Ross Fubini on Finding the Wave Behind Breakout Startups

0:00When you start a new fund, the thing you have to be showing people is that you are accessing a new network.

0:09Peter High: Welcome to TechnoVenture. I'm Peter High, president of MetaStrategy. My guest today is Ross Fubini. Ross is the founder and managing partner of XYZ Venture Capital, a firm he founded a decade ago. XYZ focuses on backing entrepreneurs at the earliest stages of company building, particularly across enterprise technology, fintech, and industries that have historically been underserved by technology. The firm has grown substantially since its founding and today manages nearly$2 billion in assets. Prior to becoming a full-time investor, Ross was an engineer and an entrepreneur, co-founding the enterprise collaboration company Cubetree, which was acquired by SuccessFactors in 2010.

0:45Peter High: Ross and XYZ wrote the first check into Anduril, now one of the world's most prominent defense technology companies, and he predicted as early as 2017 that Palantir would produce the next great Silicon Valley Mafia. That thesis has proven remarkably prescient, and XYZ has gone on to back numerous companies founded by Palantir alumni, among many other companies, of course. Ross has been on the Forbes Midas list multiple times, clocking it at number 78 this year. In today's conversation, we'll discuss what Ross has learned about identifying exceptional founders before their potential becomes obvious, the rise of defense technology, what the Palantir network taught him about the power of talent ecosystems, and how AI is changing both company building and venture investing, among other topics.

1:27Peter High: Ross, welcome to Tech to Venture. It's great to speak with you today. It's great to be here. Ross, I want to begin. I mentioned in the introduction your entrepreneurial and engineering background, co-founding CubeTree, among other experiences, of course, prior to getting into investing. Talk a bit about the role that having been in entrepreneur plays now investing in entrepreneur. You've walked in their shoes at different times perhaps, but I'm sure there's a lot that rhymes between your own experience and how you evaluate companies that wish to follow in your footsteps as a successful entrepreneur.

2:01Peter High: Talk a bit about how that experience colors your lenses as an investor. Yeah, it's really interesting because there's a bunch of things that are both tactical and that I think that show up as deep empathy for the founding experience. As you said, so I started, my whole experience as an engineer and it's because I want to build things and that was software. And then becoming a founder was because I was passionate about then building companies. I wanted to be on that journey. And what was really interesting to me and very naive when I started Qtree,

2:41I basically, I thought other people had the answers and they were just going to tell me them. And I want to tell you, I thought this when I was in my late 20s, early 30s. And I'm not a kid. I don't really know anything. And I started this company, and it was in an enterprise collaboration space. And what we were doing, we were basically building Facebook for businesses. And this was before Facebook had really taken off. Maybe we had like a few million users.

3:14Peter High: and maybe you said the my space of business at that point even yeah i think we were you could tell facebook is working i just can't remember exactly where it was but it's notably my mother's like one year's good at facebook like thanks mom and which would have been definitively better on many directions the one direction it was not helpful on that ended up being valuable later is going through the founding process and so when i built this business one of the things that we were doing at the time is we're trying to figure out, should we go bottoms up? Should we adopt through organizations the way now Dropbox, Atlassian folks have done, or tops down, sell your CIO with the vast majority of software then, and arguably now is sold, sold, and then delivered through.

4:03These ideas were new. I'll tell you that. And we're trying to figure it out. I remember going to the first board meet, maybe the second board meet, and Gus Ty, who's a legend out here in venture, was on our board. And by telling Gus, here's the problem. Here's how I figure out what do we do? What strategy? How do we take this whole thing to market? And Gus was like, yeah, you got to figure that out. And I really thought he was just going to tell us the answer. And so the empathy and then the learning is yesterday, we're talking to a company, a very late-stage company, where you're going to raise another half a billion dollars.

4:40so it's well into its journey of building that said we're having the exact same boardroom conversation there are more people and so there are more voices but it's basically like here's a bunch of facts here's what we could do and you know should we raise money and you know how do we think about this valuation and i was like huh yeah you should figure that out and i was like The empathy is nobody knows. Nobody knows what you should do except the founder. And then there, all you have is you have all the information you're gathering and little tidbits and little experiences. And as a venture capitalist, the big lesson was that it's all on the founder.

5:25It's all on the founder journey. And you have to support that in really thoughtful ways. And so that was a really deep resonance for me. And that shows up in empathy when companies aren't working. It shows up when people are raising money. It shows up when founders don't, founding partnerships don't work out. all those things about understanding what's going on in that company and understanding not just a, hey, let's all hug it out. We always love the founders, but really like I've been there. Let's just try and figure this out. And I understand in that example, you got to put together all these facts, all the things you're hearing, and then make a plan and go do that thing.

6:10And if that was wrong, then fix that plan. And that's the journey to be on. So that's something that is surprisingly atypical in my experience. And it's been very helpful as we go help and work with founders.

6:26Peter High: That makes a lot of sense. And how did, talk about the appeal of going into investing. So you led this company through its successful exit, presumably stayed with the acquirer for a little while, success factors. Why did you elect to become an investor rather than, for example, starting another company? I mean, you started a company, I should recognize. but a company more akin to what you've done before. Yeah, we should come back to that. It is interesting how there are a lot of similarities, differences, how management fees work, et cetera. But in starting a firm and starting a company that said the way I got there.

6:59So I was an engineer. I worked for Netscape. I worked for Telme. I had a big job at Symantec, started this company, sold it. And I just had wild good fortune to have taken investment from the company, a friend of a guy named Mitch Kapor. About half your audience won't know Mitch. Mitch is a general legend. Mitch, Steve Jobs, Bill Gates, built the software industry in the late 70s and then 80s. He's going to yell at me a bunch. It's all 80s, 90s. Anyway, he built Lotus 1, 2, 3, everything you've ever interacted with in a spreadsheet, especially in graphing, macros. These were all ideas that Mitch and his team invented, created a trindus business.

7:41And Mitch was an early investor when that was not a thing, including when I was raising money. There were no angels. There were no funds. You know, I wasn't running Felicis. I was running around with$3 doing stuff. Ron Conway and SV Angel was the closest there was to capital partners. And Mitch was out there and he was backing the next generation of companies as an angel, as investor in seeds before that was a thing. Mitch said, I'm trying to formalize under K-Park Capital. Will you come spend more time with us, work with our founders? And that was just so thrilling to me because I built software.

8:23I built companies. And now I got to understand the financing side. And that just always interested me and sort of understanding that process. And so I got pulled over in that. I just learned so much about early stage investing from watching Mitch do it successfully, gained to do some successful things of my own from, you know, Mitch had done Uber. We did Twilio and Formlabs and Optimizing Clever, lined up really, really exciting sets of businesses. And then I went to a multi-stage firm because I wanted to learn what capital deployment looked like when you had a lot more money, not just at the inception stages.

9:03and I got to do that at Canaan. And then that all set me up for that entrepreneurial instinct of like, I want to do my own. I want to do my own Tom Fulbright. And I went and signed at XYZ.

9:17Peter High: Well, let's say you alluded to something that I find fascinating. Talk about the startup of a venture capital firm. Presumably you weren't seeking VC capital to start your VC, but otherwise, obviously you are starting a new company. You're taking, as you did before, You're taking experience that you had working with and for others and going off on your own, putting out your own shingle. Talk a bit about the similarities. And you already mentioned one of the significant differences, but the similarities and differences in the two startups that you birthed. Yeah, the similarity is the hellish start.

9:51You know, people I talk to, I do want to raise venture funds. My first venture fund was hard to raise. Peter, if I didn't raise it, I'd be like, yeah, yes, I'm doing it. I'm like, here, you got 50K? How about 25? How about you get just a little bit? Because it's so difficult to raise funds. And it's difficult at every level. But first funds are really, really, really challenging. The same way of starting companies, you can see things in retrospect, like, oh, this is how it works. I can now see a deep thing that I couldn't at this time.

10:23Peter High: The deep thing that I can see now is when you go raise a venture fund for the first time, there are two things that are really, really important to realize. The first, every salesperson that's listening to this knows which is disqualification. I spend as much energy trying to get a good friend of mine to give me 50K as I did trying to get Yale to invest. and those are just different. And I didn't really understand that, that they're different folks. And so the deep learning now that I tell other new funds when I'm giving them advice is it turns out whether Yale or your friend Peter, they're going to do it or they're not, and you're going to know in two minutes.

11:07It really is because you either fit their strategy or they don't. And it's really that black and white and you can talk about the next company, the next markup. It almost doesn't matter Because if it's an institution, they already filled that slot. If it's a person, they either trust you or they don't. They want to do that or they don't. It's really a very simple assessment that many, many, many sales people will tell you, like, that's a sales qual. But it matters a lot for efficiency, for emotional efficiency. I did not have that efficiency. So I'm just like, I'm getting this thing done. The second thing that I learned now over, as you said, almost a decade of doing XYZ and God knows how long doing venture.

11:51When you start a new fund, the thing you have to be showing people is that you are accessing a new network. because every other, every person you speak to as an investor, as an LP in your potential fund, they already have someone that covers YC. They already have a FinTech person. They already have an A-ROM person. They already have a growth person. Maybe, maybe they're not happy. Maybe they think Lightspeed's too big and they need to pivot capital over. But even then they're looking at like 20 people that say they're going to be the new Series A firm, right? It doesn't mean you can't get that one, but really hard.

12:33The thing that's not hard to pitch is I understand a new network. There is something happening in the D.C. area that there's going to be a new set of companies. I'm all about the Gundel bros, and I've got unique connectivity to the next set of crazy people. They're building rockets. I'm building in the Midwest, for God's sakes. That's historically very, very, very hard to build a venture firm. but some unique lens. And so the unique lens that I had back in 2017 is at the time, there was this small data company called Palantir. And the only people that really knew about the company, there were only two groups that knew it was special.

13:15Number one is anyone lived in Palo Alto because we were dobbling up all the real estate in Palo Alto, period. That's the only way it was visible. The second was it was a place that technologists and particularly very young, like out of colleges, technologists were all going to. It was the anthropic of its time. And by that, I mean, it was a known destination that college kids wanted to join, that early technologists wanted to join to go build software and sort of be part of this culture. And I knew it was very special. I knew that because I had, again, had the good fortune. I introduced the first employee to the second.

13:57Again, my mom's like, why didn't you join full time? I actually went on to be a very involved advisor and happy investor in the early days. But I did a lot of work with the company and with its executive leadership on all different kinds of projects from staffing to pricing to go to market. and I could just tell it was full of these incredibly strong technologists. They were interested in working on very, very hard and arcane business problems in the government, banking and insurance, like boring crap, really big businesses. And I knew that group was special because all the people in that culture were so intellectually curious.

14:47and I'll tell you a secret, another secret about venture firms. It's all full of shit. You tell the story backwards. The thing that you believe now is the success that you want to celebrate to do the next thing. We all do this, right? We're all retelling our history. This is an incredibly rare case where I went back recently for a press thing and looked at the original pitch deck and literally two thirds of the slides, you know, eight or 11 of 14 slides, they're all about the Palantir network and why it's unique. So it was actually a wholehearted belief that this was different. And I just didn't realize how true it was going to be.

15:27And so we backed 135 plus companies, about 40 of them are ex-Palantir founders. But more than that, that network has gone on to begin other networks. You know, we backed companies like Andro, which you mentioned in your introduction. We backed four companies out of the end role. We still are really focused on that network beginning other networks. And that is enabling the next generation, next generation for XYZ. And so I hope it's a durable advantage here that all comes from this early happenstance.

16:00Peter High: Fascinating. Really fascinating. And you've begun to articulate so nicely the characteristics that you were seeing, you know, doing boring stuff and very complicated stuff and deriving a tremendous amount of pleasure, clearly, out of solving difficult puzzles, for example. You mentioned, of course, that they were a hot company that was gobbling up real estate in Palo Alto and the talent was following. Peel back that on you a little bit further because it's a massive insight in 2017. There are a lot of hot companies. And frankly, some of what you've described could be applied to other firms at that time as well.

16:40Peter High: And yet it was prescient. And kudos to you that you've got the evidence to back up the fact that this is not you correcting history looking backwards, but rather something that you predicted before it was fully known. What other characteristics have you found now with the fuller journey of seeing that prediction through to being, in fact, correct? And then secondly, putting your money where your mouth was and seeing continued advantage from that? What are the distinguishing characteristics among the 40 ex-Palantir founders that you've backed that really makes them special? So let's connect this back to history.

17:20The through line through there was actually that the the individuals, the leaders, the engineers, et cetera, it was just a viciously great learning environment. I remember going into a meeting, we're doing a series of reviews of applications. And I was doing the second one, sitting down, literally the opener from Bob was running the meeting. He's like, great discussion last time. This idea is working. We're going to keep doing it. this other idea you had is crap. We're not going to do it. We haven't done the next one. What else you got? It was like this continual consumption of not more than opinion, more than insight.

18:06It was like, it was a cultural learning machine. It goes back to the idea that I said before, the founders, you don't know the answer. So you're going to this very, very, very rapid discovery process. And that is what was unique or very rare in that organization. The second part that is actually nearly unique to them is Palantir then, a little bit now, but definitely then, it really was like a consulting organization that was building software. But the thing that people miss is it did the thing that great consulting organizations like McKinsey did when they first started before everybody's in suits and starts it you know in the four seasons it was like really young pretty weird people that you just deploy in an account so carp the ceo opens up the deal door like there's something to build in here and then we sort of insert four people two people six people and in essence go find a business and it's got to be worth at least 10 million bucks to us and go build that.

19:16That is a unique crucible. And that's very different from being at Stripe right now and running the Atlas program, which takes no shade from that skill, but it's different. It's a much more dynamic environment. And with a little bit of unfairness to some friends, it's also different from if you ran the application team, you ran the photos team at Facebook, because you're beginning with this flywheel of the social network. Also hard, also difficult to operate at that scale. Capture those eyeballs at Facebook. Palantir was different. It's like, all right, well, we've never sold the oil and gas. Here's an account.

19:58Here's an exec. Go figure it out. And that was a very, very, very unique crucible. And so that kind of learning mentality and that ability to both find problems and seek revenue and that whole mesh of making something that matters, that's the founder part. I mean, Peter, I'll tell you one thing that's really shifting this 10-year journey XYZ. In the beginning, I would tell you, Peter, that's the whole thing. We'll back at anybody with that execution gear against that effort because execution just solves all the problems. It gives the next little pad. You need to get across to the next step. We'll figure it out.

20:41I changed that. It's really changed how I do our early investment because here at XYZ, we invest very, very early in our companies. It's two people idea. And then we're a dollar concentrator. We'll just keep hammering money into things that are working, that we hopefully have good value to. The thing that I want to point out is a change in my assessment beyond execution. And the change is the realization is you have to have a company that's getting accelerated by a wave that's independent of this. So there's an old example. I reuse it because it's so good, which is there's the surfer, which I found her.

21:24Surfboard, that's our company. and the wave. And the wave, the way AI, AI is like a tide, it's picking up all the boats. The wave is like whatever is changing the industry that you can get on, and then it pulls you forward. And you have to find this as a company. So now when we make the investment, and definitely do follow on concentration investments, what we're saying is, did we find a wave? Or to use another old example um uh greg lamont uh is a arguably the greatest cyclist of all time uh which the the tour just happened and he has this great quote is like um it doesn't get easier you just go faster and that's what the wave is like as a founder is you're grinding the whole way but like it starts getting easier to close the six-figure the seven-figure deal it starts getting easier to recruit.

22:13You're working just as hard, but it's going faster. And so now the whole discussion I have with founders is, did we find the wave? Because if you find the wave, it's great. You hire your friends. You feel like it's working. You're raising money. Maybe you raised too much money. That's fine. Bubbles happen. We're in several. That said, if you don't find a wave, To go back to our metaphors, you're the surfer on the surfboard, you're paddling all bejesus, and you'll maybe get there, but it's going to be the hardest road, and it's going to be a really, really, really difficult journey if

22:52Peter High: you don't find that supportive push. So again, this is something that changed and was non-obvious. And it is not obvious to founders when we talk to them. We're making progress. We went from half a million bucks to a million. It's not like that's not good. It's like if you're not on that wave, your life is going to be hard. The next round of capital is going to be hard. Like, let's keep moving around till we find that wave. So that's a real change. And it's a change in the last 10 years of the prioritization, how I think about building companies. Really fascinating. Let's apply what you just described to the investment in Anduril.

23:28Peter High: You're, as I mentioned at the outset, first check into the company. Take us back to Palmer Luckey, the founding team, what you saw. So there's the surfer and the surfboard. Talk about the wave that was there and what you saw in the combination of those that had you so excited and clearly has paid off remarkably as that company has become an enduring, valuable company that's changing a massive industry. Yeah. So there were two things that were obvious to me that, again, were not, in this case, obvious to others for the first several years of Androl. The first one was that there were four founders.

24:10And Brian Schimpf, the CEO, remember I talked about the learning machines and different people I got work with? Shamsankar had asked me to spend time with Brian Shemp when he was an individual contributor. And so I was Brian's exec coach and worked with him in a bunch of different capacities at Palantir. Brian had just had gears. Technically, he's the CEO of Antril. He had technology, gears. He understood people. He understood how government bought and sold. He had all these dynamisms. And so being in business with Brian, it really is like you'd go build a toaster factory because he's just that good, that trusted, had that fully.

24:56And that extended to the whole organization. Grim, also co-founder and COO, just a tremendous operator. Palmer, the ultimate carnival barker. I actually knew Palmer the least. but like the marketing skill you bring in and then um uh trey um often is overshadowed like oh he's the finance guy trey was doing tremendous sales and that was the our founding team um plus one engineer um in that group so again you could tell it had the right dna and my connection to that was i was going to be involved no matter what um with those with those people So I had a strong bias there. The second thing was just own personal history.

25:46My grandfather was Assistant Secretary of Defense under Kennedy, whether from my very first job at Netscape or second job at Netscape. I worked on security services for the government. I just really believe then and now is technology that helps the government function better in all areas, creates better societies and better services for everybody in this society. I believe that very wholeheartedly because these echoes from my grandfather's work. And I, therefore, was always interested in the fact that government is the largest buyer of things in the world. So I very naively, I would argue, believe there should be an opportunity to build more things for the government.

26:35And so that was an easy thing for me to believe around building a new defense contractor. And yes, we should be able to take things from 7 % margin to 20 % margin or 30 % or 40 % or 50 % margin if you build products and a bunch of other things that unfolded. My naivete, which was wonderful in this example, was we were going to figure all that stuff out because we're going to build better products. We know the government spends money. We know they want these things. And that part ended up being correct because that team was so good. And a bunch of things changed in the environment to make that timing so right.

27:13that I got to enjoy the benefits of that naivete. That is, I got to enjoy the, yes, we're going to build products for the government. Yes, they're going to be at high margins. And versus all the places that people from a generation back, literally in venture, wouldn't touch it because defense contractors never made money and this is a dumb idea. to people that knew our VCs, but just didn't understand government, didn't understand government motions. We can talk about how that's changing or not changing now. But, you know, those things, those two features meant that when I asked Sequoia Greylock, pick a fancy name to come along on this with me, they literally were not interested, which is fine, because then the future shows up on the back of some number of companies.

28:03And then, you know, so a bubble, so a boom is built.

28:08Peter High: Fascinating. Really a great articulation. Can I just ask you really quickly, fascinating little detail you had there at the beginning. Sham Sankar, the CTO of Palantir, asked you to become sort of a coach to Brian Schimpf. Is that something you do? Is that something like, you know, talk a little bit about that part of how you assist executives within different contexts. I really care, and I'm incredibly greedy. I really care. I really care about Brian. I care about the CTO at Andrew Gokul. I care about individuals that run different organizations. I want them to be successful. So when different people in my organization asked me to go spend time with the team on product roadmap or to be or, hey, this is one of the best engineers we have at Andro.

29:07We think they're a future leader. Go spend time with them, which is how Brian Schimpf introduced me to Gokul. That was the same thing I'd done because Shaman asked me to do it with Brian. And it's because I genuinely, authentically care. And we can talk about skills to do it, but I think that the root of it, I want them to be successful. I want the company to be successful. I want them to be successful. Here, the other part is incredibly greedy. Those are the best people in the company. Of course, they're going to eventually start a business. Of course, they're going to lead you to the best people in their organization that they can't keep in the organization.

29:46And then you should go spend time with because they're the person you should go back. So it's an incredibly selfish instinct, which like, how do I just find the next set of people to work with? And so that's the rubric. And it's a result of just having been around long enough, cared long enough that it's like, I can usually bring something to those people that helps them grow and help them be successful in their career. And I just really enjoy doing that. And then I get to back the company as an example. I want to mention, Peter, to tie this back to founding principles, I have a very small partnership of really tremendous people.

30:28And this came up recently when we raised our new funds. The folks were asking, like, how do we choose who to add who's in? At the senior level, this is actually the biggest rubric, whether it's Chauncey Hamilton or my partner, Art Clark. Art, I brought over, he used to run product at Palantir for Brian Schimpf. A really big job running AI infrastructure at Apple. But Art has the same thing. In fact, does the same thing. He works with other random executives and just because he cares. And because of my part, tell me more about it. Who's good at that art? And that's a rare skill and I think it's a rare interest, at least in the venture universe.

31:13Peter High: it's a little bit of bill campbell and you frankly ross is a trillion dollar coach uh oh dude bill bill i've never gotten to meet the people i knew him i mean they talk about him the way that people talk about bill gates it's this combination of like admiration and fear because of the oh my god you're doing this i don't i i don't i don't i don't get that that that outcome it's it it's an it's an aspiration it's an it's an astral aspiration to be that thoughtful to be that well thought of actually is probably the biggest and bill bill campbell passed away he's one of these people that got written about here in silicon valley and was just such deep emotional fondness it's actually it's a it's a great result to want in one's life is people to care that much it's like you impacted them so much so we'll see we'll see if we we both get there in our respective you know times in the service here something to aspire to certainly ross you talked about the the the, the surfer, um, the, the surfboard and the wave, you've talked about AI as being the tide.

32:11Peter High: Talk about that distinction if you would. Yeah. I think everyone is experienced this where, uh, AI, it really is this deep enabling technology. It's gotten compared to the internet. It's gotten compared to mobile. They're all both right and wrong. The thing that's notable is the tide is it just picking up all. It really is. It's all, what's really overused about for it. It really is picking up all of the boats. And that's hiding flaws from, hey, our revenue is growing 300 % a year, but you actually have genuinely zero margin. That's fine. It's picking you up. It's also picking up a whole set of other industries.

32:51So an example of this is manufacturing. So I think there's a big opportunity to spend a lot of time these days looking at manufacturing. It's because I think AI's implementation can really transform how manufacturing works in a bunch of different ways. Some are in robotics and really how manufacturing works, how things are assembled. We invested against that idea. Also, I think it can transform how manufacturing is done. And by that, I mean, imagine a really smart AI system that tells humans where to be to direct a broken system or the next place to be. So that kind of smarter planning, there's lots of opportunities like that.

33:38Those ideas have been around for forever with robotics and planning. Like forever, ever. Like my AI class when I was a kid in college in like 96. there's a bunch of things on the technology of its adoption cycle, its usefulness, that mean there's now an opportunity to build these manufacturing companies you just couldn't before. You can accomplish these things you used to not be able to do before. And that is what I mean when I think AI is this deep enabler, the way that mobile enabled Uber, pick your example. When it's not, and we know this, It doesn't make like AI pixie dust into your vertical app company.

34:25It does not make you win. It definitely does not make you win in the long term when everybody does this. And we've gone through cycles of this. We've gone through sort of like the thin wrapper on top of the frontier models. I would argue we're going to go through another cycle right now as we figure out if I can use an anthropic model or an open source model and get the exact same outcome. What is the value to build on top of that? On top of that system? And that's a very new and interesting period to be in. And so that's what I mean about this tide is going up and down. up and down. So you're getting dramatic change, but it's not necessarily one that you're being advantaged on.

35:10So you got to go figure out like, how are you building your advantage on top of this AI? And that's where the internet metaphor is a correct or platform shift is correct. That's where mobile as a platform shift is correct. But you got to say what your thing is on top of that, you know, and that's the place that we're in right now, whether in sectors like manufacturing or individual companies we look at.

35:37Peter High: If the cost of, for example, writing software continues to collapse, what becomes scarce and therefore more valuable as you think about, you know, kind of the evolution of this and how it applies to companies you might invest in? Again, I'm going to stick to my naivete, which is I started doing software engineer not that long after hex switches, assembly. You know, I was, you know, I'm learning C and C++ as a kid. Now, nobody does that. Nobody learns HTML, right? Which is fine because you can use higher level languages, whether that's, you know, Python or AI-driven tools for generating software.

36:22I just think our ability to generate software is getting faster. We can talk about different opportunities within it and how it's changing. That said, I still think how do you architect that software to get advantage? And by that, I mean, like, okay, now I can generate the UIs really, really quickly, but what is the data set that I'm building underneath that system so that it's incredibly, my system's getting smarter? how deeply do I understand the use case that I'm going after so that the UIs that I generate are actually better adopted than, say, Salesforce or whatever your story is of who you're attacking.

37:06So all I'll just say is I think it's getting easier to make software, but it makes the defensibility really important, and it also makes the context in which that software is run, the job to be done, really important. So that's where it puts the energy and the onus. Maybe one last thing worth mentioning is there's a bunch of areas where it's exciting. There are a bunch of areas like hardware, which I've been doing for a long time because I kind of like hardware, even though it's hard. And again, in venture, I just had the fortune of like, I did successful stuff from 3D printing to the camera companies like Fercada.

37:56And then that success, you have confidence, again, naive confidence to let you do more hard hardware things. The reason I mentioned this is because now there's a lot more interest in the venture community in hardware because hardware is defensible. You got a thing you made and you put your smart AI robot into it and there's a whole bunch of opportunities that come from that. So what's going on there, Peter? One is a technology change. Second, or a set of technology changes. Second is actually money. People believe this idea the way they didn't believe in defense, defense contracting, next generation products.

38:38And now they do. they now believe in these frontier hardware products. And so there's an opportunity if you're a founder, if you have that idea, here's in this example, my hardware thing, my AI thing, I've chosen it. The capital market's looking like, ah, that could be a durable advantage. I want to go do that versus something else. And so that makes that category a very exciting time to go build. And that is also new. That is the excitement to go build those hardware systems for that hardware to be super powered because it's actually using a camera. Cameras are cheap and everywhere. I'm using my AI system.

39:18And, oh, my gosh, I can do incredible things with AI because of all the software enablement. So now I can build a completely unique product in construction, which is horribly, excuse me, historically a terrible category. Because of that, we still have an invested, even though I'm sure we're making mistakes because it will transform. manufacturing historically very slow to adopt category where I think we're going to build a$50,$100 billion business and onward. So I think this is a time of great enablement and change. I think this is all enabled by the same software shift and other shifts you've articulated.

39:55Yeah.

39:56Peter High: Fascinating insights and reflections there, Ross. I really appreciate that. I want to return to Palantir for a second. They pioneered something you referenced a moment ago, the forward deployed engineers putting highly technical people directly alongside customers to solve problems rather than just selling them software, for example. We're seeing that model now spread rapidly among AI companies and beyond today. And I wonder, from your perspective, why is forward deployed engineering becoming so important? And do you think it becomes a defining characteristic of companies going forward? And under what definitions would you put in terms of the opportunities to deploy that?

40:33Okay, three things. First, the idea of, so forward-to-put engineering is exactly what you said, which I'm going to take engineers, but them as close to customers, as close to the problem, and I'm going to go try and solve the problems I now have access to. That's my framing. Number one, it's always been a thing. People want to do this. The problem is that it wasn't done with great excellence. And mostly it wasn't done consistently as a company kept growing because the founder was doing that. The founder was living with whatever customer trying to build something of value. The way it changed, and this matters for how it's practiced, is then over time, your good people, your best engineers, the people you kill to recruit and you reward, they are building your next generation product, 20, 30, 40, whatever.

41:29they're not out there with the customer because it sucks to be out there with the customer usually the customer is not hanging out riveting you with cocktails and conversation about the problem to be solved let's walk down to the maya desk usually the customer is like you know in the basement level looking at some crappy technology that doesn't work in the bank and Why are we not just Italian, you know, telco? They're never going to buy anything anyway. You know, it's the guy in the government examples are worse because they're like, I got to do all this work to even be in this building. I'm in the building.

42:09I can't even have a phone here. Jesus, how is anyone getting done? You know, it's a hard grind. So then you say, hey, best person I just recruited from MIT or stole from some cool company. I want you to go get on a plane, be away from your family, go do your software during the red eye, deploy to this site. Talk to somebody you might not even like about their problem. Like form deployed sucks. Ask someone who's actually done a real deployment as a real soldier. Okay, so that's the setup. So people do this with like service folks who are great and nice, but kind of in the sales and they like living on the road.

42:57Okay, so forward deploy is the idea of like, how do I keep the same ethos in the early days and put your best people close to the customer? Okay, so that's the idea. And people get that part wrong because you get great people you're going to go forward deploy. It matters right now for two reasons in AI. That's why it's getting talked about this so much. The first reason is customers are desperate to figure out what the hell to do with AI. They want the nerds in the room. They want to understand the art of what's possible. And there's a coming together of let me explain to you my business and let me understand how this AI thing is going to be relevant.

43:38Is it index generation business process outsourcing? I should think of it like the way that I thought about moving my call center to India. or is it something transformative? I've never had this customer interaction, sales motion in my chat bot experience on my website and I can sell things in a new way that I've never done before. Both those ideas are transformed but they're very different. And so the forward deployed takes people to understand the technology, ideally can help really match the technology to a business problem with those leaders. And so there's interest in doing that right now.

44:20So it's that combination coming together. The second reason I'm going to mention that it has a ton of demand right now is because it works. And it works particularly for doing this customer discovery because you get unique access to products. And because we're moving so much faster because of the software that's being enabled by AI, faster as a technology category because there's so damn much money. So there's so many more companies. So if you can find a thing, then you can go build a solution. So as a company, I might say, hey, we can go explore insurance because I can do it very efficiently.

45:06I can go discover this. Or as an individual here, you and I are making, you know, Peter Ross, Peter Ross. That's good. We're going to go build our new company. It's an efficient way to go do to go do customer discovery. And that's really exciting for companies, whether you're running, you know, DoorDash and you figure out the next billion dollar line of business or whether it's, you know, Peter Ross doing its first company. So that's the part that it just it just works. and it's been great to see it adopted. It's funny to see it adopted where people use the words, but the mechanic is really, no, no, that's just solution selling and services, which is fine, but it isn't the same idea we were trying to get forward at Palantir and other places.

45:58Peter High: Fascinating again. Thank you, Ross, for that and sign me up for Peter Ross' company. We'll talk offline. I'm looking for you in that one. Deploy me where I need to go. Yeah, exactly. Exactly. We'll get back to you on that. I wanted to ask you, how is use of, I'll ask you a broad question here, but hopefully with the specifics that it elicits from you. How is the use of artificial intelligence change the way you work, Ross, personally? You know, as you think of reflect on the changes in the past three or four or five years of innovation. how has it made things easier, faster, better from your perspective?

46:35Peter High: And, you know, by as a consequence, how does it have you thinking about the collaboration between, you know, artificial intelligence and human and the continuing sort of raising of the bar as to where a human needs to interact with with data or insight and so on? Well, Peter, I have to explain this by telling you that last night, in preparation for this discussion, I spent about, I don't know, four hours reading some of the material you've done. I made it through a couple of your books. I watched some YouTubes. No, no. I literally just like, I wrote down the claw and said, hey, I'm going to have this meeting with Peter.

47:16I really want to do something pretty fun, pretty different.

47:19Peter High: But I may work for him sometime soon, so I got to get this down. I got to do a really good job. And Claude wrote me up a long list of things that were covered, things that weren't covered, things that went well. I mean, so it just changed every part of how you do initial research. And initial is being, we're going to go spend time together in this podcast. we're going to go spend time with a former sec dev chief. And I want to show up well for them in a different setting. We're going to go show up with a founder that I meet for the first time. And I want to understand more of what they've done, what they've thought, so that I can go faster when I meet them.

48:03So that's totally changed the prepared brain that we do. The second thing that for me, and I would argue venture people directly, actually are terrible adopters of AI. Some is because of ego. You can never replace my brain. Another bullshit Mark put out. Also, just fine. Maybe you're actually right because taste is so much of a part of it.

48:32But because of this uniqueness, venture people are actually bad adopters. That said, I want to tell you, I am getting so much value now when I'm working through an investment. I'm not normal. I'm like full of fear and regret. I'm trying, we have a company that I'm trying to figure out, do we want to invest more money? What is the thing that they need to prove in the next six months for me to want to do it? Because I know the company's magical, but I know the outcomes in this industry haven't been good, but there's something here. There's only so many times I can plague my partners with a phone call at 11 at night West Coast time to work this through.

49:17But it turns out I can just do voice mode with the AI and I'm just riffing through facts. I'm not asking, hey, what's the multiple on blah, blah, blah's business or what's the, you know, tell me the stock factor. But what I'm doing is I'm kind of working through a thesis and I'm helping iterate a thesis around why this company is different and go look at these facts. And just like all of us, AI makes dumb mistakes and they'll kind of walk you down. That's brilliant, Ross, and this and this and this. No, but it's really helpful working through those hard things. And it reminds me of wiser folks, including like years ago, years and years ago, So early days of AI, I saw Will.i.am on stage and he was talking about this.

50:12Will is a doctor of technology and his craft of music and event creation. He talked about how the AI was his co-pilot. He was one of the first people I ever saw who really in detail in this talk he did with Ray Hoffman, which is how he used AI in a way that was really more than that really helped him be better, helped him explore his ideas. and I feel like that's the same thing. I am literally just learning that. I think I'm getting real value out of it where I want to set aside time. I'm now looking forward to that 11 o 'clock interaction I'm going to have with my AI bot because I think it's making my ideas better.

50:53So those are the two ways it's changed. Again, the second one is about time. Like I'm spending time doing that. And then the four in the former is really about research. And that's been, in both cases, transformative and hopefully helps create real value. But, you know, let's talk another six months when the world's changed again. I got the implant and, you know, I'm doing what all the robots tell me. I don't know.

51:19Peter High: Be kind to them now for what's to kind of. I am a thank you to the Waymo when I get in. Like, welcome, Ross. Happy finding. Thank you so much. How's your day going? One of the good ones, Waymo. Exactly.

51:33Peter High: Before I let you go, Ross, great to get your thoughts about what a catalyst this is to synthesize a lot of complicated information and make it more digestible. This phenomenal, more rapidly getting to insight and ideas. I wonder also, who's influential to you? Who do you read? Who do you listen to that you might recommend to others who would wish to stay current in a way like you do and see around corners in ways that you have without all the advantages you have of the many discussions you have with your partners and with would-be entrepreneurs who are seeking your funds? Who do you listen to that you'd recommend others listen to as well?

52:14So I first want to give you some of my own view of the thing that I don't do because it does not give me any joy. I don't spend any time on Twitter. I don't spend any time on social media. God bless, but in my universe, it's like, you know, a lot of opinions, a lot of ideas, maybe not a lot of facts. And that said, the two things that I've benefited tremendously from are really quite simple, is I'm trying to figure out who's a creator in a company, like who really owned a project. And that could be the CEO. It could be a product manager. It could be an engineer. And a very simple thing that I have a little bit of position power to do is I try and seek that person out.

53:06And some of them, it's email. Often it's a phone call or for me it's a walk. And really just trying to understand the history of what got built and why. I'll give you a very quick example. Bob McGrew, Bob was actually the first engineer at Comenteer, wanted to be chief research officer at OpenAI. Everything you've experienced in ChatGPT is because Bob worked for Sam building all this stuff. And Bob's also a wonderful human, building a new company. Just going well. Talking to Bob about the first days of ChatGPT, he will tell you the story was some engineers built a thing. They kind of wanted to get some feedback for it.

53:53So they thought, well, we'll put an API in front and push it out. We'll get like a couple dozen people. They have a couple hundred. They wrapped that into a chatbot And then that exploded into mass media awareness of AI. And then literally the AI was unleashed. Connecting that experience back to everything that we've talked about here, that discussion with Bob that was on a walk, like, what the hell is going on, Bob, on OpenAI? It really was like an understanding of the surprise that this was not planned. And to go back to this idea of being open to looking for these waves of change, that's something that was happening.

54:38I mean, that was the dramatic example. It got so accelerated because technology was so interesting and of the moment and through Sam's voice, et cetera. It was a unique explosion of its scale. But that explosion, that's what you're looking for. And it rhymes with stuff that Stuart did at Slack a million years ago around getting his technology for the Slack adopted by journalists. Journalists wrote about Slack because they understood it. And that became an early flywheel of mainstream technology awareness of Slack and it helped with sales. So I give you that example. It's like all that is just like I'm talking about like what the hell happened?

55:18And I'm going clicked into it. And people will tell you those stories if you're interested, if you do it in a thoughtful way. And so I think that's one thing I've done. The second thing that I've done is I only have two favorite YouTubes or podcasts. So it's Peter Hines. And so you should just listen to this one all the time. You see, I just watched Wes on here. In fact, my friend Manish Fatal and some in discussion with you. as an example. And then the second one that I really enjoy is the Acquired Podcast. And this is very widely known. You're nodding. People know this. Some people don't. And I really do think it's full of flaws.

56:04If you know the companies, you're like, well, this is not actually a good thing they did. And they gloss over some of that stuff. But if you're looking for the stories in the patterns of success. Just like I talked, the patterns of how the OpenAI one was similar to Slack or Palantir's Echoes. It's a great one to go look for those patterns because they're so good about finding those little tidbits. So after we watch Peter, we'll listen to the Acquired Boys and their stuff is quite good. My 10-year-old makes me listen to it at 1x speed because I listen to most stuff at 2x because I'm a crazy person like some of you guys out there.

56:47But her point is like, you actually seem like you're enjoying this. She mocks me. She's like, dad, why do you enjoy this? Fine. Okay, you seem like you're enjoying it. Why are you listening to it so fast? And I thought that was a good argument.

56:59Peter High: So anyway, those are my... Stay off Twitter. It's bad for you. Probably bad for the world. No, no. I'm sure it's fine. Not good for me. It's not good for me. Go deep with these people and ask, It's like, why, why, why, why, why? And that acquired is a great example of people that have done that in a very deep way, I think. Well, I thank you for the kind words, the great insights. Look, you may have disappointed your mother multiple times throughout your professional journey, but I must say it's a fascinating one to hear about. And I feel very grateful for the time we've had today, Ross. Thank you so much for unwinding so many different aspects of the way in which you think and what the ideas that excite you.

57:42Peter High: they certainly excite me as well. And it's been great speaking with you today. Thanks so much. I really appreciate it. Thanks for listening to TechnoVenture. If you enjoyed this conversation, subscribe wherever you get your podcasts and leave a rating. Thank you. And I look forward to seeing you next time.