going to suddenly like the same way Google one search by Google becoming the verb, not because Google search engine necessarily was always the single best product, the single best tech, even though it was for the most part.

2:39:52I think there's a brand value. And so at the app layer, I think brand is equally going to be important here. And more users, more usage on your product, it ideally improves because of, as you know, AI. And that's going to matter. There's a compounding value of scale that's different than just the initial momentum. And I think that that's underappreciated. In terms of M &A, I'm more interested to see if the big companies need to buy app layer companies, right? The fangs of the world are the big seven. If the government allows actual M &A to happen anymore, I think that's the more intriguing unlock versus all the sort of foundation models buying a handful of app layer companies.

2:40:40I think there is a value of sort of by users and by scale that you're probably looking at at the beginning stages. It's almost more like product. Like, I feel like Google has their destination website. They can point Google.com to anything and they can funnel a billion. I mean, Sundar recently said that Google has over a billion users of generative AI. and this is the same story with Llama of getting stuffed into WhatsApp and Instagram. They have a billion users, but the product isn't thought of in the same conversation as ChatGPT, which is a destination, a front end, the front door to artificial intelligence.

2:41:22And so, yeah, there's something that, there's some still secret sauce to building really great products that happens kind of only in the startup ecosystem. And if you look at Facebook, now Meta on the way up, right? They were buying things every step of the way that felt either threatening or felt interesting. So if you go back to FriendFeed, they bought a CTO there, right? And so Brett stayed on and built a big chunk of the technology inside of Facebook. But FriendFeed was an interesting early momentum company. And then they bought, you know, obviously Instagram and WhatsApp, totally sort of separate channels within this bigger ecosystem.

2:42:00It ties into the business model. I look at those acquisitions as how you historically built companies in tech. If you go to this previous 10-year period when the government sort of stopped allowing it and valuations and founder expectations just became misaligned with acquirers, you saw so little M &A in terms of companies growing and getting bigger. and I think you're coming back into an era where the valuations of the foundation model companies, the valuations of the big tech public companies are so large that you can actually hit a founder expectation in terms of acquisitions and not make as big of a dent.

2:42:41You're not paying, you know, Twitter paid 10 % of their equity for some eyes back in the day, which is a stunning story. Can venture as we know it today survive even in a low M &A environment just because all that matters is the power laws or does it make things a lot, you know, the power law? It has survived for 10 years because you had a period of Zerp and then you had, I think to me, AI saved. 10 years is like one fun cycle. So we have one. If you're lucky. But I think it created momentum of liquidity for a moment. And I think it saved this dearth of M &A. And so is this moment in time where people were able to find liquidity after seven, eight years of very minimal M &A.

2:43:30Do I think VC needs M &A as a like secondary channel for exits? Yes. I think 15 years into my career, that was like a bet I've been mostly wrong on, is that there would be a lot of old companies buying new companies. I think AI might be a catalyst for that forcing function, right? If you are not able to buy software, you might have to buy companies to modernize. Yeah, it's super interesting, like playing back some of the other Facebook acquisitions. Like they bought Control Labs. Do you remember this? It's a wristband that could basically read your mind. And so if you pinch your fingers, it would pick up on the electrical signals and be able to put that into the computer and the VR face.

2:44:15They acquired Control Labs between 500 million and a billion. And this was, when was this? 2019, I guess. So it's been six years. They still haven't commercialized that technology, but they're going to in the new Orion smart glasses. And so just so much patience. They have, John. It's in the iPhone when you squeeze it. It's like, give John more of this dopamine. He likes it. The iPhone is made by Apple. I just don't know that. I just want to clarify. But then Facebook was trying to buy a VR fitness app and they got blocked. And everyone was like, it's so dumb because like the FTC said that they were creating a monopoly in the VR fitness industry.

2:44:58And everyone's like, what are you talking about? There is no VR fitness industry. But at the same time, when you think about Facebook's really, or Meta's really long-term horizon, if they can sit on control labs for six years before seeing any sort of economic return, they're still not even close. What could that team gone on to do? Maybe they could have done something cool. I don't know. Facebook from 2005 to 2015, 50 acquisitions. 50, wow. 50, right? These are real. And some of them were Aqua Hires or some of them were the version of Aqua Hires that was aligned to like future value at Facebook.

2:45:35I think same lesson came in through Aqua Hires too, right? There was Hot Potato, Justin Schaefer's early company. There was a bunch of early acquisitions that were team acquisitions when it made sense. And those people became important at Facebook. And I think when you look at today's modern companies, they were not built off of that same talent acquisition, the same way to build a company. I think you might get back to that because not every one of these companies is going to succeed. But if the value of the ones that are succeeding skyrockets quick enough, your equity becomes attractive to a company that is looking for a home.

2:46:11And I think that's a real alignment. you talked earlier about companies potentially buying brand uh from all the companies that you've invested in brand in the early days doesn't matter you know what usually when you guys are writing a check brand if somebody's trying to sell you on how great their brand is it probably means there's other fundamental issues with the company like the team's not you know anyways brands take a long time to build uh i'm curious if you have any framework framework for evaluating whether or not a team has the capability of building a brand that is going to resonate over time just because brand can originate from so many different places, right?

2:46:50You can build a great brand because you ship quickly. You can build a great brand because you have good taste, you know, and your marketing assets. I think brand is this big amorphous word that when applied to specific spaces means something totally different. The brand that Cursor has built, their audience and how they've gone about building that is totally not related to a D to C, you know, we're early investors in like Warby Parker. Warby Parker is a version of a consumer product brand. I think in software, capital helps. I think there's this two-sided thing. One is users and a community, however that fills in within your company.

2:47:32A community can be like a B2B startup building customer momentum where the customers are telling other people to sign up. But I think it's users and the community of users sort of spreading the word. And I think in this moment in time, capital helps. If you're telling this, like, every six months fundraising story, you're creating momentum for your company that is different than your competitive set. And so if you can go out into the market and say, our valuation doubles up every six months, we're able to raise from top tier investors, you're able to hire differently. Right. You're when you're going to pitch in a competitive hiring process and you're able to show that this is the rocket ship that you're trying to tell that that potential hire that it is.

2:48:18I think those things matter. And I think that a brand in all those components can compound to make you some version of I don't want to say too big to fail, but sort of you're you're getting made. You have a lot of people that care about your success. Yeah. And you're getting made the winner. You're the default winner. At some point, you're not fired for picking that company if it gets to be that big of a name. No one's fired today for picking Salesforce. And I think when you're trying to challenge a company that no one's fired for picking, you have to really be a unique outlier to get somebody to risk their job, in essence, by picking your company.

2:48:59We're an investor in the eight-year overnight success of Clay. Can you do your sound effect, please? Which one? I mean, we got a lot. Just do them all. Thank you. Congratulations. Perfect. Our Clay overnight success. That one. But Clay today, eight years in, is starting to do a go-to-market motion that starts to compete with some of your entrenched software players. And I think that it takes a lot of product build. And that's been in the past 10 years, something that's been hard to do as a startup because you're not funded for these five, seven year builds of software. And I think, you know, as the Intercom founder said, if you can develop software automatically or through, you know, a combination of your engineers and AI, the scale of product that you can build will happen a lot more rapidly.

2:49:56tell us a story of uh meeting and investing in tj back in the day since he's coming on next good one tj yeah um i met tj must have been a rascal back then i think i think skype to be fair it wasn't zoom it had like it wasn't like google meets it was pretty all that so it had to be skype And I was in the room with, I believe, TJ's first employee, not TJ and not Elliot. So it's like their first employee was physically in the room and he Skyped in, luckily, TJ. And TJ and I really liked each other. But we didn't meet for like four or five months after we Skyped and I invested. So it's been a journey.

2:50:45um you know we were we were the first investor in pullback in that original um he was in tech stars in boston and that's why i met him um thank you it really feels good when you get the sound of that you gotta work for it you know brings the energy level like way up you feel like as a VC it takes a long time to get um feedback and this is like immediate immediate all you had to do is do something 10 years ago exactly uh so i appreciate that 12 years ago it's a thankless job venture cap so yeah and and then you know watching tj's journey and then uh tricking tj into becoming a vc it's probably a point of you know pride in my career uh and watching him thrive being able to ski golf and invest all at the same time uh which is complicated to do it no it's funny with tj we I got to ask him about this when he comes on, but it's like, I don't know if I've met anyone who's a VC who hates VC broadly as much as TJ.

2:51:51Like he seems like he has like a disdain for it. He has a pride in that. Yeah. He has a pride in how much disdain he has for the profession. But I think part of it, he gets some ability to kind of laugh at the industry given that, you know, he got to a billion dollar outcome. He's a great founder. Less billion dollar outcome, less than five years. He knows something about an industry that no one else knows about. And his company got to a billion dollars of revenue in less than 10 years. And so I think you get the ability to kind of just laugh at everybody. It's still around powering Amazon's pharmacy.

2:52:21It's still a product in the world. And I think his ability to have seen the inside of one of the biggest companies in the world and then operate there, which he also found funny, I think gives him this unique insight as an investor to really have a top down look at the healthcare system and a bottoms up as you built a startup by competing against the world. And then sitting inside Amazon, you got to see sort of the world operate at scale. I think it's a unique perspective. Did you see Business Insider's new list of the 100 best early stage venture capitalists? It's my dream in 26 to be on that list.

2:53:02Do you feel like you got snubbed? They went to him and they said, David, we know you're really number one, but you got to pay us seven figures. Well, it was ultra competitive this year, as I don't know if you saw, but Peter Thiel just barely made the list. He's at 67. Mark Andreessen didn't make it at all. So you're in reasonable company. I mean, it's a data driven list. Yes. And nothing is more truthful in venture than data. So it's hard to argue that random pitch book and crunch-based data isn't the correct outcome for rankings. Yes, yes, exactly. Yeah, a lot of snubs on here, but a lot of great people.

2:53:40It's sad because I got this inbound spam email saying that I could buy a plaque for being on the list, and then I didn't make the list. Oh, you didn't make the list. But I bought the plaque already. Oh, damn. Yeah, I mean, I'll share this with you. this year we're thinking about doing our own version of the Midas list of the top 100 venture capitalists, not just seed across everything. On what? Just the top venture capitalist TBPN's version of the Midas list. What's the criteria? Vibe? Mostly. We're putting out a simple call if you want to be included in the list. Packages start at 100K and go up from there.

2:54:16So you can reach out to sales at tbpn.com if you're interested in being included. If you're a venture capitalist and you're listening, we'd love to include you in the list of the best venture capitalists. uh we we accept we accept credit card and wire transfer so and everybody was worried about how you guys are going to monetize it yeah yeah yeah exactly exactly yeah we figured it out really quick i mean year year one you yeah you cracked the code yeah i mean this is like the old like million dollar web page do you remember that where you pay one dollar per pixel what was that you accept equity we'll take a stake in your management company yeah give us we'll take a You've taken your life's work to be on the list for this year.

2:54:52This could be a new secondary market, too. Potentially. There's a lot of opportunities here. Potentially. Potentially. Anything else top of mind, Jordan? Oh, I was going to go through the timeline. Let's do it. So I have a post here. I want you to react to it, David. I thought we were going to go through the top 100. No, yeah, the top. We'll go. Yeah, and you can go long, short. All you need to know is that - You can go on the record and go long, short every single top 100. That'd be great for your brand. It's a list of the best venture capitalists. And Mark Andreessen didn't make the list, but Mark Benioff did.

2:55:22I don't think anyone from Sequoia did either. Oh, no. I think no one. Not that I read. Sorry, Andrew. For anything and thought about it. Sean and Andrew, you got snubbed. Albert has never funded any good seed companies, to be fair. Yeah, notoriously bad at seed. Those guys just can't make a buck. Yeah. Those guys just scraping pennies through the couch cushions to pay their... I don't think anyone on that first round may, it was a great place. It's great. It's great. Yeah. I mean, not bitter or anything. Okay. I have a post from M Stanfield. I'm just going to read it out loud to you, David. Me, I'd like to invest in this brewery.

2:56:01SEC. No dummy. You're not an accredited investor. Me. Cool. I guess I'll just teach myself some double broken wing butterfly trades by watching TikTok. SEC. Yeah. I mean, for sure. It's your money. Do whatever. what do you uh what do you think about that yeah yeah what do you think about accredited investor laws oh i didn't know where this is i thought we were gonna that i have to fund a brewery we funded a nicotine company so it felt like in the same yeah yeah similar um accredited investor look like I, you know, I think the challenge of having credit investor rules is that you have it in one area of like the country and not in everything.

2:56:44And that's the challenge to me, right? You have like scams left and right throughout the economy. And yet in this one area, it's like, no, there are a lot of rules here. And so I think that feels unfair. So to me, you're either going to sort of clean up the ability to invest in things across the board, or you should have sort of everybody operate at your own risk. Just like a level playing field generally, right? Yeah. And so I feel like that's the issue. And then there's all these like gray areas of like getting around it, which feel like you're not holding the bar properly. So I don't know. What's your reaction to the new news that Elizabeth Holmes is advising her husband's AI medical testing startup, which can conduct diagnostic tests using a small sample of blood from prison?

2:57:38I mean, we were saying this when we... I think she's so due. When she was in the news, you're saying like the real way to be vindicated is not just get out of prison, it's to come back, run back the same product, but actually win. And prove that it's real. Yeah. My first question is, what are we going to do with the blood? Right? Like, where does it go? What's going to happen? Like the collecting is step one, but then what? Yeah. I think send it to prison. She should be doing the titration in her prison cell. Is this about like the young boy plasma thing? Yeah, yeah, yeah. In that direction? yeah um anyway uh what do you think clarna's ceo says his pursuit of cost cutting fueled by advancements in a i has gone too far when you have a port port co that's later stage that says they're you know cutting everyone due to ai do you get do you get worried are they no i think there's like a timing and sequencing here right when you overstate the present uh you may be also underestimating how soon the future will be here.

2:58:42And so it feels like a nice mid-cycle story for the eventual outcome, as you guys alluded to before. But does 90 plus percent of customer service get solved by AI? For sure. When you look at e-com customer service generally, 65 % of the questions are, when am I getting my item? That feels like you can automate that. And then you start going to the next chunk of things. And there's like 3 % to 10 % that feels like you actually need to think about how you respond here. And even in those situations, it's typically some version of a save. And so I think as you get to customer service across most companies, that becomes relatively automatable sooner versus later.

2:59:29The idea that we need to announce that we're going to let go of a lot of people because AI is magical today might be a stretch. You thoughtfully informed us that the iPhone is made by Apple. Do you have any reaction to the news of the new Apple products that are launching? They're potentially a curved iPhone without any cutouts in the display. New Meta Ray-Bans competitors, new Apple glasses, and then Apple intelligence developments. Are you the type of person that lines up to buy the latest Apple product? Do you drive it for a couple of weeks? Big line guy over here. I want to stay focused on being a VC.

3:00:16Smart home, right? You didn't mention the screen that goes in your house, which I think for every VC is just like a pipe dream to have screens everywhere. And so that is another one of the products that is rumored to be coming out. A new Apple TV. We're at like six years later, new Apple TV. So there's a lot of opportunity here to spend a lot of money. The foldable phone confuses me. Yeah, why? I don't know. I don't need to fold it. Well, I feel like there's an iPhone. There's like a baby iPhone for little hands. Then there's the big iPhone for bigger hands. Then there's a little iPad and a big iPad.

3:00:55Yeah. So the foldable phone is like you - Well, have you seen the demos in China where it's three phones stacked together to the size of one phone that you unfold and you get a tablet. That's pretty cool, right? So then I have an iPad. Yeah, but in your pocket. I just want to be able to, you know, you can put a newspaper in your back pocket and you pull out the newspaper and you pull it out. That could be just kind of a cool bit. This is interesting. They say Apple's pushing into robotics, which will include a tabletop machine with a robotic arm. What does the arms do? I don't know. I assume it can like juggle for you or something.

3:01:31Yeah, or it gets you beverages. I feel like that's the other. you know vc pipe dream the robot that just brings you stuff yeah beer me siri i like it anyway this was a fantastic conversation thanks so much he's gonna hang out for a minute to say hi to tj okay i just want to see what tj's facial hair i have looks like i have one more i have one more post from a former uh employee and a friend of mine uh josh harris he says american oligarchs be like this has over 100 000 likes by the way american oligarchs be like oh i founded bloober european oligarchs be like yeah my family owns the trees have you found have you found much success uh on the lp side in europe do you do you go there from apollo what's that is this josh harris from apollo or no josh harris uh he was an eir at um paradigm and i was afraid of i was afraid of apollo so i don't want to say anything yeah just clarifying you don't mess with private equity people ever real real cardinal role um we uh we have a great mostly uh domestic lp base okay damn i punted a tree but tj i think the tree tj matrix yeah never know big big big tree lp base yeah big trees i talked to a lot of vcs that are raising new money from lps in pyongyang getting north korea the final frontier and antarctica that's why they're there in the summer yeah exactly exactly anyway let's bring in tj and uh and we can all chat uh hopefully the the layout works here tj how you doing good he made it he finally made it let's hear it from the crowd yay Welcome to the stream, TJ.

3:03:20How you doing? It's great to have you. Great to be here. And David just had to join too. He's just so proud of you. Not only the company that you built, but your transition to venture capital, which is the highest and best use of any genius's time. We were trying to assign credit for your success and we kind of broke it down like 80 % David, David, 20 % you. Does that sound fair? Yeah, I mean, 70-30. 70-30? Yeah, got to give yourself a little credit. What was your first impression of David back in the day? I got to ask. You know, it was pretty good. The first time I met David was a phone call where I'd already told five investors the round was closed, and he somehow weasel his way into the round anyway.

3:04:10He must have made a pretty good first impression. I think it was Skype. Was it phone? uh well i was at some conference and we kind of met at skype on us on a skype but then we actually talked like the next day on the phone and that's when that happened you remember i do i feel like your memory is more shot than that yeah i know it's a rare it's a rare memory for me thanks for thanks for letting that stick is that important for you yeah very meaningful i've been here on drug prices get this conversation started very exciting were you um My last question for David, were you worried that TJ would sell secondary at the B and get too caught up in Porsches and that whole world?

3:04:51The record I sold secondary at the B and I bought a new 63 wagon. There we go. There we go. I was worried about TJ. It's still my daily driver, actually. I still drive that car. I was worried about TJ selling drugs at the B. That was amazing. that's great thanks for having me on guys awesome thanks for great great to see you cool uh yeah tj take us through it what was your reaction to the news uh how would you actually summarize what the proposal is uh because a lot of these press releases get written kind of aggressively and then the actual implementation is very different how are you processing the news and what's your early take are you getting some of that context directly on true social or do you wait till it hits uh other parts of the internet wait for the delay for sure i mean i think maybe helpful to like level set like lay of the land for folks that are kind of less please familiar with the category um so you know i think probably the problem i've been most focused on the beat you know, beat a dead horse on on Twitter is this rebate issue.

3:06:00And I think in many ways, that's the most interesting part of the executive order is the thing I'm most excited about. So today, if you're a normal consumer, you go to the pharmacy, you need to fill a branded prescription. So like a higher cost prescription, maybe you need an EpiPen and it's January and your deductible just reset, or you want to fill a GLP one at the counter and it's not covered by your insurance, you end up paying something like three to four times order of magnitude what that drug actually costs in the US. So I'm not even talking about what it costs in other countries, but what it costs net in the US.

3:06:35So for like an OZEPIC as an example, you're paying$1 ,000 or so, which is the list price, the gross price in the US. But the net price is actually$250. That's the price of the PDM, the pharmacy benefit managers negotiated. and you've effectively paid$750 more than that drug costs. And that money is getting captured by either the PBM, the insurance company, or your employer, usually some combination of all of those things. And everyone's always bemoaned, pharmacy benefit managers, obviously, they're kind of everyone's favorite punching bag, the middleman in healthcare, and they're capturing all this margin.

3:07:09And to some degree, that's true. But no one has come up with a solution that could be an alternative path that could work better, right? That's the sort of fundamental issue is like you can hate how the mechanics work today, but without some alternative, it doesn't matter. And so I think what's most interesting about the EO is that there's a specific call out around requiring that pharma companies have comparable direct to consumer prices to list prices in other countries. So you take that as an example. In the UK, that's a$150 to$250 drug. Actually not that different from our net price. It's sort of similar.

3:07:48It's a little bit less, but it's not that different. they're basically requiring pharma to have that sort of pricing available if the consumer is just paying cash kind of paying out of pocket and why i think this is so interesting is if you start having these things get priced in somewhat of a rational way for consumers all of a sudden the need to negotiate these rebates and have all these kind of backdoor negotiations and these fees and all this stuff that creates the complexity effectively goes away because you have some version of rational pricing for consumers um so there's a bunch of other stuff in the eo and i'm happy to get into some of the more nuanced complexities.

3:08:23But to me, that's pretty exciting if you actually have like normal, reasonable cash prices for the end customer. So just staying on prices, is this confounded by the fact that in other countries they have larger government sponsored healthcare plans? So when we talk about Americans paying higher drug prices, are we saying American consumers versus European consumers? Or are we saying that the same pharmaceutical company actually makes more money from a single dose in America versus Europe? Yeah. So both is the short answer. But I think what's happened in the press that has really been challenging is that everyone always talks about the list price as the price in the US, right?

3:09:07And so the narrative, if you listen to like the rhetoric over the last handful of years is like, we're paying 10 times as much for a Zenfick or we're paying 10 times as much for insulin, we're not. The list price is 10 times as much as a list price in the UK. We're paying, and it says this in the EO, this is definitely the truth. We're paying two to three times the net price. Yeah, the Wall Street Journal here said that the list price for diabetes medication, Jardians was$611 for a 38 supply in the US versus$70 in Switzerland and$35 in Japan. And that's what you're talking about being not entirely accurate.

3:09:45That drug is probably actually like 100 bucks net in the US. 150 bucks. Okay, got it. Yes, more expensive. Yep. But not 20x. That's interesting. And so I think you're hearing a lot of the dialogue be about all the downstream implications of R &D and not going to be any investment if these prices come down in the US because everyone's willing to pay. That's an interesting conversation. People should have that conversation. It's, it's pretty complicated and nuanced, but I think everyone can agree. Consumers shouldn't be paying 10 times as much when they get stuck with the full bill. Yeah. Um, and certainly shouldn't be paying three times as much as the PVM is paying or their employer's paying.

3:10:24Um, that to me is what's most interesting is you could come up with that. There's a, there's a real credible solve here potentially for that problem, which I think is much more, uh, yeah, it's compelling and, and interesting. Cool. how how have you uh what are your thoughts on the market's reaction i think everybody expected this massive sell-off and pharma and biotech and maybe it's because there were there was other news announced this morning we haven't seen that but but biotech markets went up by like three percent yeah do you think people are processing this we had heard earlier was that it was kind of like like the like a really really bad scenario was priced in and this was less bad so it popped Do you buy that narrative or what are you taking away from the kind of the market reaction?

3:11:07Yeah, so the PBAs and pairs have gotten whacked, which makes sense if you think about the dynamic here. I think there's a lot of skepticism about how much this can actually be implemented in the success that they'll have. If you jump back to the last administration, they tried to repeal rebates, which is solving the problem I just described. It's sort of getting rid of this excess margin that's invisible to the consumer and they failed. They got it pretty far long. It was like an admirable effort, but ultimately CBO shut it down because rebates do contribute to lowering premiums and there's things that made it difficult to get rid of rebates.

3:11:43They also had an MFN approach on Medicare Part B drugs, so like drugs that are dispensed if you're in office, things like that, and that failed in the last administration. So I think my sense is that some combination of if the real punchline here is that effectively this is a backdoor way to get rid of rebates, it's actually not that big of a deal for pharma, like they're still getting the net economics. It's just that for the middleman. Right. So that's like one interpretation from the market. And then there's probably also just some skepticism about whether this will actually get implemented.

3:12:13And I think that's fair skepticism given the historical track record here. What does this mean for pharmaceutical R &D, the way it's done? We talked to Zach Weinberg a little bit about NIH funding getting cut. There's debates about how research gets done in, you know, the Ivy League universities that spin out a lot of drugs. There's so many moving parts to actually get us what we want, which is probably just like a cure for cancer or just great new drugs, right? How is the actual pipeline evolving through all these different changes when you stack them all up? Yeah. So if you jump to the other components of this beyond the consumer implications, that's where I think these questions become more relevant, right?

3:12:58So if there's really, you know, an MFN for the net price that we pay compared to other similar situated companies or countries that that would have potentially some of the impacts folks are concerned about on R &D. I think we're so far away from that and that's so difficult to imagine truly getting implemented on face value that I'm skeptical that that's really the thrust of this EO. I really think it's potentially a better away to eliminate rebates than historically. I do think if you kind of play out, let's assume that all of a sudden, OZEMPIC does cost 200 bucks at the pharmacy counter, which I do think is a credible path here and will be reflective of what the true net cost.

3:13:38And all of a sudden, consumers are sort of just paying for most of these products out of pocket versus bothering to use their insurance. And then you have pharma companies competing on price to win the transaction. That's actually, I think how net prices come down ultimately, not because there is going to end up being some true kind of dead net MFN that they're able to execute against. So I think the debate about R &D is sort of, you know, to me, just from a practicality standpoint, kind of two clicks away from where we are today. And I'm pretty focused on, can we just get to a place where consumers are choosing these products based on price instead of PBMs and other middlemen trying to determine price?

3:14:18Why is the market for Zempic so competitive on day one? You hear this whole narrative around patents and the whole idea is like, yeah, you should be able to incentivize this heroic Herculean research effort because you'll generate all this value over the long term. And that certainly happened with Novo and their share price. But at the same time, it feels like the GLP ones came out. There were like every major pharma company had one around the same time. Then there was compounding going on. There was so much. It felt like they were already generic almost. But I know that they're not. But why did the market play out in this way?

3:14:58Is it just because it's such a dominant technology? Everyone was thinking the same idea or something? What happened there? Because it was originally approved for diabetes, not weight loss. and that weight loss is a byproduct that they figured out was a was a not a side effect but also an effect of the of the products so when it caught you know the public's eye it was already much farther along in its life cycle than a traditional kind of new indication new drug got it that being said like the the price dynamics with glp ones are not that anomalous like if there's a successful product and there's a known pathway there's going to be other similar products that get developed in the current ecosystem, supply chain, current structure that does drive down net price.

3:15:40That's why these things don't cost$1 ,000 anymore. And so their net price is$200,$300,$500, depending on how new the GLP one is. So the system actually kind of works okay right now. The price does come down based on competition relatively quickly. It just doesn't work particularly well for consumers in these instances where they're paying out of pocket so everyone else is wearing a hat so i wanted to put on uh how how uh can you comment at all on europe's existing solution they have some complex system of price controls where they tell u.s drug makers what they can charge is what we heard from an earlier guest but yeah somebody else was saying that this eo is like bernie sanders dream is that true at all are these Like, are we in like left wing or right wing territory?

3:16:28I can't even tell anymore. Yeah, I mean, that's going to depend a lot on exactly what's being contemplated here. Right. I think if the extreme interpretation is these are literally price controls at the government setting, like, yes, I think you're kind of in the Bernie Sanders extreme version of managing these prices. I think if you take the other extreme and it's really focused on consumers and they say, well, look, you can set reasonable prices for consumers that are somewhat comparable to list prices in other countries or consumers can just buy these drugs from other countries and import them here.

3:16:59That's not a price control. That's just actually opening up the market to more competition. So really, I think it depends on the exact implementation and what's being contemplated. Yeah. Where are you seeing opportunity in startups in healthcare to kind of carve out value or deliver value in healthcare broadly right now? I mean, as you can probably tell from my tweeting, I'm quite interested in how you pull forward shopping and pricing into healthcare. To me, that is the linchpin to make the category work better. That's a lot of the work we did at Amazon. As far as I know, it was the first time you could actually see an insurance price for something before you bought it.

3:17:43Healthcare, which is pretty insane. And so, you know, I think being able as a consumer to understand what your options are, how much they cost, what's available, and ultimately, like, transact in a very seamless way, I think is the most interesting thing. Now, that could be, like, literally what feels like a marketplace, right? I think that's a very interesting opportunity in different categories. It could be utilities that make that possible. So, like, super clear, like, APIs for pricing. There's a bunch of permutations of things that enable that, but that's what I'm still... How are we talking about APIs in 2025?

3:18:17Like it's the age of AGI, ASI. Like how do the insurance companies not have APIs? This is insane. Yeah. I mean, what's going to end up happening because, you know, similar to faxes, we still send faxes, but really it's just two digital interfaces on both ends. You're with all these like phone agents that are talking to each other. But it's basically, I swear to God, I don't know if this is an hyperbole. This is crazy. I think like insurance companies are like, okay, cool. Like you want clear pricing and you're bombarding us with phone calls with your AI bots. We'll just give you like a dedicated AI bot and you guys can prosecute this and figure it out.

3:18:50Like it's actually bullish for 11 labs. Yeah, this is going to be like voice agents win everything instead of just building an API. Are there any places where AI and healthcare makes sense or is exciting for you? There's like the super frontier research going on at DeepMind. uh there's protein folding is solved now there's stuff like that but then at the same time i can imagine like the the use cases you described being very real business cases yeah the voice agent specifically feels like an area that's experiencing somewhat rapid growth but the nature of that also means that it's probably you know it is hyper competitive so i'm curious if you think categories like that are even in festival.

3:19:34It's tricky, right? I think I, so I buy that there's going to be a bunch of administrative efficiency in healthcare and write things like phone agents and prior authorizations and other kind of very laborious work straight like workflows. It's much less clear to me where that value accrues. I think that's the tricky bit. Like there's an argument that it actually accrues to the service businesses. Like that's historically where the value accrues in healthcare. And so maybe the most effective service companies can accrue that value as being good at implementing AI. The place where I'm pretty convicted it will be valuable and will drive real venture returns is companies that are good at compounding those as differentiation for consumers.

3:20:15So as an example, before it would have taken a human$40 to book you an appointment to see a specialist, if you can use an AI bot to do that for two bucks, that unlocks a new consumer experience too, right? It's not just like an administrative efficiency. And there's lots of these examples. That's probably what I'm the most excited. You mentioned compounding. What's your take on drug compounding? Oh, God. I'm quite vocally anti-drug compounding. Why? Is it a quality issue or is it just a market dynamic issue? It feels like... He's an IP respecter. I'm an IP respecter above the law and below whatever the right nomenclature is.

3:20:57It's twofold. I mean, I do think there are real safety concerns. Last time there was a prolific compound or compounding a commercially available product that scales in a compounding center and they killed 100 people with meningitis. Like, happened. Yeah. Like, not claiming that's going to happen here, but that is like the overhang from compounding. It also just, it sort of, outside of these temporary shortages, very much violates IP law. Totally. to the conversations before about whether there's any incentive to do r &d well if someone can immediately just copy the product there's certainly no incentive to do r &d it's much worse than some kind of price is it kind of is it kind of a beneficiary like is is there a boom in compounding because of the internet or like is there a is there a market force that's driving the increase in compounding or is it just like no one ever thought to do the loophole before well the funny the funny dynamic was that jory i was just gonna say it's not like people are compounding and then you know hey we didn't have to do r d we're just sort of like gonna compound to this and then we're gonna pass the savings on to you that's been like a big part of like the messaging online and it's like no like you're gonna pay the same and like you're gonna like it and just like be happy that you're getting the drug has been seemingly the story i think the market dynamic is rebates right If Wagovi or Zempic was the net price for consumers, because he's now out-pocket drugs and there are 200 bucks, 300 bucks, is there much of a market for compounding, which are also 200 bucks and 300 bucks?

3:22:31The reason that there was so much demand for it is because of this disconnect between list prices and net price. And so if that dynamic goes away, all of a sudden, the opportunity for compounders to really gain share is minimized. straight because like I can understand why someone would really not be willing to or could afford paying a thousand dollars a month and they can get the compounded product for 200. But if we're talking 200 versus a hundred or 150 for a compounded product versus the real product is a very different calculus for the consumer. Yeah. What, what percentage of doctors do you think are using chat GPT on a weekly basis and should there, is there a big wrapper to be built there just giving them a more HIPAA compliant version of chat GPT.

3:23:17I can't imagine. It shouldn't be legal. Yeah, I bet it's like using it at all on a weekly basis, like most doctors I would imagine use for it. Using it as part of their workflow all day, probably still a smaller subset, but definitely in the double digits. Is that, is chat GPT HIPAA compliant? You're just asking the most obvious. You don't want to be dropping like specific patient information into chat GPT, but But like you can certainly do generalized, you can do generalized. There's other ways to do that, but certainly generalized like workups and notes and like we're using it a bunch and one of the companies I'm involved with to help, you know, automate the questionnaires or the notes or things that happen downstream for efficiency, like makes tons of sense.

3:24:02Should it absolutely happens and we'll continue to do that. Yeah. Some of the biggest, you know, I think everybody has this idea in their head that you're going to be able to go to this like AI doctor. I don't know what that looks like, right? I don't know if it's embodied. I don't know if it's a screen. I don't know if it's a... That doctor is chat GPT roughly. Yeah, yeah. But I don't know. I don't necessarily know what the form factor is, but as an investor, is that a category? How do you think about that opportunity, right? You know, at a high level, is that one company that's just going to dominate?

3:24:38Yeah, we've seen like Harvey for lawyers. Is there going to be - Yeah, or is it more of like a co-pilot approach and it's just less exciting than it sounds? It's just more doctors can see more patients and deliver better service. But how do you see that category? Because it's just one of those areas that people always bring it up in the context of, oh yeah, everybody's going to have like an AI doctor. And it's like, okay, well, what does that actually look like? Yeah, I mean, I think for sure, the first step when you're trying to deal with symptoms and figure out what's going on is going to be going to chat GPT or another similar CX, like pretty confident that's going to be the first step.

3:25:19It's not that dissimilar from the first step today, just people were Googling symptoms and trying to figure out like what's going on. And it was just much less efficient, but ultimately like a very similar kind of flow. So I think that's for sure going to happen. I think the interesting question is, are the vertical players actually going to have a better differentiated product than the foundation models? That's a lot less clear to me. Like I still found like the core foundation models in my personal experience are better at diagnosis and better at figuring these things out still, even though there are dedicated other models.

3:25:55Well, and that's the, that's a big issue, right? You could have a wrapper that's specific for diagnostics, right? That you can message and say, Hey, I have this like, you know, skin thing, like what's going on. But that's like, so infrequent. You're not paying$20 a month for something like that. If chat GBT can do it 80 % as well. And you know, it can kind of get you on the right path. And so I don't think chat GBT, it's WebMD. Yeah. I think the, the, the more interesting problem to solve, right. It's like, at some point you get through most of that conversation. you're pretty sure you figured out what's going on, you still need an intervention of some sort if there's anything moderately serious going on.

3:26:39Like you either need a prescription, you need labs, you might need some physical intervention, like you need something. And that's where nothing in healthcare has actually been digitized, right? Like if you think about this compared to other retail categories, which I do think is the right mental model, like ChatGPT is now implementing Shopify checkout right in ChatGPT, right? So you can go from that, what should I buy straight through to a checkout flow. No one's built that checkout flow in healthcare. Like you don't have a product catalog. You don't know how much stuff costs. You don't know like what's available to you based on your insurance.

3:27:14Like I think that's actually a more interesting problem for startups to go wrestle through because chat TVT is going to be pretty damn good at the things you used Google for before. And it's not going to deal with any of this stuff. And so the stuff I've been working on and spending a lot of time on is a much more. And like, how do you build the equivalent product catalog in healthcare? How do you ultimately make it easy to transact? How do you make it easy to shop? Because that infrastructure still has to get built regardless of where the kind of front door is into that experience. Shopify for health, something like that.

3:27:43Can we do overrated, underrated telehealth broadly? How are you feeling about telehealth? Uh, I am bullish on the sort of usage of telehealth still. I'm probably bearish on most of the existing business models and monetization. It's probably the short bit. What about overrated, underrated? Existing business models. have you been uh surprised to see like hymns almost second act in the public markets do you think they would even have had a second act if it wasn't for glp ones or is there some underlying unlock that they have uh i mean it's sort of like commenting on any meme stock right it's a tricky thing to have a strong opinion on it.

3:28:38Well, I think that's enough commentary. Overrated, underrated, GLP ones? Underrated. Underrated. What about some of the foundational AI applications coming out of DeepMind, protein folding, any of that stuff, moving the healthcare markets or how you think about healthcare? Not intelligent enough to have an opinion on that. Yeah. too complicated too complicated get out of it anything else uh did you when you were a pharmacist did you was there a world did you imagine a world in which you retired uh as a pharmacist uh you know at 65 or did you like cars too much from a young age that you knew that you'd need to figure out another way to build a collection i think it was pretty clear that the working behind the counter was going to be a short-lived endeavor for me if that's the question are you asking is that what you're asking yeah basically yeah i think that was pretty clear from the job how much do you love being a venture capitalist now is it just the best i love it uh i sort of like the second i took the job i became an expert at everything it was so convenient yeah yeah it's almost instant it really is almost take us on a little world tour of uh all the geopolitical conflicts, how we would resolve them really quickly.

3:30:02I'm just really happy that my first conversation on here was political in nature. That was what I was looking for. Yeah. The last question I have, just generally curious, given you guys are, I'm sure do multi-stage, but I imagine given, like, are you like trying to pick, like, are you investing in a couple companies a year? what's the goal for you and i'm assuming you meet a lot of companies all the time that you like but don't end up investing because you're not like you just more from a conflict standpoint if i do this deal and you know somebody a better company comes around and in six months or a year i'll be conflicted out is that accurate yeah i mean certainly the first bit's accurate we're we're you know doing concentrated early stage investing kind of classic venture so i'll do two to three deals a year in any given year is probably a pretty standard year for me and for the other partners of Matrix.

3:31:07I mean, I certainly think about the conflict thing. I think that pretty assumes that I'm constantly liking things and wanting to do all of them. That's probably not the dynamic. It's really like finding really interesting things that I want to spend a bunch of energy and a bunch of time on versus seeing a lot of different things that I'd love to be less involved in. So it's certainly a dynamic, but we're doing a couple deals a year. As you do deals, when do you start using the term we to describe how the company works? That happened pretty quick too. It was like the same as my expertise. Yeah, just immediately.

3:31:43Write some small check and it's we. We are building the future. Dropping a we as a venture capitalist is strong. Let's see now. Hey, I'm on the board. Yeah. I'm part of the team. what uh what last thing uh before uh you take off what should people be paying attention to in the days and weeks from now around the actual implementation of the of the eo what are you looking out for i i think it's obvious that you know you're not going to walk up to a pharmacy after work today and and see lower prices uh but but what are you looking for I personally would be focused most on how much this is really about the difference between gross and net prices, right, which we talked a lot about, or whether it's really about true competitive net prices with other countries, because those are pretty different paths, right, and have all sorts of different implications.

3:32:42So I think the more this feels like it's about solving the consumer problem and less about solving the kind of payer problem or the fairness problem, the better for me personally um and the more it feels like we're trying to do some true price setting kind of net mfn against other countries the more i'd be a little bit nervous so that's where it pivots for me is is this about consumers it's about net mfm great do you think the mission e makes it to production do you think porsche goes a different direction with this next supercar you know i i know so little about like new modern Porsches. I'm like the furthest from an expert, but good luck.

3:33:24No, I didn't. It's the short answer. Ask me about something old and I'll talk about it for Yeah. Well, we'll, uh, we'll be coming out your way. We're working on putting together the Amon rally. So, uh, more news to come there. You'll be one of the first to know. This is fantastic. Awesome. Thank you for coming on TJ. Yeah. Thanks so much. This was great. We'll talk to you later. Appreciate the insight. Cheers. Did you, were you able to clock his watch? Uh, Aquanaut. Something on Aquanaut. Well, if you're looking for an Aquanaut like TJ, head over to bezel, your bezel concierge is now available to source any watch on the planet.

3:33:58Seriously. Any watch. I think I already did actually. And then of course we got to tell you about wander. Find your happy place. Book a wander with inspiring views, hotel, great amenities, dreamy beds, top tier cleaning 24 seven concierge service. It's a vacation home, but better. But better. hit me with some soundboard. What do you want, John? I got options. Ashton Hall. He knows my favorite. The movie trailer. The switch up. We also have some poly markets up that are tearing up the news. The odds of Donald Trump eliminating capital gains tax this year are surging. It's now looking more likely than not that they'll be eliminated.

3:34:3757 % chance. Unclear if that means they'll be taxed as income or not taxed at all. but they will be eliminated we eliminated capital gain sacks it's now 50 55 or 0 who knows uh also the odds of larry ellison buying tiktok have doubled this morning one in five chance now that he buys it before july he's up at 18 someone knows something someone's going in with size um but of course this it's phrased as who will acquire tiktok big question about whether that's a whole co-acquisition or a minority investment from an American company. Could also be the data is hosted on Oracle's cloud, their servers.

3:35:22Could be that the algorithm is run on Oracle servers, but that doesn't necessarily mean that Oracle knows what all the weights do. They know that they're involved in the training of the algorithm. And so that's a big question is that, hey, if, yeah, you're inferencing TikTok's algorithm, but the weights have been trained in China to be favorable to China. That still doesn't really resolve the issue, so I'm sure we'll be tracking that. Anyway, let's run through some timeline and then get out of here. We're doing four-hour shows now. Have you noticed that it's just grown? It's crazy, John. It's grown.

3:35:56We're just doing longer and longer shows. We're too addicted to podcasting. The Pope was chosen in two days. Your remote hire doesn't need five rounds of interviews. I said what I said. Uh, so funny that this got 5 ,000 likes on threads and then 350 ,000 likes on X as a screenshot. That's what's going on here in the screenshot. Do you see this? 350 ,000 likes. I haven't seen that on anything. That's huge. But an Elon post. I, and you would think remote hire about interviewing. Like that's not that big of a, that's very, it seems niche, but 5 million views here. 31 ,000 repost. It's also funny.

3:36:32Maybe MC squared is just the, uh, banger God. Yeah. Yeah, I mean, I should put that in the banger archive. Seriously. The funny thing is the counterpoint here is that if you're meeting somebody for the first time, it's not like the cardinals were meeting the pope for the first time, and they were just like, you know, oh, we just decided in two days, right? There's a lot of past history there. If you're talking to a remote hire, hiring the wrong person is just so painful. it really is the worst for everybody involved right the person who got the job who ended up not being the right fit company who hired the person and has to invest all this time trying to ramp them and then um unramp de-ramp uh let them go um switch your business um no it's just really painful and so if if you're if you're you know four interviews in and you're not yeah confident do the fifth one you can avoid a lot of pain so what's the right number of interviews for a remote hire 50 50 have each of your 50 interns as long as you get at least a few in-person workouts in that process in that interview process i think you're gonna be good uh anyway i wanted to highlight jesse pelton uh interesting new account hadn't seen this guy before elon musk's been amplifying him a bunch and he's been posting about uh solar energy and energy a lot and just has some great posts and seems like a newer account.

3:38:00I don't know. He might be on there forever, but seems to be blowing up most recently. He said, if God wanted us to build a type one civilization, a Kardashev type one civilization, he would have, one, put a giant fusion reactor in the sky, emitting blackbody radiation around 5 ,800 Kelvin, which is exactly what we have. Two, Two, made 28 % of Earth's crust out of a semiconductor with a matching band gap, 1.1 EV or so, which is exactly what happened. And then three, filled the oceans with an alkaline metal we could use to store limitless quantities of energy, sodium or something similar. And he says, that would be a crazy coincidence.

3:38:40And he's basically super long EV battery energy production. And I just think there's something about this account where I just saw a few of the posts. A lot of them were lightly technical, but for coming from this very optimistic, techno perspective that I thought was interesting. Hadn't seen the account before, so I wanted to highlight it here. I mean, we should honestly have him on the show at some point because it seems like he knows his stuff. But I want to dig in deeper there. The other interesting post that I wanted to highlight was from Mike Noop, who's been on the show, founder of Zapier and Arc AGI.

3:39:14and he said, we're targeting at least three orders of magnitude instead of 3x with Arc AGI 3, but directionally a lot of useful insight on AI benchmark development in this thread. And so, Ophir Press posts. I have a post where I talk about how to build good language model benchmarks. I've had to edit the part where I talk about how you should think about making your benchmark hard multiple times now. And so, the first time, he says, you have to make your benchmark challenging to evaluate language models. if you drop your benchmark and the accuracy at launch with the best language model is 80%, people will see your benchmark is already being solved and they won't even try to build models to improve performance on it.

3:39:51So you should think about launching a benchmark at between 1 % to 35 % accuracy for the best model in the game. So take Gemini or take OpenAI's best model and if you can get your benchmark to 1 % to 35%, you're good to launch. Then he edits it in January of 2021 He says, due to the extremely fast development, I now say that you should do 0.1 to 9%. Take that way down. Anything higher means that the benchmark is too easy. And then he says, May of 2020. Sorry, I have to make another edit. Due to the speed of development, I'm now asking people to think you can't just think your benchmark has 0 % at launch.

3:40:30You have to imagine that your models would achieve negative 200 % at launch. Human, the smartest human ever should get a negative score on the test. Find benchmarks that are so hard. Find questions that are so hard that even if the models improve 3x, they still get zero. Just building a benchmark where models get 0 % today might not even be enough anymore. You have to look at how the models have been improving over the past three to six months. Try and predict where they'll be in the future and build benchmarks that would not only make the current models fail, but benchmarks that would make the models of next year fail.

3:41:03anything easier than that might get saturated much more quickly than you expect. So I just thought there was a funny interpretation. We've been talking about benchmark saturation and the depth of the benchmark. But it's interesting to hear someone in the industry kind of put it in such hard terms there. Anyway, Palmer Luckey is advocating that the United States should immediately expand our naval base on Guantanamo Bay into Liberty City, an American Singapore of the Caribbean. Shipbuilding, arms manufacturing, near equator space launch, energy refining, and more in beautiful paradise. Any Cuban who can escape there by running, swimming, boating, or biking gets asylum and a work permit to help build this mega project by robbing the Communist Party of their workers in critical areas like power generation and military might.

3:41:50We accelerate regime change. Liberty City will be the first domino. I like how he's thinking outside the box. Liberty City. Liberty City. GTA reference. Yeah. It's great. Anyway, we talked about Apple's new product launches. It's going to be a big 2027 that they're lining up for and a bunch of new iPhones coming out. What else is interesting to talk about in the news orb? But what else? Yeah, this is interesting. The Apple one? The Foldables thing is so funny. They got to do it. But I mean, Foldables, it was one of those things where, you know, like it was an interesting idea, but the first iterations, even from the top tech companies, not Apple, not named Apple, were bad.

3:42:30And everyone kind of knew that they were bad. And so Apple waits to do it. It really used to be much more of a thing to text like this, horizontal. So I was thinking the foldable phone, you bring it back. But I think people just got pretty fast at typing. Yeah. Is this one there? Oh, swap it in on. New hat. You got to do all the different hats. This one's a little tight. Anyway, WorldCoin launched the Orb Mini designed to make human verification more accessible. It's transportable and seamlessly accommodates your lifestyle. The Orb Mini, it goes where you go. And I guess there's a bunch of World stores, showrooms throughout the US now.

3:43:10We're going to hopefully have the founder of World on tomorrow, Alex. So my take on this is like, I understand the main pitch, which they put out this infographic that said like 80 % of gamers online say that their online gaming experiences are being ruined by bots. And that makes sense. Like there's a cheater, there's a bot, there's AI. Like no one really wants to go and play chess against the hardest AI possible. That's just not fun. They want to play against humans, right? And so if you play against a cheater, it's just less fun, right? You want to play against real people. So like verification makes sense there.

3:43:43But what's odd is like if you play out the AGI, ASI thing really, really far, you would imagine that at some point the AGI figures out how to either steal or grow eyeballs, right? Yeah. Like, or assemble them. That's really dark. It's really dark. But like stealing the eyeballs. I've hit a, I've, I've hit a world coin human verification checkpoint. I should just get a human. Yeah. The future is the, the, the, the, the terminators keep us in cages and make us do arc AGI puzzles and then scan for the world coin. and it's just like there's our AGI puzzles all day long because we're just like being scanned.

3:44:24Brutal. Yeah, it's a final job. UBI is just offering your eyeballs today. If you believe in the nanobots and you believe in the paper clipping, if you could turn me into a paper clip, you can turn a paper clip into an eyeball, right? And if you can turn a paper clip into an eyeball because it's just matter that you're reconstituting, right? You're just assembling atoms and molecules. Just matter reconstitution. Yeah. So, I mean, I guess that's farther away. Like the bot crisis is here almost today, right? it is in the sense that like there's a lot of spam out there we need a better version of captcha rkgi is maybe like six months after being cooked uh and so uh the orb kind of makes sense in that case but it is it is an interesting like intermediate step but i don't know uh it's it's an interesting story to to follow and interesting to see how it rolls out and uh i'll be i mean i i'm excited to see you know there there will be gamers who sign up they will test it and they will let us know if their cod lobbies are cleaner you know if they're on if they're on rust and they're having more fun isn't the problem something you can solve at the software layer like like obviously if you could get you know a device you can get a device that does that that i know exactly what you're saying yes you can get a robotic arm to move a physical mouse and press buttons on the keyboards yes and use computer vision just to look at the screen and you can cheat that way.

3:45:42It is possible. It's not perfect there. It's obviously better to just go into the code at a lower level and then see, okay, I'm not even getting pixels. I'm getting - Almost more like screen view. Exactly, yeah. But screen view is a viable cheating strategy. Form of botting. Yes, yes. And so obviously it's much better to just interface with the net code that's coming across so you can see through walls and you can understand the full map and there's no fog of war, all that type of stuff. but you can cheat just by camera at the screen and like that's that's almost impossible to detect until the until the the the front facing camera turns on and it's constantly scanning your eyes to make sure that there's a human on the other end which i mean face id is pretty secure it does does kind of make sense that there's be something here uh you got to build it in the next xbox i guess or something i don't know uh well before we go we should talk about figma figma is uh our latest partner.

3:46:40We talked about this a little bit last week. It is the design tool that we've used to build the TBPN brand. Every single asset that we create, for the most part, comes out of Figma, and it's a tool that I've used for my entire career. So very excited to partner with them and be on the extended team. We were at Config last week. They launched a bunch of new products. Our takeaway is the Figma for Figma is Figma. I've said it before. But the new product they launched is Figma Sites, which sounds simple but is really exciting. Basically, you can turn whatever you make in Figma into a website. So if you're not using Figma already, go check them out.

3:47:22And thank you to the whole Figma team for supporting the show. Fantastic. And thanks to you for watching and listening. We'll see you tomorrow. making it this far enjoy the bull market day