NVIDIA's $500B Compute Deal, Paramount Threatens to Bounce, Record Europe Tourism | Ernie Garcia, Alex Edelson, Nico Simko, Ian McGinley, Conor Sen

9:41Conor Sen:Ha ha. I'm sure there will be a lot of folks upset about all of the comparisons to the mortgage-backed security buildout in 2008. This allows tranching to get investment-grade ratings on the debt so it can be sold and resold to pension funds and insurance firms. It also allows the banks to trade idiosyncratic project-specific credit risk for sector-wide credit risk. So Jensen is trying to get his customers the same cost of financing as real estate rather than venture equity. This is going to move the data center game out of the VCs and into the big leagues. And so I'm sure people will be speculating all sorts of different things on what happens next here.

10:23Conor Sen:But let me tell you about Shopify. Shopify is the commerce platform that grows with your business and lets you sell in seconds online, in-store, on mobile, on social, on marketplaces, and now with AI agents. There are some other stories. Paramount is threatening to leave California by October 1st if the state refuses to negotiate a settlement in the legal fight over its Warner Brothers Discovery merger. We've been covering the story back and forth for a while. But according to Variety, Paramount CEO David Ellison wants a quick resolution to the antitrust lawsuit brought by 12 state attorneys general seeking to block the deal.

10:55Conor Sen:He has now told senior executives that Paramount is prepared to begin the process of moving its operations out of California if Attorney General Rob Bonta doesn't enter settlement talks. Ellison reportedly told his leadership team last week that the Paramount Skydance board has already approved the relocation plans. If negotiations with Bonta haven't begun by August 1st, the company would start preparing its exit, with Paramount's Los Angeles headquarters potentially moving out of the state as early as October. The threat dramatically raises the stakes in Paramount's fight with Bonta, who has emerged as a leading opponent of the Warner Brothers Discovery acquisition.

11:35Conor Sen:Bonta hasn't publicly detailed what Paramount would need to offer to resolve the case, but he has said that any acceptable remedies would likely need to be structural, such as asset divestitures rather than behavioral commitments, like maintaining certain levels of production. So it's not going to be enough for Ellis and say, hey, we're still going to do 12 movies a year, 24 movies a year. It needs to be something specific about the actual structure of the company. Paramount is also racing against an expensive clock. Beginning October 1st, the company will owe Warner Brothers Discovery shareholders a$7 million per day ticking fee until the transaction closes.

12:13Conor Sen:The state's antitrust trial isn't scheduled to begin until May 2nd of 2027, so almost nine months from now, meaning paramount could rack up roughly 1.2 billion dollars in payments by the time the case is expected to conclude ellison is effectively putting pressure on california from the other direction if the state won't help find a path to closing the merger paramount is

12:37Alex Edelson:prepared to take start taking jobs elsewhere yeah so so he's he's trying to force the issue this gets uh extremely painful for the ellisons if this antitrust thing just drags on you could imagine it dragging on for a couple years that puts a pause on all of their integration plans just makes everything a lot harder um and uh yeah uh i don't think he has this this seems like his one option right it's kind of the nuclear option it it's gonna piss off a lot of the industry here in LA.

13:19Conor Sen:It is the most symbolic move because according to Variety, the company's LA headquarters would be the first operation to leave. And Ellison already has a five-year plan to move most studio jobs out of California. No destination has been selected, but Georgia, Texas and Tennessee reportedly under consideration. So it's like if you're moving the LA headquarters, the iconic paramount headquarters, you've everyone's seen the water tower. That is a huge shot across the bow. as opposed to something that might actually be more economically impactful. Like just, oh, for this production, we were going to make it in L.A.

13:54Conor Sen:We're going to do it in Atlanta. That might actually move more dollars around. But maintaining that headquarters is so symbolic, right? So Ellison and much of Paramount's senior leadership currently work from the historic Paramount Pictures studio lot in Hollywood. But maybe it will be moving to Georgia, Texas, or Tennessee. I wonder where they will go. Anyway.

14:15Alex Edelson:We'll work on getting a few folks on the show ASAP to break down the deal.

14:22Conor Sen:Yeah. Let me tell you about the New York Stock Exchange. Want to change the world? Raise capital at the New York Stock Exchange. So speaking of publicly traded companies, Elon Musk may have found a shortcut to unlocking a trillion-dollar payday. He needed a win.

14:39Alex Edelson:You asked for it. He's delivering.

14:42Conor Sen:Yeah. The idea is having SpaceX buy Tesla. This has been rumored for a long time. Lots of speculation on when these two companies will merge, if they will merge. But the Wall Street Journal on the front page outlines a very odd scenario where Elon could wind up making an incremental$1 trillion. It's really complicated, and it's not as simple as just, oh, he'll just buy the companies and then he just gets another trillion dollars. It's more complicated, but there is a potential outcome, but there's some mitigating factors. But it's worth understanding the mechanics of the deal or the mechanics of potential deal as it might play out over the next few years.

15:24Conor Sen:Because this is something that couldn't happen right now, but in the future it is possible. So the Wall Street Journal reports that there's an obscure provision in Musk's 2025 Tesla pay agreement that's already been approved by the shareholders. and it was that crazy one we talked about where it was like a million robo taxis by this time and like the optimus needs to be shipping and it was a lot of really bold claims but if he hits all those and and the stock goes to like 10 trillion then he gets a huge unlock of new stock and it was all like okay well like it's a lot of money but that's a lot of progress for this company uh because uh there's a lot of projects at tesla that just are sort of slow and steady not really advancing that quickly.

16:09Conor Sen:And so he was sort of throwing down the gauntlet saying, okay, give me another couple years and I'm going to deliver in a really big way. And if I do, I want to be compensated for that. And the shareholders approved. But the obscure provision is, it basically, there's an obscure provision in the already approved Tesla pay agreement that could eliminate half of those performance requirements attached to the stock award if Tesla is acquired. So change of control affects those pay packages. What are you laughing about?

16:40Alex Edelson:Mark in the chat says, talk about Zuckerberg again. I like Feisty Geordie. Feisty Geordie is based AF. Yeah, I guess I woke up on the wrong side of the bed yesterday. I had some strong opinions. We'll see. Somebody had to say it.

16:57Conor Sen:Hey, he fired back. He called out Alex Heath. He said something big is coming. He was vague posting directly to Alex Heath.

17:03Alex Edelson:And again, I just felt like that was so memetic with all the people that are actually at the frontier. And it's just the whole thing. I'm like, yeah, I'll believe it when I see it.

17:16Conor Sen:Yeah, yeah. It's kind of what was the actual.

17:19Alex Edelson:See, see, Mark. Now you got me.

17:21Conor Sen:Now you snapped him.

17:22Alex Edelson:I snapped. Oh, yeah. Let's see what Alex.

17:28Conor Sen:Rear naked choke. If you don't watch out.

17:29Alex Edelson:Over the weekend, Zuck called me via his Meta glasses while fishing to discuss the 6 ,000-word pro-AI manifesto he published this morning. Yeah, so he's trying to balance. I love that aesthetically.

17:42Conor Sen:That's fantastic.

17:44Alex Edelson:Good old American. Fishing. American. American mark. He told me the immediate reason he decided to publish his philosophy now is that he believes Meta is very close to having substantially stronger models. Probably true. And he wants people to understand his values before those models arrive. We know your values. We know your values, which are - Connecting the world.

18:15Conor Sen:It's fine. Instagram's fine. I don't believe this stuff's in it.

18:18Alex Edelson:Whatever the stated values versus the lived values. The lived values are if there is a hot product, copy it immediately. Businesses grow.

18:29Conor Sen:What about that value? Come on. Instagram has birthed so many companies. We know so many people that their companies would not exist if not for meta platforms. How about great hours of enjoyable content? Yes, yes. For everyday Americans to watch every day. Would we be even remotely familiar with Professor Sandy and the creation of the Wamba without Mark Zuckerberg?

18:50Alex Edelson:You would have never seen that he turned it down. You would have never seen that he turned it down. Or the debita.

18:56Conor Sen:Yeah, you wouldn't. You would not be aware of that.

18:59Alex Edelson:All these iconic moments.

19:00Conor Sen:You also wouldn't know that once you go to Ibiza, you must go back to Ibiza. And you would not know that there's a 21-year-old bodybuilder who looks like he's 35 who's on his way. See? I'm on your way.

19:15Alex Edelson:Admit it. I don't have a problem with Mark. Yeah. And I don't have a problem with meta products. I do get enjoyment out of them. I have built companies that are dependent on meta platforms. I've invested in many companies that exist in their current form entirely because of meta platforms. There you go. But I know what Mark's values are. What are those? Mark cares about...

19:47Conor Sen:Delighting customers. Profitable advertising. These are good values.

19:53Alex Edelson:I wish he cared more about advertising.

19:56Conor Sen:That's true. I wish you cared more about advertising. That would be good.

20:00Alex Edelson:But you just look at the historical behavior. It's like buy or copy or chase the hot thing.

20:06Conor Sen:Yeah, but that's just a game. You're talking about a$10 billion startup that's coming after you with some new form factor. I don't know. You copy it. I think you're discounting how good MSL is.

20:19Alex Edelson:Everyone is saying that MSL is clearly in third place. That means that they're ahead of XAI and Dmine. I mean, if they flip Dmine, it's crazy.

20:25Conor Sen:If they actually get the next version of Spark out before Gemini 4 and it's better, and then Gemini 4 launches and stays in fourth place, that is a crazy, crazy reversal.

20:38Alex Edelson:Yeah, and I just... They're executing well. Coming from incredibly far behind. They are approaching the frontier. I just think that being the pick me if he wants to be the pick me lab you don't like the comms I don't yeah I just think it's I think it's not uh I just don't think it's very authentic okay

21:04Conor Sen:I I think it's the opposite I think I think it is authentic I think it is he he is thinking about this stuff um he might not be the it is it is just a little bit of a tough voice because there's so much attention from the social reckoning and the social network and stuff. And then like, it's like, in terms of the overall AI industry, attaching him, it's like attaching Demis to the AI industry was definitely better for the voices of the AI industry because Demis would stay on message and just talk purely about science. He won the Nobel prize. And so if I was like okay i'm i'm dealing with an ai skeptic who is paranoid about water use and surveillance like who can i put them in the room with i'm like yeah go sit down with demis sir demis he's gonna put on a good show and like and like walk you through this and give you a really optimistic optimistic vision and he's not gonna have the baggage of anything else any lawsuits or anything else right uh and so yeah it's a little bit of a it's a little bit of a tough tough go anyway back anyways i just I just think like, again, let's get back to less controversial tech leaders.

22:17Conor Sen:Let's talk about Elon Musk and how he's going to make his next trillion. Cause this is what's in the wall street journal today.

22:23Alex Edelson:I wish I'll just, I'll just, I'll just end it here. I wish, I wish that Zuck came out with like a five point plan to get his own trillion dollar pay packet, which was just like, sell like trillions of dollars worth of ads. and i would i would just be praising that all day that would be sick i would be praising that all day versus being like oh we're doing open source and now we're not doing open source and now we're open uh we're open sourcing again because i'll get some brownie points yeah but also we're gonna it doesn't feel like we'll have closed yeah yeah i mean you go to the darya thing and it's like the

23:01Conor Sen:guy's been hard on china he's been anti-open source since day one extremely consistent you You love him. You hate him. But like there's consistency there. And that is just reliable and in many ways admirable. I understand what you're saying. Anyway, back to Elon Musk. He's been extremely consistent. He's getting that trillion dollars Tesla one way or another. And there are multiple ways.

23:22Alex Edelson:He's tasted being a trillionaire before. He wants to run it back.

23:25Conor Sen:He's got to run it up. He's got to double it. They say your first trillion is the hardest. And this is how he gets his second trillion. So so this is how he's going to do it. So in Musk's 2025 Tesla pay agreement, if he had certain milestones, he can eliminate a lot of those performance requirements that were previously attached to a stock award if the company's acquired. And so change of control at this scale, normally you would think that's impossible. You cannot take Tesla private. He tried it. It was too big of a company. And then also once your funding was secured. Funding was secured, but there was a trillion dollar, once you're a trillion dollar company, you can't just get acquired, except we're in this very unique case where SpaceX is also a trillion dollar company.

24:11Conor Sen:So Tesla shareholders approved the compensation plan in November, last November. Under its normal terms, Musk can earn as many as 423 million Tesla shares across 12 tranches, but each tranche requires Tesla to hit both a market cap and an operational milestone. So the goals are deliberately enormous. Tesla would eventually need to reach an$8.5 trillion market cap while accomplishing targets, including delivering 20 million vehicles. Remember, I think the number of vehicle deliveries is actually declining this year. It was a very, very bold plan. They need 10 million active FSD subscriptions. That actually seems easy.

24:53Conor Sen:FSD is really good. They need to deliver 1 million Optimus robots. That seems crazy because Optimus is still so early as a project.

25:01Alex Edelson:We should try to interview someone with a Tesla that doesn't get the FSD. They turn it down? They turn it down. That's crazy. And I want to understand why.

25:10Conor Sen:I understand it if you just bought an older Tesla, you like the ease of charging and you haven't upgraded to the newer hardware package. Because the FSD is available on the older Hardware 3 technology, but I think it's best on the Hardware 4, which is like 2024 onward. Not everyone can upgrade. If it's a financial decision, I understand it. But the last one was they need to get a million robo-taxis into commercial operation. That also seems pretty doable. I saw a robo-taxi driving around L.A. recently in gold. And, like, just from using FSD, it seems like it's ready. Like, there's probably some legal stuff.

25:50Conor Sen:But in general, I think they could roll out the robo-taxis, like, very quickly. They can make a million cars pretty quickly. And they have the technology. So it's just about putting those on the road.

25:59Alex Edelson:Yeah, I haven't spent a ton of time in Teslas. But the times recently where human drivers had to take over was getting into a driveway. into effectively like private property. Yeah. Into a robotaxi you can just pull over the side of the street and say like you're walking the last 100 feet, buddy.

26:16Conor Sen:Yep, totally. And so, yeah, I mean, that one doesn't seem that difficult, although obviously it is a lot. I mean, I think that's like 100 times as many Waymos. I think there's like 10 ,000 Waymos out there. So it would be a big move. But over a couple of years, is that possible?

26:34Alex Edelson:Yeah, so vehicle deliveries were falling in 2024 and 2025, but seemed to be rebounding.

26:42Conor Sen:But they're not far off from like a million vehicles, right?

26:46Alex Edelson:838 in each one. 838 ,000.

26:49Conor Sen:Yeah, and so over a year or two, they could probably manufacture a million robo-taxis. And I think the technology is pretty much there. When you actually look online and you see the reviews of people talking about Tesla Ubers, they're like, I wish there was a Tesla product or an Uber product where I could demand that if it's a Tesla, they have to stay in full self-driving mode. because many Uber riders regard the full self-driving experience as smoother and less likely to cause indigestion and sickness in the back seat versus watching a driver who has a Tesla who isn't that experienced and doesn't understand how to use the regenerative braking properly.

27:31Conor Sen:And so it's much more jerky when a human's driving it because FSD is actually superhuman relative to a newbie Uber driver with a Tesla. So I think the technology is very, very close. They've got to manufacture it, obviously legal stuff, but they'll get there. There are other milestones requiring Tesla to generate increasingly large amounts of adjusted EBITDA. They have been profitable and cash flow positive in the past. It is doable. But there's a major exception buried in the agreement. If Tesla undergoes a change of control, essentially, if Tesla is acquired, the operational requirements disappear.

28:05Conor Sen:You no longer have to hit a million robotaxis or a million optimists to unlock those new tranches of stock for Elon. If there's a change of control, it's purely based on the market cap. And so instead, Tesla will determine how many of Musk's 12 tranches have been earned solely by looking at the company's value at the time of the transaction. So the milestones don't matter anymore. Only the market cap matters. And so that could become extremely important if the widely speculated buyer turns out to be another Musk-controlled company, SpaceX. So if SpaceX comes in and gives a really high price for Tesla, Musk can unlock more of those tranches and get more equity in Tesla, which then rolls into the combined entity, of course.

28:49Conor Sen:So under this agreement, Tesla's value in an acquisition would be calculated using whichever is higher, its market capitalization immediately before the deal or the value implied by the price being paid to Tesla shareholders. If that figure reached$8.5 trillion, all 12 tranches could qualify, putting Musk in line for the full$423 million share award without Tesla ever having to accomplish many of the pay package's operational milestones. So there's an obvious catch, which is how are you going to acquire Tesla for$8.5 trillion when SpaceX is not a$10 trillion company or$50 trillion company? It's a hard pitch to do a merger at that scale.

29:35Conor Sen:But this is more of like what might happen in a number of years.

29:38Alex Edelson:Well, yeah, and there's also the tradeoff between he has more ownership of SpaceX, which would mean that he would benefit from acquiring Tesla at a lower valuation. But then depending on these milestones, you know, he's probably his bankers probably have some very elaborate spreadsheets, you know, six different monitors looking at all the different.

30:01Conor Sen:So basically, there's sort of a U-shape to the incentive. If Tesla is a really low price, Elon probably benefits from acquiring it. And if Tesla's a really high price, he benefits from, he actually increases overall ownership from buying it. But there's sort of like a messy middle where it gets a little bit rougher. So$8.5 trillion would be more than six times Tesla's recent market cap. And Tesla shareholders would still have to approve a SpaceX acquisition. The journal estimates that Musk's maximum award is currently worth about$824 billion, despite the package's familiar$1 trillion label. Still, the provision creates an unusual path around some of the hardest requirements in Musk's compensation package.

30:44Conor Sen:Instead of spending the next decade hitting a dozen separate operating goals, a sufficiently expensive acquisition of Tesla could effectively declare those goals accomplished.

30:54Alex Edelson:New Tesla bumper sticker idea. I bought this to help Elon achieve his$1 trillion pay package.

31:03Conor Sen:Yes. Full send on the pro-Elon Tesla. Get a lot of thumbs up. A lot of positive honks.

31:10Alex Edelson:For sure.

31:11Conor Sen:For sure. There could be another major benefit for Musk. A combination with SpaceX could increase his effective control over Tesla, something Musk has repeatedly sought while consolidating even more of his business empire under a single roof. Well, it's a fascinating story, and thank you for listening to it. Let me tell you about Cisco. Critical infrastructure for the AI era. Unlocks seamless real-time experiences and new value with Cisco. We got to talk about the American tourist. The American tourist has become unstoppable. A supercharged U.S. economy helped transform a nation. Al Lenza's parents traveled overseas three times after immigrating to the U.S.

31:51Conor Sen:in 1961. Lenza estimated he's taken 500 trips in his 50 years. Wow. How many times have you been overseas?

32:02Alex Edelson:Probably 30. Yeah, a couple times a year for like 15 years.

32:07Conor Sen:Yeah, I guess 50 years, you stack them up, you start going more frequently, but that's still 10 times a year for 50 years. His home office is filled with self-printed books with recollections from each one. He's working on more. The semi-retired 70-year-old has already been to Barcelona three times in the past year. You have more time and more money, he said, of his current phase of life. The clock is running out. American travel has transformed.

32:33Alex Edelson:The clock is running out on you visiting Idaho, buddy. It's time to romanticize the states.

32:41Conor Sen:Yeah. I saw a funny thing about spending time in the American South and picking up a southern accent. You saw that? Picking up the southern accent and being like, oh, yeah, this summer I spent a couple weeks in Georgia. Oh, it just rubs off on you when you're there. You really have to go spend some time in the American South. It's remarkable.

33:01Alex Edelson:Do you plan to go to all 50 states? Ooh.

33:05Conor Sen:Yeah, that'd be fun. I feel like road trips, camping, those types of activities, you sort of have to lean into it. You have to be doing a lot of cannonballs, a lot of rallies. But you need excuses. Because I think once you get to like 42 states, the last eight are going to feel like a complete slog unless you have a reason to visit each one. Or you're hitting a bunch of them in a quick tour. Do you count landing? in an airport if you don't leave the airport?

33:35Alex Edelson:No.

33:35Conor Sen:You don't count that?

33:36Alex Edelson:No. Because physically you're in the state.

33:40Conor Sen:You're physically in the state. Like you're legally in that state. You don't count it.

33:46Alex Edelson:Well, I don't count it as visiting the state.

33:49Conor Sen:What about a layover in a country? You leave and you're out of the airport for three hours. Does that count? Say, yeah, I've been to Japan. Three hours outside. I actually do count that. You do count that.

34:03Alex Edelson:I think if you basically leave security.

34:06Conor Sen:What if I leave security, take the bus on a little loop around the parking lot? Count it. Back? Book it. That counts.

34:12Alex Edelson:Book it.

34:13Conor Sen:That counts.

34:14Alex Edelson:Book it. Okay.

34:15Conor Sen:Okay.

34:15Alex Edelson:Book it.

34:16Conor Sen:That's the fastest way to see every state. Flight hop from airport to airport. Get out. Do the bus loop. Come back. Hop on the next plane. You could probably do all 50.

34:26Alex Edelson:That would be a fun exercise, actually, to figure out how do you visit all 50 states in the fastest amount of time. Yeah. Right? Is it?

34:34Conor Sen:World record.

34:35Alex Edelson:Yeah, world record. I'm thinking that you need to figure it out. And the rule is you can't just land in the airport and step on the tarmac. You have to actually physically step outside of the airport on basically on a regular street. I think you got to do like really small rural airports.

34:55Conor Sen:Okay. Yeah, fly a small plane between them and step outside.

34:59Alex Edelson:It's got to be a fast plane.

35:00Conor Sen:Oh, yeah, it does. Because a helicopter might be convenient. You fly it yourself and you bounce around. That might be doable. I wonder, there's got to be some states where it's faster to drive, right? Like Rhode Island, that area. Maybe faster to drive than deal with all the plane stuff.

35:18Alex Edelson:Driving at 300 miles an hour? I don't know. Deal with all the plane stuff? I don't know. Land in a small airport, step out, and then get on again?

35:26Conor Sen:So if you're flying your own Cessna, you land, you step off the plane. Does that count?

35:33Alex Edelson:No, I'm saying you have to be outside of the airport. But I think if you landed on just like some farmland, you could maybe count that. You could maybe book that. But do you have to get out of the plane? I do think you have to touch the ground.

35:45Conor Sen:Oh, no, I'm going down. Mayday, mayday. I'm landing on a golf course, hopping out, hopping back in. Oh, okay, I'm good. That's maybe the fastest way. Who knows? Anyway.

35:55Alex Edelson:Yeah, so actually some planes you can just land on a street or even a dirt road if it's long enough. And so that's probably actually the fastest way. Tyler, figure out the route to hit a bunch of, to land on some farmland in every state. And then.

36:16Conor Sen:Okay, well, anyway, back to the unstoppable American tourist. What's going on here? American travel has transformed in recent decades. A nation of former homebodies has become one of zealous and moneyed international travelers, infiltrating every cobblestone corner of Europe and rapidly filling lesser known destinations. Americans took a record 24 million trips to Europe in 2025. Portugal received nearly five times the number of U.S. visitors last year as it did a decade earlier. Greece took in four times as many. Is it getting crowded in these foreign tourist destinations? I've been to Greece.

36:56Conor Sen:I've never been to Portugal. Have you ever been to either? Greece or Portugal? Tyler, Greece or Portugal? No?

37:03Alex Edelson:Greece is nice.

37:04Conor Sen:Santorini is beautiful.

37:06Alex Edelson:Portugal, yes. Greece, no.

37:08Conor Sen:Okay. Were you surfing in Portugal?

37:10Alex Edelson:Yes.

37:11Conor Sen:Oh, okay. Nazare? 100-foot wave?

37:14Alex Edelson:Nearby.

37:15Conor Sen:Okay. Consulting firm Tourism Economics expects American visits to Europe will have increased another 5 % by the end of the year. The travel is helping boost economies, even as it has angered many locals who say their cities, now relying on foreign visitors, are no longer serving them. Behind the shift is a supercharged U.S. economy that in the course of a generation has created a larger and wealthier class of Americans that views travel as an essential rather than a luxury. Older Americans. Let's find out what the older Americans are doing. Older Americans who are driving this new era of travel hold about$110 trillion in wealth.

38:00Conor Sen:Wow, we should get these folks financing the AI build out. They got plenty to spend. Instead of traveling, you should just...

38:08Alex Edelson:Barcelona three times in a year from America is just insane. I'm sorry.

38:13Conor Sen:That money could be sitting with John Gray at Blackstone. It could be going over to Jensen.

38:17Alex Edelson:Could be allocating that for you.

38:19Conor Sen:Could be allocating. Could be putting it all on the line for you.

38:21Alex Edelson:You could have your Apple Vision Pro doing Barcelona simulator. Yeah, yeah.

38:27Conor Sen:Gen AI, just generate a picture of you in Barcelona. Job finished.

38:32Alex Edelson:Generate hundreds of images. Potentially.

38:34Conor Sen:Make a music video of yourself playing a song about Barcelona in Barcelona. People will love that. People will love that. That rising wealth has coincided with dramatic changes in the travel industry itself. Foreign travel has become more accessible, and social media has made it easy to envy, emulate, and one-up friends' vacations. Apologize to Mark Zuckerberg. He is stimulating the global travel economy. We didn't even consider that. This is huge. Everyone needs to travel because of this. The whole world is growing because of Meta. You see a picture of somebody in Barcelona, you're like, I got to go for the fourth time.

39:13Conor Sen:This is happening. This is happening. You have no defense. Defeated lion retreats. It's a good point. Defeated lion retreats.

39:22Alex Edelson:It's a good point. I just wish that he was twisting the knobs. To make it even more? To make Idaho and places like that more appealing. Okay.

39:31Conor Sen:But this is putting a thumb on the scale. You want a thumb on the scale. You're saying his thumb's not on the scale enough. Well, interesting. Okay. Yeah.

39:41Alex Edelson:I just want to know what his values are. Yeah.

39:44Conor Sen:Bias. I'm on this. A trip to the continent is a well-worn path for us elites. I like calling Europe just the continent. It's a good, it's a, maybe we should try and reclaim that as part of your make America tourism friendly campaign. We are the continent.

40:02Alex Edelson:The new continent.

40:03Conor Sen:Yeah. It's, it's got, it really does have to be devastating. If you're in Malibu and then you find out, oh, there's new Malibu somewhere else. It's like, wait, what about me? I feel like my town's going well. And you're in York or England or Hampshire or Jersey. And you're like, oh, it's probably nothing. People will get bored of New York. They'll come back to regular York. And they didn't. anyway by the 1950s and the 1960s when boomers were growing up travel americans traveling abroad were in rare air a glamorous jet set who wore their best for flights on pan am and twa they were soon joined by young adventurous backpackers who filled hostels and traveled on the cheap as the cold war waned and airlines expanded travel opened up further to the masses and the European Union's free travel area made it easy to fly to the continent and hop between countries.

41:07Conor Sen:Fascinating stat that I always come back to. People will share that photo of, oh, people in 1950 and 60. Every seat on the plane looked like first class. Don't forget what they took from you. The world you remember doesn't exist, that whole thing. There are more people flying in first class today than people flew at all in the 60s. Wow. So you really need to comp the first-class experience today with a live-flat seat. They give you a glass of champagne. It's actually a pretty luxurious experience. Maybe not the best, but it's pretty good unless you're in JetBlue Mint and they won't let you pass back steak.

41:42Conor Sen:That's brutal. But for most airlines, it's pretty good.

41:46Alex Edelson:We still haven't got the CEO of JetBlue.

41:50Conor Sen:We've got to get some answers.

41:52Alex Edelson:And we've got to push. We do. For a policy update.

41:56Conor Sen:We do. We do. So in 1990, fewer than 5 % of Americans had a passport. Pretty crazy. Now, more than 50 % do, aided in part by a mandate requiring passports for travel to Canada, Mexico, and the Caribbean that took effect in 2007 and a post-pandemic travel rush. The U.S. issued a record 27 million passports in fiscal 2025. Amy Birch Buchanan, Birch Buchanan, 55, took her first flight in 1988 to visit her then-boyfriend in England. She had a cassette tape full of journey songs to listen to on the plane, and her parents walked her directly to the gate, the PJ experience basically back then. Onboard passengers were dressed to the nines, sipping cocktails and smoking cigarettes.

42:44Conor Sen:What about an airline where you can't smoke cigarettes, but you can smoke cigars? I think that might see some traction.

42:50Alex Edelson:Something there.

42:51Conor Sen:Yeah, Spirit Airlines? Why not American Spirit? It makes so much sense. I don't know. It seems like a no-brainer. Nobody was wearing yoga pants. It was very elegant, says Buchanan, who lives in Fort Worth, Texas. She returned home a changed woman with British bands like Depeche Mode on her Walkman. New clothes and a wonderlust that she eventually passed down to her three kids. Her eldest daughter, Avery, moved to the UK around two years ago and now travels across Europe. Her middle daughter went to Kenya this year. They've really reached out much further as they've gone out on their own. Europe is often a gateway drug.

43:26Conor Sen:Portugal and Greece have seen the biggest percentage increases in U.S. visitors of any country over the past decade, according to U.S. government data. The U.K. and Italy have seen the largest increases in the total number of tourists, getting millions of additional Americans a year arriving by air. Only 6 % of U.S. travelers to Europe in 2025 said it was their first time flying abroad. Many of these tourists are visiting multiple times a year, stopping at the Eiffel Tower and the Coliseum, but also taking country walks in the Cotswolds and Viking cruises on the Danube. A growing share of consumer spending is going toward foreign travel as habits change and prices rise.

44:04Conor Sen:Open Skies agreements deregulated airline competition on international routes starting in the 1990s, leading to much cheaper airfares and more international flights from the U.S., said Clifford Winston, a Brookings Institution economist who studied the PACs. In 1984, a round-trip weekend fair between New York and London on Pan Am cost$669, today's equivalent of$2 ,150. Over the past decade, economy airfare to the region rose 56 % more than inflation. The average one-way economy plane ticket from U.S. to Europe, not including taxes and fees, cost$588 this year, up from$533 in 2025. So even though it's getting more expensive to fly, people are still doing it more and more because of Instagram, baby.

44:55Conor Sen:Anyway, let me tell you about Railway. Railway is the all-in-one intelligent cloud provider. Use your favorite agents to deploy web app servers, databases, and more, while Railway automatically takes care of scaling, monitoring, security.

45:06Alex Edelson:As much as I wanted you to keep reading the journal to me.

45:09Conor Sen:We love story time.

45:10Alex Edelson:and our guest.

45:11Conor Sen:We have our next guest here in the studio, live, in person. We have Ernie Garcia from Carvana, the founder and CEO. Welcome to the show. Thank you so much for stopping by. Please grab a seat. How are you doing? I'm great. How are you doing? How's business? It's good. It's very good. Yeah. Walk me through. I mean, maybe we should start with the very beginning, but the thing that I'm most interested in is the journey throughout COVID, post-COVID, all the crazy, rocky times in the market, how you got through that, where the business is today, what changed, what didn't, all that journey.

45:46Alex Edelson:Yeah, and yeah, the context here is typically our interviews are very much focused on the present, but the first time we have someone on the show, we like to give people some context. Awesome.

45:58Nico Simko:Yeah, for sure. Well, let me start with this. These gongs are awesome. For every car sale that we had for probably the first two years, maybe three years of Carvana's history, we had a gong that was 50 % that big. Amazing. And we'd hit it and we would cheer that's huge yeah huge gong that's great funny to see those so what's your guys story with

46:12Conor Sen:the gongs uh just to announce like fundraisings big milestones big numbers uh i don't know how we landed on it we just thought it was a funny prop and and then it just got bigger and bigger

46:23Alex Edelson:and surprisingly fun and then it catches on yeah we basically maxed it out yeah this was like the

46:29Conor Sen:largest gong we could find you have to go like fully custom after this and it gets really crazy Yeah, ours was a little smaller than that one. What was the first car you sold?

46:38Nico Simko:So it would have been probably, so we launched in January 2013. I think it took us like two months to sell our first car. But yeah, I mean, maybe I'll try to give like a high-level setup. I think the goal with Carvana was to try to build a different supply chain, different cost structure, vertically integrate, so that customer experiences could economically be simple. I think there are many dealers out there. Excuse me, by the way, I'm fighting a little cold right now. There are many dealers out there that I think do a great job with what they've got, but I think buying a car is not the most beloved customer experience in the U.S.

47:10Nico Simko:And I think the reason for that is just there are so many dealers doing things the same way that share cost structure. And I think the economic pressures mean you have to maximize the amount of revenue you get out of that back room. And customers don't love that experience. So the idea was can we build a different kind of customer experience with different costs and more vertically integrated that maximize revenue is in a better way. So the customer experiences can be really simple. We launched in 2013. We had to build a ton of stuff to do that. We've got a totally different supply chain. We buy cars from customers.

47:38Nico Simko:We ship them to these large locations where we recondition them. We put$1 ,000 of parts and labor in every car. We have our own logistics system. We deliver from that location to the customer's door. Our website is fully transactable. Today we have 50 ,000 cars. So customers can go on there. They can get financing. They can get a trade-in value. They can toggle a warranty on or off and then have the car delivered to their door. So really different experience, but it was a lot to build because inside of that, we've got a retailer. We've got a remanufacturing company. We've got a logistics company.

48:11Nico Simko:We've got a finance company. So there was so much to build, and I think as a result of that, we had a really volatile time. So early on, it took us a couple months to sell our first car.

48:22Alex Edelson:And that was like all the infrastructure was built, and you were just chasing your first sale? Or it was more like you were kind of getting off the ground?

48:28Nico Simko:Is that like running Google ads? Like how did you get the first customer? It was all kinds. Yes, it was. I mean, AutoTrader back then was like a big part of our advertising just because customers were already there. Yeah. But, yeah, I would say early on we had the experience that the customer went through felt, you know, 60 percent similar to today. But it was, you know, like duct tape and bubble gum in the background that was making it all happen. And it was just at a really small scale. But customers loved it. once they got over the skepticism, the very first delivery, you know, I went on. And the first thing the guy did was he literally opened the hood to see if an engine was in there.

49:04Nico Simko:Because he was kind of like, you know, he had gotten in arguments with his friends about whether or not, you know, the car would even actually be like the real car. So I think they loved it if they got over that fear. But then, you know, building the rest of the business at real scale and moving through all of those customer concerns. You got to finish the story. Was there an engine inside? Was there? What's that? There was an engine. The good news, in this case, there was an engine. That's generally the case.

49:27Alex Edelson:So the pushback in the early days, I can imagine a lot of people, maybe on the investor side, is like, cool idea, but you're not going to have a business selling cars at scale, sight unseen. Was that some of the pushback? Because personally, growing up on the internet, and I've probably bought five or six cars over the years, sight unseen, where they're out of state. Maybe they were on bring a trailer or some. I just found a spec I liked at some dealer or whatever. Facebook. And I've always not yet, but you're on the IYKYK deals, right?

50:02Conor Sen:You get that.

50:04Alex Edelson:But but for me, when I would buy, you know, I buy a car, some random state, get it. It would just show up at my house. It was, you know, amazing, even if it was some third party logistics provider or whatever. But I would have people tell me you just bought it like you never even saw the car. And I was like, no, dealer or whoever it was seemed legit. And it's worked out every time. But I can imagine there's maybe a generational shift of people that have just grown up super used to buying everything online. And so the idea of buying a car online just kind of feels normal already. Yeah.

50:37Nico Simko:I think that was the primary business model concern and the primary unlock. Because I think it's a totally reasonable question, like, will customers buy a car site unseen? seen. I think your experience points to many will. And there's an interesting stat, at least as of the time we went public in 2017, 30 % of customers didn't even test drive a car before buying it. So they might not have had your experience, but an experience somewhat like that. But I think that was the primary question. But if you could resolve that question, and we kind of solve it with a seven-day return policy, which we think is better for most customers, then you unlock a completely different supply chain, because that's what enables you to no longer have to have the cars at the point of sale and distributed around the country.

51:16Nico Simko:So you can instead replace that kind of real estate with the logistics network, and you can give customers access to tens of thousands of cars, and you can deliver to them less expensively. So that was like the primary, I would say, business model question. And I think once we sold kind of like 100 cars and went on those deliveries and got a feel for where people were, we felt pretty confident that was going to be okay. I think another question that was asked is what about like investors? and I think at that time that was kind of like the height of you know like Airbnb and Uber and it was everything was going to be a marketplace.

51:48Nico Simko:This was like the unbundling of Craigslist a little bit. Yes I think to a certain degree and then I just think at that time yeah it was like every everyone wanted to be the marketplace layer. Everyone wanted to just kind of connect to pre-existing supply to demand and kind of be that asset light layer and I think we were trying to suggest that to give customers the experience that we thought was best. We were in need to own inventory. We're going to have to have our own logistics network. We're going to own real estate. We're going to have a finance company. Sure. And that was a mess. So Silicon Valley did not love our pitch.

52:18Nico Simko:We did not do well there.

52:19Conor Sen:Wow. What was the logic behind IPOing so fast? Was this as the company was growing and made more sense?

52:25Nico Simko:Because we couldn't raise money. Couldn't raise money. Yeah. Basically what I would say is I think, especially at the time, our business model did not match what Silicon Valley was looking for. And there wasn't private capital at scale outside of Silicon Valley that we felt like we could get access to. Our business model, I think, given how different it is from the status quo, it surprisingly though, like the economics and the underlying business itself are very similar to something that is highly scaled. So it worked better in our pitches with more of like a New York style audience than with kind of a Bay Area style audience.

53:02Nico Simko:And so I think we basically were forced to go there because that's where the money was.

53:06Conor Sen:Interesting.

53:07Nico Simko:Yeah.

53:07Conor Sen:Interesting. Yeah.

53:09Alex Edelson:What was the what did the if I'm remembering correctly, eventually you had plenty of support on the West Coast. I'm thinking of like Neil Mehta and Green Oaks. Oh, for sure. Was he not one of your big advocates and big believers?

53:24Nico Simko:No, we didn't. So we went public in 2017. We were a four year old company. And I think as far as I'm aware, I'm not positive. This is like a precisely correct stat. But I think in terms of like first day, first week, first month performance, we were like the worst IPO of 2017. We barely got out the door. And we kind of bounced around for a while. I think around 2019, we started to really make progress. And then in 2020, you know, COVID was actually an incredibly scary time because we're a transactional business and a distributed transactional business. And so when transactions go to zero and you have this big cost structure, that's like a real problem.

53:59Nico Simko:So it was a really scary time for three or four months. And then it turned into like all of a sudden everyone was just saying, oh, Carvan is like a COVID story. because it was like we kind of answered that moment. And so I think then we were really popular for 18 months. Everyone thought we were smart. And that felt cool. But then 22 came around, and I don't know if we want to hit that in like a separate segment or whatever, but everyone told us we were dumb again. Very clear through the markets. But I think overall it's been a really fun and very dynamic journey, I would say.

54:29Conor Sen:Yeah, well, talk about post-IPO, the workforce, the incentive structure, how everything changes as you take a company public that early? What does it take to keep everyone sort of rowing in the same direction? I think it's less of a change than maybe I even would have imagined ahead of time.

54:50Nico Simko:Like, I think it's, I think we told everyone exactly why we're going public. You know, it gave us access to capital that was hard to get otherwise. It also, because we have a finance company and we have inventory that we own, And so you finance that. It gave us better access to other capital markets. Sure. I think there's a perception oftentimes that kind of like the IPO is the end. Like you, that's like what success looks like. And we were doing it so early and it so obviously wasn't the end that in a way it was kind of like helpful. But I do think there was like a little bit of an internal narrative for a second there of like, did we do it?

55:23Nico Simko:Like, are we done? But we quickly turned that around, just kind of said, now, now we're a public company. We've got to be a little bit more careful about making sure we disclose information the same way to everyone. That's like the biggest change. But otherwise, you know, here are 10 examples of companies that have multiplied by 100 after going public. And that's what we want to do. So, you know, let's just march down that path.

55:42Conor Sen:Yeah. Being more somewhat mature or complicated on the financing side, were you very aggressive about hiring like elite young finance talent, like poaching from Wall Street banks as opposed to like Stanford CS departments or both? Did the structure of the business financially change the recruiting profile?

56:06Nico Simko:Yeah. I think we – And we wanted hunger and horsepower, I would say. And I think experience is something that is necessary, like, you know, on a scale from zero to 10 in experience. You want like two or three so you don't make really dumb mistakes. But I think if you've got seven or eight, you oftentimes just think things have to work the way they've always worked. And so I think a lot of the people that we brought in were somewhere between zero and four or five of experience. I was probably more experienced than most in the finance area in particular. Our CFO, just as you said, Stanford CS, he was a PhD in econometrics from Stanford.

56:46Nico Simko:And just basically he's someone who has absolutely incredible horsepower and throughput, but understood that world pretty well. And I think a lot of times recruiting is about, do you have people, one, do you have a relatively flat organization? I think people like working in flat organizations. And then two, do you have people at the top that actually understand what the work is and how it works and how it impacts the user and the business? And if you have that, I think a lot of times the most aggressive people want to work where they have visibility all the way up to the top. And so I think in finance in particular, we were really lucky to have Mark.

57:23Conor Sen:What was the early expansion path? Like, did you think about opening up specific markets, certain channels? Like you mentioned, AutoTrader. Was there like, okay, we're doing a big, like, social media marketing push for the next leg up? Or is it like we're taking the West Coast?

57:40Nico Simko:It was more like city by city. City by city. Atlanta was our first city. Okay. And then we did Nashville, and then we did Charlotte. And it was kind of like we needed, because we have like a logistics element of our business, you needed to get enough density to make the economics work kind of in each, you know, like, part of the network. Yeah. Um, and so, yeah, we went city by city and that was kind of the way we did it through probably 2020 give or take. Um, and you know, now we're nationwide and so we're kind of growing across the country and all the different places.

58:07Conor Sen:Yeah. And what was the strike team for expanding a new market? Are you actually setting them an office or sending out some, you know, like of your most dynamic employees to go hang out in a WeWork type of place? Like what's the, what's the philosophy behind like the ground game?

58:22Nico Simko:We call the last mile logistics market ops. So we had like a market ops SWAT team would go out and kind of launch these markets. Now, what's nice about our system is all of the logic is deterministic. All of the merchandising and everything is happening in a kind of global way. So everything except for the car getting unloaded off the nine-car hauler at the location and then delivered to the customer, everything else is kind of already standardized. So really it was like that last leg to the customer that was the functional thing that was happening. and then it was just absorption of any issues that happened anywhere else in the system.

58:58Nico Simko:So it was very much like dynamic, fun people that were unexpected to be delivering cars to customers that gave them an experience that was awesome. And I think that was kind of how we rolled out market by market. Is valuation deterministic for vehicles?

59:13Conor Sen:Yes. Because I imagine that there's probably some mistakes where you acquire some car and you wind up being like, oh, this is a rare one. it's worth more than we bought it for or vice versa. And I'm wondering about the process of tightening your book value to the actual real world resale value based on market fluctuations, but also just like, yeah, we didn't notice the seats were a little more scuffed than we thought.

59:39Nico Simko:Yeah. So first, like a practical answer to that, which is, so we do, when we pick up a car, we'll run it through a process, including an OBD2 scan, which kind of checks the date on the car. and in a small percentage of cases if the variation is large versus our expectation we will reprice the vehicle but for the vast majority well over 90 percent of customers they're going to get exactly the value that they saw now i think like um you know more like fundamentally the the problem there is can you be as good at it digitally and from a distance as other people are in person and i think that that the answer to that question i think was surprising to people like that was another area that i think people thought it would be a major business model problem.

1:00:21Nico Simko:But we ran a test super early on where we basically looked at a pre-run list of a bunch of cars that we're going to sell at auction. And we said, okay, like we're going to have physical buyers go out. So buyers are what the industry calls people that go to auction and buy cars. They put hands on the car, they open it up, they turn on the AC, they check everything, they buy the car.

1:00:38Alex Edelson:And these auctions, you're talking about industry oriented auctions. So like somebody trades in a car to get a new car at a traditional dealership, and then the dealership doesn't want the car so they're auctioning it off to other dealers and so there's dealers there

1:00:50Nico Simko:is that right so it's like a wholesale auction that consumers wouldn't see that dealers go to all the time yeah so we had a bunch of buyers go around and on 100 cars they said here's what i think it's going to trade for and then we built a model and we said on those 100 cars what do we think they're going to trade for and then we calculated the absolute average error of those two processes and the the buyers were off on average by about 1200 bucks and we were off on average by 1300 bucks in our gen one model. And so we were like with very little data feeding it and very little specific data about the car.

1:01:19Nico Simko:So I think early on, we were pretty confident that while it's hard to be exactly right, it wasn't going to be that hard to be as right as the market we were competing with was. And that's what mattered. And so it is deterministic.

1:01:34Alex Edelson:We talked to a lot of founders that are, when you look at their roadmaps and what they want to do in the future. It's very like product oriented. It's like, we have to launch this new, we have to launch this new market or the best example of, of is like in defense tech. It's like, we need to land this program of record and then we need to fulfill that. Uh, it feels like with Carvana, it's like, you just need to get better every single day at buying and selling, uh, cars. And then you just need to kind of do that forever. I, it's hard for me to see you guys like entering like the luxury, you know, super up market category, like being at a like car week, which is, uh, uh, but it's very easy to see just owning more and more and more of the, of the, of the, of the used market.

1:02:19Alex Edelson:But how do you think about that? How do, how is it different motivating a team around just getting better at what you already do every day versus like a bunch of like net new sort of product oriented innovation?

1:02:30Nico Simko:So first of all, I think hopefully we succeed in both of those dimensions, but I think the observation's very right. And I think the motivation part is also an interesting question. I think different people are different. So in this way of categorizing people, I would say I am more the product person. I'm more the person that gets really excited about what can we build, what can we change, how can we make the system more efficient and better than it was yesterday. And then I think that, you know, generally what I would call operators are people that wake up in the morning and they're really excited about getting, you know, a quarter percent better every day, which will compound to massive differences.

1:03:06Nico Simko:But just having that constant feedback of improvement is more what motivates them every day. And I think that where the business is today, we're in this like interesting spot where we've built a customer experience that we're super proud of, that we think is great. the business model, you know, even at the relatively small scale compared to the market that we're at today is producing returns that are two to two and a half times kind of what is normal in the industry. But then we're only 2 % market share. And we find that kind of as we build more cars, we sell more cars. So I think we've made it to a spot where we don't know exactly what the total scope of the demand is, but it's more than we're able to produce cars today.

1:03:42Nico Simko:And so there's a lot of value to just make sure you make the machine a little bit, you know, better and bigger every single day and spend less of your energy on all of the dramatic changes that could exist. And I think honestly, that's, that's a hard thing. I think like in a business, finding a way to focus on where you get the most leverage is really, really hard. And I think a lot of times the people that are best at inventing businesses are really bad at focusing on the things where you get the most leverage. And so I think, I think learning that lesson the hard way, which is part of, you know, what I would say happened to us in 21 heading into 22 is I think what helps us try to manage that balance.

1:04:19Nico Simko:But then I also think we definitely have people inside the company that have enormous dreams and want to build big, beautiful, amazing things. And so we also have a lot of product we're really excited by, but there's no question in the position that we're in right now, like what is going to matter to our next five years of economic performance is going to be how well do we execute in making that machine a little better and a little bigger every single day over and over again.

1:04:41Alex Edelson:Yeah. What does the future you guys buy, acquire a car? What is, you know, looking out maybe 10 years, what do you think it looks like to acquire a vehicle? How much, how much can robotics play in basically taking a car that was just purchased from somebody and making it ready for another person to acquire it? Yeah.

1:05:09Nico Simko:Because I, yeah, I basically,

1:05:10Alex Edelson:at all these OEMs are investing in robotics. Then there's all these automotive shops. I'm sure you guys have your own process, but it, it feels like, it feels like we'll get to the point where there will be something like a lights out factory where a car goes in one side and it comes out the other side, you know, fully restored. I just have no idea how long that'll take. Yeah.

1:05:31Nico Simko:I think we're rooting for that to happen, um, in many ways, cause I think it would make us the thing that today constrains our scalability the most is reconditioning cars. It's putting the thousand dollars parts and labor in. So I think that would be very exciting. I think the problem that OEMs face is more simply automatable than the problem that we face because every car is getting the exact same processes done to it. For us, you know, the car's coming in, you inspect it, you figure out what the car needs, and then every car is getting different processes done. So it's a process that is likely to be automated more slowly, I would say, than traditional manufacturing.

1:06:08Nico Simko:But we're definitely paying attention. I think there will be elements of it like changing tires, things that are highly replicable that probably happen faster.

1:06:16Alex Edelson:Today, most of what we're focused on... It doesn't seem like that far away to having systems that could fix up little nicks on paint and things like that in an automated way, even though every car is going to have different rock chips and things like that.

1:06:30Nico Simko:Agreed. I think all that stuff, um, right now the assessment of those things is getting better all the time. I think automating the workflows for like, what does the person who's doing it need to do is getting better and more automated all the time. And then I think the actual physical work so far, like in auto manufacturing, uh, facilities, it's, you know, they generally have those big robots that look like an arm. You know what I mean? They're not like general purpose humanoid robots that can do anything. And I think it is likely it'll take a little bit more time for the work to be fully automated.

1:07:05Nico Simko:But we are paying a ton of attention. And if that explodes at the same rate as all of the LLMs, then who knows how quickly that can happen.

1:07:12Conor Sen:Is current AI useful in any particular area? You can imagine AI search, but also back office tooling. What's the shape of the impact? Where is it actually working well? where it's like, ah, it's a little bit earlier for that.

1:07:25Nico Simko:No, I mean, all over the place. I think maybe two big buckets. One is consumer facing, and then one is like, what are we doing to try to move faster as a business and everything we're trying to do from a product perspective? But I think on the consumer facing side, the more complicated the underlying transaction is, the more value there is to simplifying it. And so for a customer who's buying a car, they wake up in the morning and they want a car, but they have an old car's payment, they have some cash's payment, They have some finances payment. They don't know if they want a warranty or not. There's a lot of complication in that transaction.

1:07:57Nico Simko:In order to get the car and get it registered, they're going to have to change over their insurance. They're going to have to sign contracts. They're going to have to upload documents for verifications for finance and for title registration. So the more complicated that process is and the more that our systems are designed in a way where all those processes are deterministic, so there's no human negotiating each underlying economic item, the more that you can use AI to string that together and give people really simple experiences. So I think there's a ton that we're doing already that's like really fun and interesting.

1:08:28Nico Simko:And because we built it in a way where it was pushed through a wire already with no kind of F &I agent sitting next to the customer, everything we've built is like a service architecture. Like everything is separable and deterministic. So it lends itself very well to then you can dump that into an AI, A person can ask a natural language question, and we can give a super complex and super complete answer to their questions. So I think that's fun. And then what's also fun is I think in any of these things, going back to valuing cars even, what matters is how good of an experience can you give your customers compared to everyone else.

1:09:06Nico Simko:And in the world of automotive retail, we're not competing with other players that have vertical integration, deterministic systems, or automated systems. and so the quality of answer that we can give relative to our competition is very very high so i think that's a really fun area for us right now and even like the types of products you want to build i think change when you have systems that can string together so many deterministic processes but also overlay it with discretion that you can trust that even changes the the realm of things that can be automated so i think we're doing all kinds of fun stuff there and then Internally, like every other company, we're trying to move as fast as we can.

1:09:46Nico Simko:And the tool set is changing so fast. It's super fun.

1:09:50Conor Sen:Are you coaching or answering stressful calls from any Saspocalypse victims? Because I feel like you've been on a particularly wild roller coaster ride where I've never seen a stock chart where it's so clear that I don't want to talk too much trash about the investor community. but it was like they got it wrong. We got it wrong first. They got it wrong. It's just this gap in the chart, and you're like, okay, well, clearly there's something wrong here. But it feels like a lot of SaaS company CEOs are sort of going through that. Many of them are already out of that trough, but what advice do you have?

1:10:29Alex Edelson:I think the advice is like build a highly distributed business with tons of physical inventory and complex real world. Because you guys are in a perfect position. You guys are like a flight to safety now because it's like, hey, yeah, try rebuilding Carvana with AI. It's just like we're at least 20 years away from –

1:10:51Conor Sen:Where do you get the demand? The liquidity is so much of the value.

1:10:55Nico Simko:I think there is a lot of truth in that. I think if I were to try to give advice, though, I think what I would say is just the themes that are popular in markets will change. Sure. And they change every couple of years, and they oftentimes change dramatically. and generally the swings are more violent than they ultimately prove that they should have been. I think that's probably true in most cases. So I think that what you want to try to do if that's true is just set up everyone inside the company to know that's going to happen sometimes so it doesn't feel like... I think many people inside of a company have this perception of investors that they're like all-knowing masters of the universe and when the stock moves it's because something deeply true and fundamental changed when in reality they're really smart people that have a huge set of observations they've made over time, but they live in a world of pressure with moving stock charts and with LPs that are putting them under pressure and changing themes that one's reading about.

1:11:51Nico Simko:There's an incentive to sell even

1:11:53Alex Edelson:if you still believe in the company, but you think a lot of other people are going to sell. Exactly.

1:11:56Nico Simko:You get into that thing. And then I think it's just like we've made it look harder than it probably had to look. But I think most successful stories, you go through periods that are really hard. And I just think that for us internally, like the way that we went through 22 and that was a hard period is we just talked about like, okay, so this is, this is our moment where we publicly look dumb and we got to ride it out and go through the hard thing. But most companies that we really respect, if you look back in time at their stock chart, they had their moment too. And so you have to go through that at some point, like at some point, every six or not every, but the vast majority of successful companies are going to go through a period that's really hard.

1:12:34Nico Simko:And that's kind of the moment that matters. Washes out the mercenaries. And people get fired up about that. Like, okay, cool. This is our hard moment. That's like something you can rally around. So I think every company will go through that and you just got to keep getting up, I think. Yeah.

1:12:47Alex Edelson:And congratulations to the team on so many back-to-back quarters of incredible execution. Oh, thank you. It's amazing to watch.

1:12:55Conor Sen:And same day of delivery now. Yeah, exactly. Make moves. Another announcement. But it was fun to just get the whole story and go all over the place. We'd love to talk to you again soon. Awesome. Thank you so much. Appreciate it. Yeah.

1:13:05Nico Simko:This was great. Thank you.

1:13:06Conor Sen:Let me tell everyone about console. Console builds AI agents that automate 70 % of IT HR and finance support, giving employees instant resolution for access requests and password resets. And our next guest is already in the waiting room. We have Alex Edelson from Slipstream Investors. He's the founder in GP. And we'll bring him in to the TBP and Ultradome. Alex, how you doing?

1:13:31Ian McGinley:Thank you guys for having me.

1:13:33Conor Sen:Thanks for hopping on.

1:13:35Ian McGinley:Where are you calling in from? I am just outside of Washington, D.C. Ooh, fun.

1:13:39Alex Edelson:Nice.

1:13:40Ian McGinley:Beautiful backdrop.

1:13:41Conor Sen:Well, since this is your first time on the show, we'd love for you to kick us off with an introduction on yourself and Slipstream a little bit, and then I'm sure we'll have a ton of questions to dig into.

1:13:51Ian McGinley:Yeah, yeah. So a little about Slipstream first, and I'll give you my background. So Slipstream is three things. One, we're venture fund-to-funds. We invest in pre-seed and seed funds, mostly emerging managers. Median fund size is around 30. Average fund size, around 50. And most of these funds are on their first three vintages. They don't have to be, but that's what our typical investment profile looks like. We're on our second fund. We invest in about 10 to 15 funds in every fund of ours. We also work with some of our LPs to help build out their venture portfolios. Often when we invest, our LPs join us in these funds and invest alongside us.

1:14:28Ian McGinley:And the third thing we do is we can use a portion of our capital to co-invest and our LPs like to co-invest. Before this, like in relevant part, I was a QED. So QED is a successful fintech-focused venture firm founded by Nigel Morris, one of the two Capital One co-founders. And I joined during Fund 5. Funds 1 through 4 were small, very successful funds. And the fifth fund I started as as chief of staff. It's larger, has outside capital. I became the COO. I reluctantly became the general counsel. I was a lawyer before that. And recovering when I joined QED, trying not to be a lawyer anymore, but that didn't work.

1:15:06Ian McGinley:And then we raised a much larger fund six, and I decided to leave before fund seven. Slipstream, I started Slipstream in 21, so we just turned five.

1:15:16Conor Sen:Congratulations. started it during the solo gp boom walk us through that whole that whole experience maybe i don't know how much was that like a new pitch because the trend pieces started after it was already sort of happening but it felt like sort of accidental and maybe the brand got bolted on

1:15:35Ian McGinley:after the fact yeah it was so interesting about that time was um well there were two two competing things happening one it was probably a good time for me to raise our fund it was not a great time it wasn't like a healthy time for the strategy. There's so many funds, there's so much capital coming into the ecosystem. Valuations are really high, like probably not the most disciplined investing going on during that period. And so like, we may look back on that period. It's like not a great vintage, which I can talk about kind of how we manage that. But like from a, from a fundraising perspective, there were some positives, but like, yeah, when I started this, people were telling me things like, Oh, you know, this is sort of like a 10 to 15 year old concept.

1:16:15Ian McGinley:Nobody wants to do this. No one wants to pay a second layer of fees. And when the market sort of, you know, the market cycles through like boom or like hotter and colder periods. And in the hotter period, sometimes folks think like, oh, I can do this myself. Like, let me, I'm seeing good stuff. It all feels up and to the right. You know, maybe I'll just be a direct investor. And then that doesn't maybe go as they hope. And then maybe I should invest in funds. And then like that doesn't go well. It's like maybe I should invest in a fund of funds. And there's sort of a cycle to this through market fluctuations.

1:16:46Conor Sen:I want to know about that specifically, like the purpose, like what LPs are most excited about it? Is it getting toeholds in the future, great scale-up, huge venture capital firms? Or is it actually like returns at the early stage that they think that they can find? Are there other pieces of like value add and reasons to invest across a broad set of early stage managers?

1:17:13Ian McGinley:Yeah, it's such a good question. So there's not one answer. And I can come back to the question about like kind of what was I seeing in terms of like emerging manager land in 2021? Because they're like, there were some funny stories about people. You're just sitting there kind of like, I don't know why this person has a fund, but like here they are. And it's like a$5 million fund, but I'll come back to that. So, yeah, like on your question, like there's not one answer because some folks are, yeah, they're out to like find firms, like venture firms. We want the next institution. We want the next Sequoia.

1:17:39Ian McGinley:We want to see it first. And then we'll be in a great position to deploy a lot of capital with these folks over many funds of theirs. And that I see that. That makes sense. That's not really our strategy. But some of the funds, incidentally, will become I mean, hopefully will become that if that's what they want. Some of them, though, that's not the dream. And that's not the dream for the LPs and that's not the dream for the GPs. Like for some of them, it's just like, I want to get great returns from these funds. I believe that the best performing funds are these small funds on their first few vintages.

1:18:09Ian McGinley:They have very unique portfolio construction that we can talk about, talk about that if you want. And there are folks who just want returns. And then like these funds, as they grow potentially towards like becoming more of like an institutional, like long, enduring platform, maybe outgrow those LPs. So like for me, we'll invest in some of these funds when they're small. And then it's almost like we're like releasing them into the wild. Like we can introduce them to our LPs and other LPs, but like they outgrow us. Oh, interesting.

1:18:37Alex Edelson:So somebody will come to you and it's sort of this sad moment where they're like, Alex, like I'm ready for the half a billion dollar fund. And then you guys, you know, hug and say goodbye. Is that it? Because it feels like, I mean, I imagine a lot of the, I'm curious, like, how some of these early conversations go, because I'm sure a lot of GPs will say, like, yeah, I just want to have, like, you know, small funds, focus on returns, and just do, you know, a$50 million fund every couple years, forever. And then given that, you know, half of our friends are, you know, GPs, it feels like every single one of those, the second they really are in a position to raise the like the nine figure fund, almost all of them go for it.

1:19:27Alex Edelson:And it's really like a very small group of people that just stick with these smaller funds. And so how do those conversations go early? Like, are you are you able to, like, pull out the honest truth with a lot of them, which is that they do want to scale up massively? Or is it is it is it sometimes a bit of a surprise?

1:19:49Ian McGinley:Yeah, it's a great question. It's never a surprise. No, like my mission is to get a sense for where they want this to go. The answer is like that sometimes they don't know, like they're just getting started. They're on a fund one or a fund two. It's small. They want to see how the market evolves. They want to see how their sourcing evolves. Maybe they they can get there really early. they think they can get more ownership or for one reason or another, they think they can get more ownership. They can scale up without getting adversely selected. And that even though they'll raise a larger fund in their future funds and they'll target higher ownership that like, they shouldn't, they shouldn't sort of generate worse performance than those small early funds.

1:20:20Ian McGinley:Like they're, they, a lot of people just want to see how it goes. Now, certainly like in the back of their mind, they might have aspirations of building something large. And my hope is that like in the process of getting to know them, they'll be open with me and like, feel like it's safe to share that with me. And, and my commitment to them is that like, I need to be open with them. So like often the conversations early on, if people are thinking about, you know, a fund or two down the line, raising funds that would be outside our strike zone, like it's on me to say like, Hey, I'm probably not going to be with you at that point.

1:20:50Alex Edelson:If they go, if they go from, you know, a$25 million,$30 million fund, and then they have the opportunity to raise 200 plus, it probably means that the first fund is performing or the first one or two funds are performing quite well, which is good for you. So I think it's pretty aligned. Yeah, well, what's interesting about this is like, yeah, like it's interesting

1:21:08Ian McGinley:about this. Like we have, I mean, there's so many ways this conversation go, but one thing on my mind is like, yes, people typically want to get bigger, but I think their mission should be get good returns on the first few funds. If you get good returns on the first few funds, you get to be in venture for a long time. And if you don't get good returns on the first few funds, like Like, it'll be hard to raise future funds. And so, like, the long-term greedy move, like, in a long-term greedy game is to get returns as many funds in a row as you can before you start scaling. And so, yeah, but, like, one thing you said that came to mind there is, like, I was actually worried when starting Slipstream that, like, this could get boring.

1:21:48Ian McGinley:Like, what if we do a good job and we get into great funds and we just start re-upping in those funds because they're so great?

1:21:54Conor Sen:Yeah, there's no sourcing, man.

1:21:55Ian McGinley:Like, isn't this a boring job? like why am I what am I doing I'll never find new folks I won't need to meet new names I'll just like re-upping these great funds and I guess that's good for return so why should I not do that and what I'm realizing over the last five years is like no there's like a natural evolution to this and like we stick with people for two or three funds in a perfect world and then like they might outgrow us and we get to add new names like there's always there are always new funds for us to meet and and for us to invest in we're always adding new names um and that does keep it fun for me.

1:22:24Ian McGinley:So there's like almost like a natural part of what you're saying that actually creates some energy and joy for me personally, because I guess these people outgrow me like we can help them raise hopefully more from LPs we introduced them to than they're losing from us not re-upping. And then like we can continue to meet new managers and add folks to our portfolio.

1:22:45Alex Edelson:So on your side, how do you think about how do you think about timing? Like on one hand, I feel like it's the manager's job to make sure that they don't deploy their entire fund, let's say, during 2021, like we were talking about earlier, where valuations are super high, you're paying 100x revenue, and then even if the companies do well, you don't really make money, which has happened a lot. How do you think about deploying through cycles as a fund of fund to make sure that your LPs do as well as possible?

1:23:19Ian McGinley:Yeah, it's a great question. So there's sort of two layers to this. Like one, there's like the GP layer. There are folks we're working with whose funds we're investing in and we're collaborating with them as a partner. Like hopefully we're talking all the time and we're talking about this. And then there's like the slipstream fund to funds level. And that is like where it's our mission to build diversity and like diversification into our portfolio construction. So we get plenty of vintage diversification and time diversification. Like in a typical fund of ours, we have two to three years of vintage diversification.

1:23:50Ian McGinley:We have five to six years of time diversification in terms of investments, initial investments made. And then, you know, we obviously have diversification across sectors and some across geographies. And so if we're investing in 10 to 15 funds and we're getting, you know, four to 600 companies in each portfolio of ours, like we have a decent amount of time diversification. But it's more interesting to me, like we kind of just have that programmatically built in. And so I don't want to try to time the market from our perspective. It's hard for me to say like, oh, this is a great time. We should put more into this.

1:24:28Ian McGinley:I don't know. I want to smooth our coverage out over a period of years in a consistent way. There is one exception to that, though, which is that when we started this, like I said, like it wasn't a very healthy time. And I thought it was not a very healthy time for deploying capital through our strategy. And so I did. There was a period of time when we went five quarters without making an investment. And that was like pretty uncomfortable. Like I was getting calls. I had a call from one of our OPs. I'll never forget, like asking, like, are you doing anything? It's like, man, I think we're doing the right thing.

1:24:59Ian McGinley:Like, I think this we're all going to be really happy in a few years. But but no, I'm not deploying a lot of capital right now. And so I have to be careful with that. Yeah.

1:25:09Conor Sen:So that dynamic of like pressing the brake, stepping off the gas, it happens at every layer of the stack. There are startups that recognize the end of Zerp and they cut back, stretch to 36 months between raises. There are funds like Founders Fund. You know, Teal has this saying about how he told everyone for a year, just go to the beach because we don't want to make any investments. It's happening at the fund to funds layer. I'm sure it's happening at the LP layer. Like how much is it most pronounced at your layer? You think, are there any GPs who can actually raise a fund at the top and resist buying the top and then deploy at the bottom?

1:25:48Conor Sen:Because that feels like the mythical best possible outcome, but it doesn't happen.

1:25:53Ian McGinley:It's so hard to do. So like the overwhelming majority of folks don't have that level of discipline or patience. It's so hard. And especially because like, if we just step back, there's this thing that people say like in venture and it's like, like, Oh, should we play the game on the field or should we not? And like, what are our LPs paying us for? Well, they're paying us to get exposure to venture during some period of time. And like, if that period of time happens to be a hot time in the market, then I should just like play the game on the field. And I guess like, that's my job. And I kind of resist that a bit.

1:26:24Ian McGinley:Like my feeling on this is like, no, your job is to get like venture scale returns or do your best to get venture scale returns. And if that requires like all like changing your strategy or slowing down or doing something differently in light of what's going on in the market, like that, I think is the right move. Like when we're five, 10 years down the line and LPs are pushing you on like, Hey, what'd you do when the market was hot? You can say, well, I just played the game on the field like everyone else. And it's like, that's why my returns are bad too. or you could say like no like we were really careful we were really patient we set the bar very high we tweaked our strategy we like that kind of stuff really resonated when folks were reflecting on their 2021 and 22 vintages but there were just so few gps who were able to say that there are a handful i could i can't count that many of them unfortunately but i think the lp world was like very impressed by folks who took 2021 and 2022 who managed that kind of like a very disciplined way.

1:27:25Alex Edelson:How do you handle like co-invest opportunities right now specifically because everything is getting marked up? If at least it feels that way, you have the fifth, five through 10th best company in a category still getting marked up oftentimes for good reason, just because a lot of stuff is growing in a meaningful way. But oftentimes like it's the same kind of opportunity where you, I'm sure you're getting co-invest opportunities where, uh, seems like, you know, super talent dense team, but you're being asked to invest at, you know, some really, really, really insane revenue multiple for a company that is, you know, a couple years old.

1:28:07Alex Edelson:Uh, and I guess like, what's the, uh, your job is to be evaluating like managers. And so you have to put some trust in them that they're, that they're bringing a great opportunity for you, but you're also giving the opportunity to your LPs and saying like, hey, I think this is a good opportunity.

1:28:25Ian McGinley:It's such a good question and really top of mind because like we get more co-investment opportunities in these hot markets. Obviously, we have a ton now. We saw a ton in 2022. And for me, the answer has like a few components. One, I have to like think pretty carefully about like, what are the GPs, blind spots and biases who's like bringing me these? This is one of their most promising companies, right? But like their, their view of that company is, is a bit limited. Like once they invested in that company, they're probably not looking at all the competitors at that stage. They're not leading this next round.

1:29:02Ian McGinley:In most cases, sometimes we do have managers who are like preempting around and that's unusual and cool and, and, and a little higher, higher conviction, I think for them and us. But often it's like, man, the GPs know this company really well, but they also have biases and blind spots. And so that's, that's hard for me. These folks that we're investing in are also like relatively early in their investing career. They just have like fewer reps. And so yeah, I have to factor that into like into account when I'm making decisions about these. And then like, I think about my time at QED and like, I thought I'll speak for myself, like not QED.

1:29:37Ian McGinley:I thought like a lot of RLPs would, they would do more co-investing then maybe they did and and realize like the bar needs to be very high for a gp to show lps a co-investment because at the time that gp raises their next fund the lps are not going to know a lot about how the last fund is performing but they might know how a co-investment is trending and like that's going to impact whether they kind of like trust or doubt the gp and so like my hope is that gps are like hey i bet my i bet my lp's commitment to my next fund on this co-investment that they're going to be glad they did it if I'm showing to them.

1:30:12Alex Edelson:Like that's the bar I hope people are using or something like that.

1:30:17Ian McGinley:It's almost like sometimes I joke and I'm like, look, would you like fly to DC and like tell me I'm crazy if I don't make this co-investment? Like is that the level of conviction here? Or is this like a really good company that's taking off and you want to share the opportunity with LPs and it's a good opportunity for them and it's a good opportunity for you, but maybe not that level of conviction for you. Like I'm really trying to figure out what their level of conviction is. And the last thing I'll say is like, I need to think about like what I'm uniquely positioned to do. Like if I'm, if I'm seeing all these co-investments, like, am I the best person to evaluate all these co-investments?

1:30:48Ian McGinley:And if I'm, if I think I am in a good position to evaluate a co-investment, then the question is like, well, am I going to do just one or am I going to build like a small portfolio? And then if I build a small portfolio, I have to ask like, is my small portfolio likely to like outperform the next fund we might invest in? Or should I just use these slots for another fund? And so like in reality, the way this has worked for me is like I haven't made any co-investments out of our funds. And we're like five years into this. And we've had some great ones. Now, we bring them to our LPs and we either don't recommend them or we say, basically, I could see if this would be a fit for you.

1:31:21Ian McGinley:And I'm happy to help you run it down. But like I want you to feel like you can get to conviction on your own with the information that I'm sharing with you. And like I would encourage you to build a portfolio of these and not just do one. and then we put SPVs together for them. So like, I guess that's a very long way of saying like, we're pretty careful and we haven't done any out of the fund because it's hard to do this from my seat. Now, if you get it right, amazing. Like if you're in great co-investments, that's great. And they certainly could help people fundraise. Like in my position, in a hot market, co-investing could help me fundraise because we're likely to get some quick markups from that.

1:31:56Ernie Garcia:I just worry that like, yeah, maybe that isn't the right path to getting like long-term returns.

1:32:02Conor Sen:So that seems pretty focused. Do you think that the overall fund strategies are becoming less focused or less blurry? Is there like a broad trend here? Because you see venture capitalists who are known for software, investing in everything from semiconductors to data center constructors to hard tech, defense tech, biotech. And then also you have blurriness on the strategy side. You're doing a billion dollar seed round. Maybe you're playing in public markets. Maybe you're a hedge fund that's also doing private investments. It feels like we've been at the blurriest it's ever been in terms of defining what a fund even is these days.

1:32:37Conor Sen:But is that what you're seeing? Or is there still like a healthy batch of super focused tech VC managers?

1:32:45Ian McGinley:It's funny. I think there's been like this has fluctuated over time. Like there have been times in the market where people are like, I don't think there's any place for a generalist fund. You'll never be a sector focused fund. We can only invest in sector focused funds. If you're not a sector focused fund, you'll lose to all the sector focused funds. you know and then and then you're it feels like we're in a period right now where it's like no if you have access to like the great talent the best talent at the earliest stages you can find them like at or before inception like that's a that's a really compelling way to win in this market and and those are typically generalist funds and so like i don't think there's one answer here but yes i am seeing oh the longer you're in this the longer you see people's strategies evolve from like hey we focus on certain sectors like if we just like look at their web pages from like a couple years ago it's like oh you used to be a crypto fund and like now you're like an ai fund and and then like maybe you're becoming like a hardware fund yeah and i think like yes you see a lot of that you see and and and for my position like obviously like we're all skeptical any investor's going to be skeptical and and and my job i think is just like figure out who's uniquely positioned to like execute on whatever strategy they have and like generate significant outperformance and like ideally like be generated top decile returns and And so, yes, I am seeing from a sector focus, I do see drift over time.

1:34:06Ian McGinley:But it's case by case when I'm making an investment decision. I kind of assume they are what they are today, and I push on what they used to be and why they evolved. And you can kind of figure out whether it's –

1:34:17Conor Sen:Also, I mean, some of the best funds, they did evolve. They were investing in semiconductor companies and then internet technology companies, and those were related but very different structurally. So as long as you navigate the translation, it can be good.

1:34:28Alex Edelson:How much do you care about being in one of the next truly legendary funds? I'm thinking like an FF. It was FF1, right? FF2. FF2 is a 300X. Or like a lowercase. Is that something that you tell your LPs? Swinging for the fences. Not swinging.

1:34:51Conor Sen:Kind of.

1:34:52Alex Edelson:But I think by backing the next great class of managers, you should, in theory, over the course of like 10, 20 years, you should get in one of those legendary fights.

1:35:09Ian McGinley:It's so interesting. Like certainly doing that will help you. But the question is always like by the time you know you were in one of those, and then let me get back to like how important it is for me to be in one of those. by the time you know you were in one of those that was probably a long time ago right like you have some amazing fund FF2 it's like yeah it's 20 years

1:35:27Alex Edelson:so that's what I'm saying I'm saying 20 years from now yeah and so

1:35:31Ian McGinley:like if we're saying that about like Slipstream in 20 years oh look at this he was in one of the best funds of the last 20 years something isn't he so great like the question will be like well he was great then but like is he still that great now I don't know and so like that's the problem with all of venture investing and like sometimes people talk about like oh emerging man investing in emerging man is so hard because they've limited track records it's not that much to evaluate i totally agree like it's hard but i think it's hard to evaluate in funds like funds that have established track records too because unless they're like the major platforms that are like pretty stable um there are other things changing those like fund size and portfolio construction it's very hard like you're basing your decisions on on returns that are like based on a different time a different fund size maybe a different team like you're always trying to figure out is this team uniquely positioned today, but like to generate great returns, but to come back off of that riff and like to get back to like the stride, to get back to like the importance of getting into one of those funds is something I think about all the time.

1:36:29Ian McGinley:Like, especially when I was just starting out, one of the questions I would sort of pose to myself is like, does it matter to me to be in the best performing funds we meet in a given year? Or is our job just to make sure that like every investment we make is a good investment? Like the best investments, like the 300x investments like sure i would love to be in those of course i would love to be in this but like often those are like pretty weird funds like it could be some like two million dollar fund that you like is totally not clear at the time and it's very difficult to underwrite and they get in a couple of good good companies and like it's a ridiculous outcome like sure it is my job to invest in funds that have limited track records and to try to figure out who has increased odds of like significantly outperforming.

1:37:16Ian McGinley:And so I hope that I am able to get into the best funds of the vintages when I'm investing. But the reality is like, if we're investing in good funds, like we can generate great returns without those. I certainly would love to be in those though. I don't think like slipstream success is defined by being in those.

1:37:31Alex Edelson:Totally. Yeah. It's more of like a personal thing. Like, you know, after these 20 years, I feel like you're going to be, uh, I think, uh, I think there's a good, I think there's a good shot. This is a,

1:37:44Ian McGinley:Oh man, I don't know. I don't know. We actually, yeah, we just had our, our first fund. Uh, we'll, that will be, um, we're about to have our first fund at over 20 X. So that's like a big, there you go.

1:37:57Alex Edelson:We're hitting the gong for that. Um, this was a super fun conversation. Let's, let's make it a usual thing. It's a great to get a pulse check on the market. I'm glad, I'm glad to meet connected us.

1:38:10Ian McGinley:Yeah. So much fun. Oh, thank you guys. Thanks for having me on. I'd love to.

1:38:14Conor Sen:Thanks so much.

1:38:14Alex Edelson:Cheers, Alex.

1:38:15Conor Sen:We'll talk to you soon. Goodbye. Let me tell you about Codex. Codex is a powerful workspace for getting work done with AI agents. Whether you're writing code, analyzing data, creating content, or automating business workflows, Codex helps you move projects forward from start to finish. Our next guest is already in the waiting room. We have Nico Simcoe from Claire. He's the co-founder and CEO. How are you doing, Nico? Welcome to the show.

1:38:38Ernie Garcia:Hey, guys. Thank you so much for having me.

1:38:40Conor Sen:Thanks so much for hopping on. Why don't you introduce yourself and the company a little bit and then give us the milestone. I want to hit the gong.

1:38:47Ernie Garcia:Amazing. Big day, big day for us. Nico Simcoe here, founder and CEO of Claire. Basically, in a nutshell, what we do is we try to solve one of the biggest inefficiencies we think is in the U.S. labor force, which is if you work today, you need to wait two weeks for your paycheck. And so we try to distribute that as far as we can. And today, the company has crossed$100 million. dollars in uh we announced 100 million dollars in revenue run rate

1:39:14okay so uh break down a little bit more how the business works you guys are serving

1:39:21Alex Edelson:five percent i believe of small businesses in the u.s you're integrated into the payroll system gusto quickbooks trinet the big guys yeah and it's funny when i uh yeah when i first started I was surprised that this was not like a thing. Maybe it was or just at a much smaller scale. But as soon as I understood how payroll systems worked, I was wondering like why employees didn't get access to funds, couldn't get access to them early. If a payroll system like knew that they were still an active employee working, feels like pretty easy to underwrite. But it doesn't make sense for the company necessarily to be in that type of short-term lending business.

1:40:08Alex Edelson:But yeah, walk through maybe the history of this category, how you came upon the opportunity, and maybe even how you were kind of diligencing the opportunity early on. Because I imagine it was one of those things that maybe you were like, why doesn't this exist already? Am I missing something?

1:40:26Ernie Garcia:You're making my life easy because basically that's very much in line of what I think I had, but also many people that joined the company early, whether it's employees, investors, so on and so forth. It's that. It's like, look, we live in an instant world, right? You can click a few buttons and get any movie you want in the world. But at the same time, if I was outside of the credit system, that's maybe a good tangent to go in. It's like I came to the U.S. without any credit history. My parents are not from here. I was an F1 student. I had a job at J.P. Morgan after college. I still couldn't get a credit card.

1:40:57Ernie Garcia:I got so many denials. You were a student of F1, Formula One?

1:41:02Ian McGinley:I was an F1 visa student. I wish I was a student in F1.

1:41:08Ernie Garcia:But yeah, the reality is I went through this entire journey of being outside of the cuts of 25 million people like that in the country. And then there's another, I would say, roughly 30-35 % of the U.S. workforce that is basically not in a prime category. And it's like, okay, if that's the case, and 50 % of Americans work paycheck to paycheck, why can't credit be connected to the workplace? And of course, short-term credit is one piece, but you can think about car loans, right? There's lenders that really would like to extend credit to the asset, but at the same time, it's risky. And so can they create a way to kind of connect that via the payroll system?

1:41:45Ernie Garcia:And what it does is it decreases kind of the risk, decreases the cost to the consumers and the entire system becomes more efficient. So honestly, I couldn't stop talking about this for many years and ended up kind of like leaving JP Morgan and starting the company.

1:41:58Conor Sen:What was the MVP? Like, what was the first customer? Did you go to a payroll platform and try and integrate or did you go direct to a company and have just like a web app? Like, do you need a bank charter for this? Like money transfer licenses? Like, how does all that work to actually start this business?

1:42:15Ernie Garcia:Yeah, absolutely. A lot to unpack here. So I'll try to maybe take it high level and then we break it down. But the idea, really first principle is my co-founder and I sat down and we realized like, okay, what is the perfect product? And the perfect product we thought of at the time, left our jobs then in 2019, restarting, incorporating everything in 2020, was if you could have a digital bank that connects to the workplace and every single time you work, basically your funds are available in your bank account if you need them, that would be perfect. And it's instant, it's free, it's perfect, and that's the trade-off.

1:42:47Ernie Garcia:That product did not work. And the simple reason why that product did not work is because when you're asking someone to move their entire financial life over to a new digital bank, it's a lot to ask for. It's like going on a date and asking somebody to get married on the first date. It's a lot, right? And so maybe that's where you'll end up, but don't do it immediately. And so it made us a little bit more humble and we spent a lot of time with our user base. My co-founder flew down to public schools in Georgia and met the principals around how public school teachers don't get paid during the summer.

1:43:16Ernie Garcia:They only get paid monthly. And then we start to realize that there's a way to do this, which is embedded inside of payroll. People trust their payroll system. We all sign up for, anyways, healthcare products through payroll. And payroll companies are becoming workforce super apps, right? Like, love the partners we work for because they really have this vision. They're like, one app solves a lot of things. And so we went after these providers. And we're like, look, we want to foster your brand. We're not trying to send people to another app. So that's when we decided to pivot. and the company in two years kind of really, really accelerated when we took that strategy.

1:43:47Conor Sen:Well, congratulations. I want the opposite of this. I would love to get Tyler working for like three months straight before we pay him a dime. So he has to put in 90 days of hard labor until he gets a single paycheck, sort of the opposite.

1:44:01Alex Edelson:To unlock the grind set?

1:44:03Conor Sen:Yeah, good things come to those who wait. No, it makes a ton of sense. And congratulations on the progress. Thanks so much for coming on the show.

1:44:09Alex Edelson:Yeah, very, very fascinating business. Thank you so much. Yeah, great to meet you, Nico.

1:44:12Conor Sen:We'll talk to you soon. Thank you for having me. Let me tell you about MongoDB. What's the only thing faster than the AI market? Your business on MongoDB. Don't just build AI. Own the data platform that powers it. Our next guest is already in the waiting room. We have Ian McGinley from Sidley Austin LLP. He's a partner there. Former head of enforcement for the CFTC. How are you doing, Ian? Welcome to the show.

1:44:37Ernie Garcia:Thanks for having me, guys.

1:44:38Conor Sen:Thank you so much for taking the time. Great to have you. I would love for you to set the stage for us with a little bit of your backstory and career and what's on your mind in terms of prediction markets. We talk about prediction markets all the time. Sometimes they're really useful. There's a whole bunch of complicated issues that I'm sure you can help us unpack. But we'd love to start with your background.

1:44:58Ernie Garcia:Yeah, yeah. And by the way, there's a lot of prediction markets on TBPN stuff, including who's going to be your guest. That has happened a few times.

1:45:07Conor Sen:Also, it's happened.

1:45:08Alex Edelson:Yeah, I would say some of my least favorite moments on the show were when I realized that there had been a prediction market set up around things that one of our guests would say. Because then you would get a bunch of people in the chat that weren't here, didn't care about the content at all. They only cared about trying to manipulate us. Exactly, ask about Bitcoin or whatever.

1:45:29Conor Sen:Normally, the chat's really helpful and actually providing really great. It just sort of ruined our chat. Anyway, that's enough. We already started with the grapes. But kick us off with the backstory.

1:45:37Ernie Garcia:Yeah. Yeah. So, right. I'm at a law firm called Sidley Austin right now. But before that, I was the head of enforcement at the CFTC. That's the Commodity Futures Trading Commission. I don't think people had really heard of it until recently, you know, because it was really regulating agriculture. And now it's involved in prediction markets, crypto, and some of really the hottest topics around in finance. Yeah. And before that, I was at SDNY for a long time doing white collar crime insider trading, you know, back in the day. And so I've seen it from all sides. And now I help people try to navigate, you know, what's going on in the regulatory environment, which is active.

1:46:15Ernie Garcia:You know, there's there's so much going.

1:46:17Conor Sen:How active is it? It feels like the game's over to me. How do you feel about the prediction markets? It feels like they're here to stay that, you know, you love them, you hate them. Sagar and Jetty, not a fan, clearly. Other people have a lot of money riding on these companies, but it feels like it's mature. It feels like it's decided. Are there more points to decide at this point?

1:46:37Ernie Garcia:Oh, definitely. Yeah. But I mean, I think top line, they are here to stay. I mean, they've captivated the public's imagination, both retail and institutional. Right. But there are a few issues being worked out. Chief among them is sports. Yeah. Right. Sports event contracts. There's a lot of litigation over them. The states, right, which have regulated gambling for a long time are filing lawsuits. They stand to lose. They stand to lose revenue. And those cases are working their way through courts. And courts are reaching different decisions. We have district courts, appellate courts, and the Supreme Court.

1:47:12Ernie Garcia:The district courts have come out both ways. Some pro-prediction markets saying federal preemption applies, meaning this is the CFTC's jurisdiction and not the states. And then we've had one appellate court weigh in saying also CFTC's jurisdiction, but more courts are going to weigh in. I bet that goes to the Supreme Court. And so we'll see the future of sports contract. Meanwhile, you've got the CFTC, which is regulating in the space. They put out some rules. There have been issues with contracts. Like you mentioned mentioned markets and insider trading. There have been some cases involving people using information that they shouldn't have to go trade in prediction markets.

1:47:54Ernie Garcia:So that's very much a focal point of the government right now.

1:47:57Alex Edelson:Yeah, so there's a question on should they exist specifically for sports. there's also the like all the different ramifications of prediction markets being popular overall. I think with with the Venezuela military operation, you know, that felt like, you know, a really significant moment because you had a armed serve, you know, one of our service members that had a financial incentive to put his entire crew at risk by sending a signal to the world that, hey, this operation is going to happen, right? And that was just like probably one of the darkest moments that I can remember. But then there's almost infinite markets on every possible topic.

1:48:49Alex Edelson:So as somebody who's been working in enforcement and working on a bunch of things like insider insider trading which i think provides a lot of um precedent for this can this can all these like we're creating a bunch of new problems where where uh all these type of real world events can be potentially influenced by individuals that have a direct financial incentive where where maybe before there wasn't one at all um what what's the what's the sort of broader solution or framework that you think would be effective at maybe curtailing some of these issues? Yeah.

1:49:31Ernie Garcia:So you mentioned that Maduro case, right? And I think what gets lost in that is while the market is different, right, that conduct has always been illegal, 100 % illegal, right? It's like knowing the answers to the test before you take it. And that's just allegations now. So, So, you know, he'll have his day in court as he deserves. But I think, you know, when you think about insider trading, a lot of it boils down to common sense. Like you can't use information that's not yours. You can't, you know, take out an event contract ahead of time when you know you're going to be the guest and there's an event contract on that.

1:50:05Right.

1:50:06Ernie Garcia:I think the challenge is that there's event contracts on everything. Right. So we're talking about, you know, if you're if you're thinking about equity markets and commodities markets, There's a very well-established playbook for how you handle that, right? I'm thinking like, you know, big financial institutions. They train employees. There's policies and procedures, you know, addressing kind of everything under the sun. The prediction markets have got to catch up in terms of everyone in an industry impacted by prediction markets needs to be made aware that you can't do that because the consequences are just enormous, right?

1:50:44Ernie Garcia:I mean, you wind up prosecuted by the DOJ, then the CFTC as well. And so there really is an education aspect of it that I think we all need to grapple with. In terms of the promises, right, I mean, you see the information and why people absolutely love it. And it's great for a news source. It's great to have. I mean, look at how it did on elections. You know, 2024 election was a watershed moment. A lot of people think in prediction markets because the polls and the experts had it very close. Prediction markets showed that the sitting president had a pretty comfortable lead in all the swing states.

1:51:20Ernie Garcia:And, you know, it's an interesting question on how these prediction markets interact with normal or traditional exchanges. Right. And we've seen an integration of both because it's very helpful to have that information alongside other financial decisions you're making. Right. Like, will the Fed raise the interest rate in September? Right. That's a metric that I think has a lot of implications for other instruments. And you can you can track that. You could ask people. You could ask experts. You could talk to someone in D.C. and find out, you know, or you could go on one of the prediction markets and see what you know what the most likely scenario is.

1:51:56Conor Sen:There's a new lawsuit. Flight tracking platform FlightAware is suing Kalshi, alleging the prediction market company is using the data without permission to let users bet on flight cancellations. When this news hit, people immediately jump to, well, what if someone calls in a bomb threat and then the flight's delayed or canceled just because they want to win on the prediction market? But I was expecting the airlines to be pushing back on this or the FAA or the TSA or someone else that would be more directly in the affected line. It doesn't seem to affect FlightAware's business. They seem more worried about brand damage from having the registered trademark linked over there.

1:52:38Conor Sen:But do you understand more about the different participants who are pushing back against being dragged into the prediction market world?

1:52:47Ernie Garcia:Well, I haven't heard much about that lawsuit. I think it was just today that it came out. I think that one area to watch is what the CFTC does. They put out a proposed rule, and what they're trying to prohibit is contracts that could be potentially manipulated. And you don't want to create any perverse incentives. And that's what the CFTC is grappling with and how to separate contracts that we all are really enjoying and finding informational and economically useful to hedge in some situations. But also just make sure you're not creating a situation where someone tries to manipulate the contract for their own good.

1:53:30Ernie Garcia:We just saw a recent case involving George Santos. Different context, right? Right. But the manipulation piece, now this is, again, there was no admission of liability.

1:53:42Conor Sen:It's all alleged.

1:53:43Ernie Garcia:Yeah, it's alleged. But the allegation was, the contract was whether he was going to attend the State of the Union. Yeah. And he obviously knows that. And according to the allegations, went on social media and made certain statements to change the odds of the contract so that he could profit. And again, new market, but that kind of conduct has always been illegal.

1:54:08Alex Edelson:What kind of lore did you pick up from CFTC history, like, when you took the job? Are, like, stories, I don't know what you can or can't talk about, but I imagine, like, some of the historical enforcement, there has to be some crazy crazy stories specifically in agriculture going up against Big Onion

1:54:32Conor Sen:you were talking about Big Onion imagine if you

1:54:36Alex Edelson:you probably wore a suit most days but maybe if it was 30 years prior you would have had some jeans and a sidearm and some boots

1:54:49Conor Sen:I'd have to learn

1:54:50Ernie Garcia:some new skills I'm a city guy But, yeah, you know, look, it's an amazing organization. It's only been around for about 74 years. Right. Yeah. So, yeah. I mean, I think I think a great piece of trivia for the CFTC, the definition of a commodity is essentially almost everything that you have a futures or derivatives on. There's two exceptions, box office movie tickets and onions. And no one knows the exact reason why they're not, but they are not regulated by the CFTC. and I don't think we could ever see an event contract on them. So there's that. But, you know, just in terms of prediction markets, what's really interesting is they've been around for a really long time.

1:55:32Ernie Garcia:That's right. It's just now they really, with sports and with political contests, they've really captivated the attention of folks. And I think you're seeing a ride-along effect in terms of other contracts that are now getting, you know, really popular with the public. And so there were on a very limited basis some election contests that were experimental. But now you see them everywhere. And even the 2025 mayoral race in New York, they were very accurate.

1:56:02Conor Sen:So on sports betting, when we talked to Sagar and Jetty from Breaking Points, who's very concerned about the proliferation of sports betting, having a casino in your pocket, as he puts it. And his main contention is that it's the availability. It's the ease. It's the lack of the infrastructure that was formerly around sports betting. You had to tell your family that you're going to Las Vegas, walk into a casino. It's smoky. It's expensive. Put down a bed. Did you always give that notification? There were a lot of barriers. And also you could do self-exclusion. There were gambling hotlines. There were a whole bunch of warnings about the economics of what you were participating in.

1:56:46Conor Sen:The house always wins. And what I'm interested in is, does the CFTC even have the authority to layer that similar structure of, hey, if you're going to be advertising, instead of betting on the Super Bowl, you're going to be trading the Super Bowl. You also have to have the same gambling hotline phone number because, from our view, it's a similar thing. we're going to let it happen, but it needs to have the same infrastructure that it had just a few years ago? Or is this something that the CFTC doesn't even have the tools in the tool chest to make happen if they wanted to? No, they have the tools.

1:57:28Ernie Garcia:I mean they've regulated these markets, just not in these subjects, right? So basically the CFTC's view and some courts have adopted this is that these are financial instruments. They're called swaps. An agreement between two parties on the occurrence of an event that has some economic financial consequences is how they view it. And so the CFTC has authority if there's fraud, if there's manipulation. Now, I do think, and they've made some talks about this, that we'll see more rules from the CFTC. It has not traditionally been involved in these spaces. And I think with anything with government, it takes time to catch up with industry.

1:58:12Ernie Garcia:That's just a fact. And so I think the CFTC will tackle those issues pretty soon.

1:58:17Conor Sen:Yeah, it'll be very, very interesting to follow. We'll have to have you back on when there's more news. Thank you so much for taking the time to come chat with us.

1:58:24Alex Edelson:Yeah, thanks for breaking it down.

1:58:24Conor Sen:Have a great rest of your day. We'll talk to you soon.

1:58:27Alex Edelson:Cheers, Ian. Goodbye.

1:58:27Conor Sen:Let me tell you about CrowdStrike. Your business is AI. Their business is securing it. CrowdStrike secures AI and stops breaches. Our next guest is going direct, going independent. We have Connor Sen from The Housing Frame. He is the founder of a fantastic new sub stack that I just subscribed to yesterday. Connor, welcome to the show. Thank you so much for taking the time to come chat with us. How are you doing?

1:58:52Ian McGinley:Yeah, thanks for having me.

1:58:54Conor Sen:Congratulations on the launch. I'd love to hear a little bit about your background, the beats and the way you like to cover different topics, what you like digging into. And then we can go into some of your current outlook on the market, housing, all the hot topics that you're planning on covering this year and beyond.

1:59:16Ian McGinley:So I'd say my professional background related to housing is twofold. One is I worked for a big hedge fund in San Francisco during the crisis. So I've been out there and got to work on credit derivatives and mortgage derivatives and all that. Saw all that happen. Then moved to Atlanta after the bust and just needed to start over. And eventually got hooked on Twitter. Started right from Bloomberg in 2016. Did that for 10 years. Wrote about the economy, housing, demographics, cities, things like that. And just felt like the housing market to me feels like it's bottoming. And I saw the opportunity with Substack and being a chance to be the voice to come on shows like this and talk about it for the next 10, 15, 20 years.

1:59:54Ian McGinley:And it just felt like a great time to start doing that.

1:59:56Alex Edelson:John is so happy about this because, John, you're you would you would we we we don't have like a housing guy. Oh, that's true. John, John.

2:00:07Conor Sen:Well, we got Sager and Jenny complaining about it. We got Sager complaining about it.

2:00:11Alex Edelson:But we don't have somebody who's been like, we like hanging out with Joe Weisenthal, people like that. We have our guy in a bunch of different categories, but we don't have our housing guy.

2:00:21Conor Sen:Ben Thompson for Mag7.

2:00:22Alex Edelson:Hopefully this is the start of many appearances.

2:00:27Ian McGinley:That was part of the thinking too, because Bill McBride at Calculated Risk, the blogger that everyone knows so well, he's retiring next spring. And so I did look out five, 10 years and thought, who are the voices for our generation who can do this? And I felt like I could do one.

2:00:39Conor Sen:So how do you think about your reporting the shape of like, when do you want to go and talk to a bunch of sources on the ground, look at a bunch of economic data, crunch something into something more of a narrative? There's so many different outlets, even when you're at Bloomberg, opinion versus factual reporting, getting a scoop. There's so many different pieces. What have you explored? What have you shied away from? What have you leaned into? do?

2:01:06Ian McGinley:I think starting out, it's probably going to be fairly similar to what I was doing at Bloomberg, probably reaching out here and there to sort of broaden my base. But over time, I think it'll be a function of what do I think is interesting? And then who are the sources that I can talk to who are good and help me do what I do better? So I'm pretty good at data and media and all that. But yeah, I don't have a lot of friends who are real estate agents or mortgage originators or things like that. So I'm excited about that.

2:01:30Alex Edelson:Yeah. Okay. So first question, you said you feel like the The housing market is bottoming, but a lot of people, if you ask average Americans, that certainly, they wouldn't feel that way.

2:01:44Conor Sen:You say it's bottoming, and yet houses are expensive.

2:01:47Alex Edelson:Prices still feel quite high, but what you're saying is maybe transaction volume has been subdued over the last couple of years due to rates and other factors. But yeah, break that down. and talk about the why now and then we'll get into where things are going.

2:02:05Ian McGinley:I think the bottoming call is twofold. One is that the hardest hit states over the past few years, places like Florida and Texas, now see inventory dropping and new orders for home builders are rising. That's kind of your classic bottoming late cycle recovery. And then San Francisco is clearly a market that very similar to 2010, 2011 is leading the country in terms of what this expansion looks like. And I'm really excited and interested to see where that broadening out goes over the next six or 12 months.

2:02:34Conor Sen:How important is actual development in home building? We've talked to startups very early stage thinking about 3D printing or manufactured housing, and there's some technology there, but I always discount those projects as maybe that'll have an impact in 10 years, 20 years. I'm really excited and optimistic about it, but realistically, I don't think it's going to be moving home prices in the next few years. But how important is the shape and structure of the actual home building market to house prices in America?

2:03:07Ian McGinley:It matters a lot down here. I'm in Atlanta. It matters a lot in Texas and Florida and Arizona and places like that. Historically, it has not mattered a lot in San Francisco. I remember talking to somebody at Bloomberg Beta about eight or ten years ago who said that the best way for ordinary people to bet on VC is San Francisco real estate. And I think we're seeing that this year. So I'm hopeful that they can build more homes out there. but it's been a long, tough slog. I mean, I left in part because of housing, and here we are 16 years later.

2:03:34Conor Sen:What about government regulation? Obviously, it feels like the story of housing in America is very much the mortgage interest tax deductions, all the incentives to get the American dream is directly tied to home ownership. And so the government has done a lot for that. But then there's also permitting reform, the abundance Democrats, the abundance wing are pushing for more building. And I'm just wondering if you think that there's anything that could happen on the policy side that would actually move house prices in the short, medium, or long term.

2:04:09Ian McGinley:So I did speak with a policy expert on housing about, I said, what are your thoughts on road to housing and what matters for this? And there are some short-term things like manufactured housing should get easier to build. But he said, the really important thing is we've identified a bipartisan coalition that will vote for housing bills. So this was our first crack at the apple. And but we now know where the boats are. So going forward, we can take another crack at it in two years and just keep chipping away. Try to try stuff, see what moves the needle and just hope that slowly but surely over time we can build more housing.

2:04:39Conor Sen:Do you have any idea of like what the shape of that legislation might actually look like? Because it's just saying like we need to build more a lot. You'll get a lot of thumbs up. But what are we actually changing? Are we are we making the time to permitting more? Are we hiring more people to review permits? Are we changing the requirements for fireproofing or something? Like, it's very, it gets nitty gritty really fast.

2:05:06Ian McGinley:So one thing that might be that resonate with your audience is that right now the financing piece is really hard. And what happened was similar to VC and private equity, a lot of people invested money in 2021, 2022, interest rates were low. In real estate, we'd say cap rates were low or valuations were high. And they got blown out pretty bad over the next few years. and the equity got wiped out. Maybe people are still sitting on loans. So as we see the apartment market starting to turn, time to build apartments again, there's no equity to go around. And you can't get a deal done unless there are equity investors ready to go because they all got wiped out last time.

2:05:42Ian McGinley:They're gun shy. And then nowadays, maybe you'd rather fund a data center than an apartment building. So I think finding ways to finance new developments and maybe the public sector can have some role here, whether it's subsidizing or tax incentives, things like that, that's something that we should look into.

2:05:57Conor Sen:Interesting. Interesting. What role do you think other buyers in the market that aren't specifically someone going to either buy a house that they'll live in or, um, or buy maybe an apartment building to rent out or having on the, uh, or having an effect on the housing market overall? You hear a lot of, uh, uh, sort of hand wringing around like private equity, buying a bunch of homes. Is that actually distorting the market? I was running the numbers and it felt like a couple percentage points of homes are owned by private equity. It didn't seem like it was the biggest factor, but how have you grappled with that story?

2:06:34Ian McGinley:It was really a much bigger story 15 years ago. And certainly here in Atlanta, the private equity and investors bought up a lot of distressed homes. And I know that looking back, it doesn't look so good. But at the time, that was when there really weren't a lot of qualified buyers. People had bad credit scores. Unemployment was really high. Banks were failing. And so investors came in and stabilized the market. And I know it's not popular now, but at the time it made sense. And so I would say today it's that we have a really K-shaped housing market where if you have a lot of stock wealth, it doesn't really matter where mortgage rates are.

2:07:06Ian McGinley:You can still buy a home. And in fact, I was looking at data in Nashville. Year to date, home sales in Nashville for homes over$2 million are up 32%. For homes under a half million dollars, basically flat. So the corner of you need a mortgage, you have just a job, that market's still pretty stagnant, but the high end is really booming.

2:07:24Conor Sen:And so is the bottom of that K switching into renting in that case?

2:07:30Ian McGinley:They are. And renting is still basically a better deal in most places. But I do think an issue is that in the apartment market, we're starting to see vacancy rates come down. And typically when vacancies come down, rents go up next. And so you might be in a situation where yes, it's cheaper to rent than buy. But if you think that your rent's now going to go up a lot over the next two or three years, you might factor that in and say, I'm willing to overpay for a house because my rent's going to go up 20 % in two years. So I think that's more of a 2020-2027 story, but that's something I'm thinking about for next year.

2:08:01Alex Edelson:How much are you going to be tracking demographic, like basically demographic trends and how that impacts housing. The boomers have a lot of, quite a lot of homes and they'll be turning them over eventually. But is that a story? That's definitely a... Is that like a 2030s story? I think so.

2:08:25Ian McGinley:For me right now, the demographic story is that we see both in New York and San Francisco that rents are really high, but rents have come down a lot in the states that built over the past few years so as the the san francisco austin gap gets really wide maybe an anthropic employee won't move to austin but maybe somebody who you know couldn't buy the house they wanted to buy because they got outbid by an ai person maybe they start to look to leave and so maybe then you can get the migration fly

2:08:49Conor Sen:wheel cranking again in the south interesting how big of a deal are foreign buyers in the american housing market. There's a lot of, again, you see these pieces similar to the private equity buying houses of, oh, there's someone that made a ton of money internationally and they just want a safe place to park their capital. And so why not buy an empty luxury apartment in Los Angeles or Miami or New York? Is that just a small fraction of what's going on in the real estate market or is it actually enough to move the overall picture?

2:09:22Ian McGinley:That was actually a sneaky source of weakness in the North Dallas suburbs last year because H-1B visas were apparently a fairly meaningful part of the sort of ex-urban Dallas new home market. And then financing got, I don't know the details of that very well, but just with the policy changes with the administration. And so that seems to kind of come in waves where you get these moments where China's buying up a lot of housing and then they go away for a while and then they come back. I don't think it's a big factor right now, but it's certainly something to watch going forward.

2:09:50Conor Sen:Yeah. Last question for me. I'm interested in how you're thinking about your audience for the housing frame. Do you think that there's a goal to reach hedge funds and traders who will be reading your analysis and actually building an investment thesis on top of it? Or like where is the – and then does that lead into like a consulting business? I'm just sort of interested in where the overall company goes as you expand.

2:10:19Ian McGinley:Yeah, it's interesting because coming from Bloomberg, we didn't get a lot of demographics or data about our audience and our writing. And so I think to start, just going to be looking at the Substack metrics and seeing who's coming in, what's getting their interest, kind of thinking about that, reaching out to people one-on-one, because especially early on, I can do that. And then it's sort of, again, these are not one-to-one comps, but I look at what Bill McBride built with calculated risk over 20 years and thinking I could try to have some of that audience over time or try to earn their trust.

2:10:47Ian McGinley:And then this is like pie in the sky, but what Dylan Patel did with semi-analysis, and he was just a guy who got started, and then his sector got hot. And so I do think housing eventually will get hot again, and hopefully I can be a place that people come to when that happens.

2:11:02Conor Sen:Yeah, yeah. I can totally see the semi-analysis type, the tokenomics model, understanding how data centers are building out. I haven't seen that data contextualized for the housing market. And I can imagine so many consumers and obviously business people being fascinated by it. Jordy, anything else?

2:11:23Alex Edelson:Not for now, but come back. Congratulations on the launch. Go subscribe.

2:11:26Conor Sen:Where can you sign up? Give us the URL so everyone can go subscribe.

2:11:30Ian McGinley:It's connersend.substack.com or just the housing frame. I'm sure you can find it. So thanks a lot, guys.

2:11:35Conor Sen:Thank you so much for having me on the show. We'll talk to you soon. Thanks for coming on. Have a good one. Goodbye. Let me tell you about public.com. investing for those who take it seriously. We've got stocks, options, bonds, crypto, treasuries, and more with great customer service. Any other stories you want to cover? Bending Spoons, apparently on a tear, 265X price-to-earnings ratio, buying old, boring SaaS with slow growth. People are excited about that, I guess. Bending Spoons added$11 billion in market cap after announcing the Airtable acquisition. Can't make it up. Is that true? Bending Spoons market cap.

2:12:16Conor Sen:Wow,$34 billion company. Way up since IPO. Wow, really, really impressive. Up 50 % since they IPO'd. They're on a tear. Who will be the next Ben Spoon? That is the question everyone's asking. Do not get it.

2:12:34Alex Edelson:Don't get your spoon, Ben.

2:12:35Conor Sen:Don't get your spoon, Ben.

2:12:36Alex Edelson:Unless that's the best possible outcome. Yeah, maybe. We'll leave this show with a post from June Chu, who was the COO at Zillow until very recently. He posted on LinkedIn, I have stepped down from my role as COO of Zillow. That's all I have to say about that.

2:12:58Conor Sen:Mic drop moment. There we go.

2:13:01Alex Edelson:And, yeah, I'm curious. I'm sure we'll find out in due time what he really wants to say about that.

2:13:09Conor Sen:Yeah, it feels like teeing up a tell-all.

2:13:12Alex Edelson:Feels like he maybe can't say anything. For sure.

2:13:17Conor Sen:Anyway, there's a bunch of other good stories.

2:13:20Alex Edelson:Last but not least, Leonardo DiCaprio urged Chilean authorities to protect a critically endangered frog from a proposed power transmission project. This feels like something that's solvable. like I think that I think we can protect the frogs and do the power transmission project yeah do you agree John I know nothing about the situation but I have I have a little faith spiny chest

2:13:48Conor Sen:frog there's a thousand of them that remain in the wild

2:13:52Alex Edelson:I think I think Leo should let them move in bring them to America put them in a zoo or something

2:14:00Conor Sen:I think they want to live there I think I think you've got to do a lot of work. I don't know, maybe beam the power somehow, do something else. Yeah, interesting. It's got to be rough being in the Chilean government and just being like, who's taking shots at us?

2:14:17Alex Edelson:Leo just comes over the top.

2:14:19Conor Sen:He sent 60 million Instagram followers our way. And they're sicked them on us. It's got to be brutal. Well, good luck. Hopefully the frog can be protected while the power transmission project goes on. Frogs on hamster wheels powering, generating power. Maybe that's the future. Who knows? Well, thank you so much for tuning in to TBPN. Leave us five stars on Apple Podcasts and Spotify. Sign up for our newsletter. It's August 11th.

2:14:47Alex Edelson:It's August 11th. It's summer.

2:14:49Conor Sen:Yeah, it's summer.

2:14:50Alex Edelson:Go touch some grass for us. Have a good day, and we'll see you tomorrow. Goodbye! Love you.