20VC: The AI Bubble Will Burst: Half the Neoclouds Will Die | China: Should We Ban Chip Exports & Be Fearful of Chinese Open-Source | Mag7: Who Dies and Who Thrives: Why Meta is Meh and Microsoft is Mega

17:52Jerry Murdock:Well, there's two things. So each model is the more it's customized, the more it's going to have a particular, I'll say, style to it. And whether it's a verbose style or a style of brevity, that's going to matter a lot in the overall cost. And I think that what we're going to see is as enterprises and people with money have more time to understand these, more and more customization is going to occur to do things. I mean, when you talk about agentic systems, it's natural that you think, hey, you're going to use an open source model for coding because they've got that figured out. But for customer service, for onboarding, you can see open source models being really ideal because it's a highly specialized task.

18:37Jerry Murdock:task. And I think that highly specialized tasks are going to be something that pays off a lot quicker and a lot cheaper. You can take your, if you only have a million dollars to spend, you could spend that million dollars on customization and getting specific tasks done a lot more efficiently than you can on a frontier model.

18:57Harry Stebbings:How does this not cannibalize frontier models business? I'm not one that wants to see the OpenAI and Anthropic Challenge. Their thriving is good for all of us. But I don't understand how that doesn't cannibalize their business, making their town smaller.

19:10Jerry Murdock:But don't forget, we're talking about intelligence. You want more of it all the time, and you want different flavors of it, right? I mean, humans have emotional intelligence. They have all different styles of intelligence. We know that learning, some people have more visual intelligence, if you will. And I think that we're going to see the same thing with models. We're going to absolutely see this thing that prohibits the cannibalization of frontier models. at least in the short term. What I've seen with every new wave of technology in my career, the market initially expands. And then the contraction comes when there's a contraction in global markets.

19:48Jerry Murdock:And then you see the fallout. And then you start again with more innovation. It's this continuous cycle of Cambrian explosion of innovation, followed by these sort of glacial periods when ecosystems collapse, and then they grow back again. And so I think as long as frontier models can continue to innovate because they have the money and they have the ability to do more innovation. There's never been a time yet where the open source model has trumped a frontier model on innovation yet. They might be better at specialization, but they certainly don't compete yet in being able to do complex tasks.

20:26Harry Stebbings:When you think about that challenge of frontier versus open, Alex Karp has said the biggest enterprise customers in the world don't want to work with frontier model providers, they're scared that they're going to eat their lunch. Is that true? Or is that Alex rather self-servingly than saying, and Palantir will help implement a full infrastructure that's not that?

20:48Jerry Murdock:Well, look, Alex has a bunch of customers that of course are very worried about that. All the CIA and all the intelligence organizations, of course, they're paranoid about that. So he's, one, got a huge customer base that that's exactly the way those people think. But two, look, there's two issues, right? One is the data. And yes, they've been giving their, I mean, Anthropik's been getting all this data and open AI already for years. So in some ways, the cat's out of the bag, right? I mean, if you worry about from a security perspective, I mean, Apple could already rob my bank tomorrow. They have all my passwords.

21:21Jerry Murdock:Apple has everything on me, right? If they wanted to. I think Amazon has a lot of data too. Maybe not the prize data, but they have a lot of data. Microsoft, Satya Nadella himself came out and said, look, we've got a lot of the data around the communication, how communication works inside an organization. So enterprises have already given up a lot of their secret sauce to the ears, and they should be cautious. I agree with Alex that enterprises need to be smart about just continuously shoving their data up into Anthropic and OpenAI. They need to practice discernment. And they need to think about what they want to keep behind the firewall.

22:01Jerry Murdock:And they need to continuously have an iterative conversation about that and be careful. And I think in part, this is what's going to drive the open source opportunity is that, yeah, you know what? We don't want that stuff uploaded into the cloud. We want it behind the firewall. So look, two things. One, recognize that enterprises have already given up a lot to third party companies. and B, yeah, they need to be careful going forward.

22:26Harry Stebbings:They need to be careful going forward. And security is front and center more than ever before. We're seeing hacks like we've never seen before. We're seeing open AI and hugging face. Anthropic came out saying, hey, mea culpa, our models actually hacked three companies. And it's almost like a brag now to have like a, you know what I mean? Our models hacked companies. Thanks. How do you think about the golden age of cyber that is to come?

22:50Jerry Murdock:Well, there's no question that There's a heck of a lot of complacency around security overall. Even people that think they're getting the job done, they're complacent. They haven't really thought through. I mean, I don't know how many developers are running their models in YOLO mode, but probably a lot. And they're thinking, oh, I'll put the model in the container. I'll put the tools in the container. I'm okay. Well, containers aren't safe. You need sandboxes. This is why the big container company, Docker, said, hey, themselves said containers aren't safe. You better put in a sandbox. and that's why they've had a huge success with Docker sandboxes.

23:23Jerry Murdock:That's why E2B is successful with cloud sandboxes. People don't realize how important it is to really step up the game on security. Everybody, in my opinion, is underestimating it.

23:35Harry Stebbings:When you think about investing today personally, do you want to do a lot more in security? What can I take from that? I'm a venture investor. You know this. Dude, you know I'm here to ruthlessly make money, Jerry. You know me. What should I take from that?

23:48Jerry Murdock:Well, look, if you look at Fireworks, I'm lucky I invest in Fireworks versus Base 10 or Core Weave or any of the other inference providers. Why? Because that team was the geniuses that understood PyTorch in particular. I mean, so you've got the sort of team of people that have a different take and have a different set of aspirations in what they're doing. They're going to move up the stack. They're going to move up and do a lot more fine tuning and refinement and customization for people. And they're going to be the best ones at it. That's why they're going to succeed. I think you're going to see the same thing in security.

24:24Jerry Murdock:And the most important thing that is underestimated is the need for sandboxes. The truth is there's going to be thousands of different forms of sandboxes. And you're going to need a company that understands how models look at tools and what that behavior is and be able to take that behavior and optimize for it. Because, you know, these agents we forget sometimes are probabilistic. It's not like a developer says, OK, I'm going to go build this little app over here and I'm going to pick two different libraries. I'm going to see which one does best and I'm going to generate my app. No, an agent could say, I'm going to open up 100 different sandboxes with 100 different libraries and then determine which is the best app.

25:07Jerry Murdock:And where's all these different tools? That knowledge is in a handful of companies today. And if you look at E2B and you look at Docker, they're probably the two best at understanding all that stuff. So you start there because if you don't get the sandbox right, forget everything else.

25:23Harry Stebbings:I have to ask you, you mentioned Fireworks multiple times. Lynn has margins in the 35 % range, she said on the show publicly. Many companies within the AI application layer in particular have very depressed margins, lower than that, 20%. Should we just all get used to a lower margin generation of companies, and that is AI, sadly? Or should we think differently about margin in this generation?

25:46Jerry Murdock:Early in a cycle with new technology, it's always a real estate game, right? When they wanted to populate Oklahoma with settlers, they just had this giant date, had all these people out there, pulled down the flag, and everyone ran and just put their stake in the ground and said, this is mine. And it didn't matter if it belonged to Native Americans or not. They just did it. And I think in the same way, you've got people doing the exact same thing. They're picking low margins or zero margins, in some cases, just to get the customers, to get the relationship, to get the real estate. And so it's a strategy.

26:21Jerry Murdock:if you've got capital, you're going to own the real estate. And then you're going to go back later and get the margins built into the business.

26:28Harry Stebbings:So you don't worry about that. You're like, it's a land grab. It's more important to put your flag in the ground and we can expand margin later.

26:35Jerry Murdock:Well, it's just a strategy. I would not invest in people that build a culture around that idea of low margin. Now, that's why I probably lost out on investing in Amazon because I just didn't, you know, I didn't buy into Bezos's idea that your margin is my opportunity. And groceries and books and things, yeah, he's right. And in compute, he was absolutely right. And he scaled it in a different way. But most people aren't thinking like Jeff Bezos in that regard. I believe that you need to build a culture that works. And if you don't want to give all your company a way to venture capitalists, you might think about monetizing and generating margin, effective margin.

27:13Jerry Murdock:And you can be clever about it. If I talk about the sandbox example, the newest thing is, you know, most sandbox people make money on compute. Frankly, that's a dumb idea, in my opinion. You want to have a model that says bring your own compute. And we'll make money because we understand how to run sandboxes better. We know how to network them better. We know how to provide traces better. We know how to do all these things that are going to give you visibility into what you're doing. Again, innovation is what should be on your front of your mind. And that innovation better drive margin. So even if you don't have it right this minute, if you're not thinking about it, I won't invest in you.

27:48Harry Stebbings:You said like, hey, we need to rebuild the entire stack. When you think about that and the rebuilding of the entire stack, if you start with chips, we see more and more people coming in at the chips layer, whether it's etched or fractal in the UK. How do you see that?

28:05Jerry Murdock:I said it last February. Look, ASIC's chips are really ideal if you're thinking about model customization. If you're saying, look, we're at a new phase in this AI build out, but what we really want to do is do a lot of model specialization. You don't need a GPU for that. Too expensive. You can absolutely take an ASIC chip. And so I think the number of people designing chips or ASIC chips is because they recognize that trend and they want to take advantage of it.

28:35Harry Stebbings:Do you need to own the chip player as a model company today, do you think? When you see DeepSeat building their own chips, You see Anthropic now building their own jalapeno from OpenAI.

28:46Jerry Murdock:I'm not sure jalapeno is the best name. It bothers me. You know, and I love Mexican food. I love spicy food, but I'm just not sure about that one.

28:56Harry Stebbings:The next iteration is called Padron Pepper.

28:59Jerry Murdock:Look, actually owning the chip is going the wrong way long term. Short term, it makes sense for larger companies because they want to optimize chip sets for models. And that's what they're thinking about. But when I was at the Santa Fe Institute, I'm on the board there. We had a meeting with a bunch of chief scientists from all the major AI companies. And what we came back with out of that meeting, two points, was one, we don't know how to measure AGI even if it shows up. But the second point that's useful to this conversation is that we should focus on this complexity between the model and the agent and therefore the human being to the degree that they're in the loop.

29:40Jerry Murdock:That's where the opportunity is. And sure enough, that's where the most compelling place I would focus on in investing is that level, which is, you know, from the loops to customization, multiple things, security, all of that stuff from the model out is where I think it's far more interesting. Going back to the chips, short term, I can see why people do it. Long term, I think it's unnecessary.

30:06Harry Stebbings:I'm an investor in Lagora, and they obviously fight intensely with Harvey. When you look at the two of them, you think, God, what a competitive landscape. What have been your lessons over the last few years, decade, two decades, when you have two very well-funded competitors like this?

30:23Jerry Murdock:Fund the guy who is the small startup right now, watching them to battle it out. Particularly in the legal market, the chances of being early and taking, when you're in that competitive situation, you're going to take risks and you might regret. The first one of those guys that has a security leak and security problem, and it will happen, is going to wreck their market opportunity. And you think, oh, well, the other one's going to win. Well, probably not because they'll probably both be vulnerable because they're looking at each other and they're watching what each other is doing. So for me, I look at that situation like, I want to go for the next innovative young company who's maybe not trying to do all things for all lawyers, and be more highly specialized, like Get Dynasty is in the trust world.

31:10Jerry Murdock:You know, do something very specific. And by the way, this has been Peter Thiel's advice, is start with a niche, dominate the niche, and then grow it out. And so when you're trying to take a whole ocean, like the legal system, I just wonder if it's kind of contrary to Peter Thiel's advice.

31:28Harry Stebbings:Do you worry that we just throw price out of the window? It seems like we've never been less price sensitive. This is crazier than 2021, Jerry. I'm investing every single day on the ground. I consistently have founders say, oh, you know, we're raising 100. And I'm like, oh, well, how much are you raising? And they're like, we're raising 100. I'm like, that's the friends and family round. And when I said to a founder the other day, we write$25 million checks. And they were like, OK, good. So you're small and collaborative. Have we just lost price sensitivity? And is that OK, given all outcomes can be trillion dollar companies?

32:03Jerry Murdock:It's evidence that we're still in the hype cycle, right? We're in the hype cycle because expectations are beyond everyone's imagination. And so if you're saying, I'm going to be a trillion dollar company, my opening round's 100 million or something, or even a billion, whatever the valuation is, are, you just recognize and you have to look in your head and look at the people that are going to take that money. And you're going to recognize that, has that number been well thought out? Or are they just doing it because the market's doing it? And I would argue that it looks like Anthropic and OpenAI, those crazy mega realms, you know, at$100 billion,$150 billion might actually have been cheap.

32:41Jerry Murdock:I mean, I think Gavin Baker probably believes that and others believe that. And so for a few companies, yeah, but how many trillion dollar companies are we going to have? Discernment, again, is necessary here to decide, you know, what really can have the sort of hyperscale type growth associated with it. And which ones are going to be also rands or a little more of a slower growth opportunity? And we need to sort out those a little better.

33:07Harry Stebbings:Is slower growth venture anymore, Jerry? If we look at fireworks, you know, it's three and a half years to a billion. It'll be four years to two billion if they hit end of year targets this year. Four years to two billion. Jerry, do you remember when it was slack, 18 months to 10 million, and we were like, wow, wow.

33:25Jerry Murdock:I think in the case of Fireworks, look, they're benefiting because of OpenAI and Anthropic. They are the next level. And now with open source taking off, they're benefiting from that. And so they ride on the shoulders of these model builders, and they're the next layer that needs to get developed. And so they can scale right behind that. But if you're somebody else, like say in the app layer, I'm just not buying that. I'm not buying. I'm not buying it for the legal and I'm not buying it for the app layers yet. But for infrastructure, absolutely. But I get killed for this.

34:04Harry Stebbings:I say publicly, triple, triple, double, double. Dad, you remember this. Am I glib and my kid, you are a product of a cycle? Or is this just a new expectation level for venture?

34:15Jerry Murdock:You are glib. Sometimes. Not all the time, but right now you are, yeah. I would argue that general statements don't apply here. You have to be highly specific. If you look at Anthropic and you look at what they've done, Anthropic and OpenA, it's never been done in the history of the world. It shows the importance of the time. So we are definitely, if we look through the history of venture, in a completely different era. And the frontier model companies have done something extraordinary in the history of the world. I mean, this is definitely on the level of inventing fire, you know, electricity, whatever you want to call it.

34:54Jerry Murdock:It's truly extraordinary what the frontier model companies have done. They've lit the match to AI. And the companies that can follow right on top of them and not get killed by them, but can grow and solve more infrastructure problems and help create an ecosystem around the model companies, those guys, they deserve those economics. Other categories, no way. Like, for example, neoclouds, no way. I don't buy it. I think some, one or two of those neoclouds are going to end up dominating. And a lot of them, at least half of them are going to go away. And they're going to go away with massive amounts of money being burned as part of it.

35:33Harry Stebbings:Does the model routing layer carry enough value to you to be independent?

35:38Jerry Murdock:My opinion is OpenRouter has massive amounts of transactions because people are basically lazy, right? It was easy, okay, I need to connect to this model. I'm just going to use OpenRouter. And OpenRouter charges 5 % on top of that, which is a crazy amount of money. That's not going to last. You're going to see exchanges. There's a blockchain company called Akinaki that has just launched Dodex on their mainnet. And this thing is an exchange to go out and buy inference. And as part of that, all the model routing is done for you. And so I think you're going to see multiple opportunities to an open router type product where people that are hosting the models themselves will provide, you know, through an exchange, an easy way to acquire the inference and the need for an open router type product and particularly paying the 5 % markup for the inference won't matter, right?

36:34Jerry Murdock:Because that's what those things do. They're not necessary long term.

36:37Harry Stebbings:So if you're on the board of OpenRouter and the$10 billion acquisition comes through, what do you say?

36:43Jerry Murdock:You say, fuck yeah, this is great. And like a lot of people, you take the money when you can. Credit to OpenRouter, they're there early. Developers didn't see another alternative. They could just go to there, go to the API, and they're willing to pay 5 % markup to get their inference. And guess what? Shame on the enterprises for letting them burn all that money. That's a huge amount of money. And so I think that you're going to see a big disruption in that model in the next three, four, five months. Actually, not just Akinaki, but Venice, Venice IO is doing that. And there's two or three other guys that are now in the process of building exchanges that you can go directly, get the inference you need without paying the 5 % markup.

37:26Harry Stebbings:I think you very accurately said about kind of where we are today, the potential dislocation of excitement, dislocation due to external affairs, and then the re-blossoming of an ecosystem, so to speak. If you think about that and you advise me as a venture investor deploying, say, your money today, what would you say to me? Play the game on the field, Bill Gurley style. Be mindful. Don't spunk cash into Neo Labs at a billion dollars pre for one person out of OpenAI. What would you say to me?

37:57Jerry Murdock:Well, Bill's on the board of the Santa Fe Institute with me. I mean, his guidance is pretty smart. He's pretty much on point with a lot of things with venture capital. What I would suggest is you look for impact. You look for people that are going to be just, they're just way different than anyone else. And you look at them and you realize it's not that they want to build this business. It's that they have to build this business. And if you find that in a person and you recognize that they have the commitment to it, because the commitment to it is all in, there's no other option. Look for that and look for the fact that what they're going to do has impact if they do it.

38:36Harry Stebbings:When you review the founders you've worked with, where was that most obviously striking?

38:41Jerry Murdock:It's rare, right? Because you could say all the founder driven Mag7 companies would qualify, right? I mean, Elon, Jensen, Zuckerberg, they all qualify for that definition. But you look at these other companies that you say, well, fireworks looks to be like that. A to B is definitely like that. The founder of Vignan, he's absolutely going to do it. There's no question in my mind. Avin, this guy came out of Meta as well. His name is Sadi Khan. But Onkosha said this is one of the best CEOs ever seen. And Vinod was one of the best CEOs building Sun. So when someone says that, you take it seriously.

39:15Harry Stebbings:Do you think we see a compression in like liquidity timelines? We have Cursor scaling to 60 billion sale in four years. Do we see actually venture cycles get shorter in this environment, given companies grow faster?

39:30Jerry Murdock:I think what Cursor did, because the team is really smart, is they pivoted out of the IDE space. And they pivoted. And in that pivot, they convinced Elon that they could build models. They hadn't proved it yet, but they convinced them that they knew enough to do it. And Elon was pretty desperate to solve his problem with XAI. And so it was a great fit. And they got the$60 billion. So you hit the bid. If OpenRouter gets a$10 billion bid from Stripe, you take it. I think those are not the norm. Those are events that are happening because the board and the management realizes, hey, maybe what we've built isn't a decade company.

40:08Jerry Murdock:Maybe this is something that we need to move out of and we take the win for what we had. And I had a few companies back in the day that I wish had done that. Flipboard was one of them. And I wish Flipboard had taken the billion dollar exit, but they didn't.

40:21Harry Stebbings:What happened there? They had a billion dollar exit on the table.

40:24Jerry Murdock:But they had an opportunity. Yeah. They had two bidders going for them at the time that was very, very interested in them at around, I'll say within 20 % of that number. And one of them was Twitter. And the other one was TikTok, the founder of ByteDance. And he got advice from someone called The Coach, who was pretty famous at the time that said, hey, don't sell your company. And The Coach was unfortunately passing away. And the board bought into The Coach's advice, and they stayed with it. And now Flipboard, you don't care about it, right? You missed the opportunity. I think those opportunities happen with a lot of companies.

40:58Jerry Murdock:I have a lot of arrows in my back from this situation. So just have to know when it's a time to go and when it's a time not to go.

41:05Harry Stebbings:We mentioned obviously selling to X. It seems like IPO markets are open for the rare few, for Anthropic and OpenAI when they want to, for SpaceX. but I'm concerned that your air table of the world at 485 couldn't IPO. You can't IPO with less than a billion dollars in revenue today. Does that concern you?

41:28Jerry Murdock:No, I just think that we're at a moment in time where, you know, if you want a proper IPO, you need to be on track for that. But I would think Cursor, if they had gone out last summer, if they wanted to, they could have gone. I mean, they would have been taken despite the fact. I think the management team was wise to realize that they weren't quite ready for that and didn't do it. But they could have. Absolutely, they could have. The numbers were crazy. There's always a banker willing to do it. The question is, which bankers and is it the right thing to do?

41:56Harry Stebbings:Do you worry that Airtable is the start of a much broader generational cohort that will be sold at a mega discount to last round?

42:06Jerry Murdock:No. First of all, there's not that many buyers like bending spoons, right? And so there's not that many buyers there. So I don't, I think the companies, if they're at four or 500 million, if they have the kind of revenue, the question is, are they going to continue having the revenue? If they haven't already integrated AI in a compelling way, I'm not optimistic about their future at all. And if you don't have a really thoughtful AI strategy and a thoughtful AI product, I don't believe that you're going to have an opportunity to do much of anything with the company in two years.

42:40Harry Stebbings:Are we not seeing most of the SaaS generation put lipstick on the pig, so to speak? Oh, fuck, let's sprinkle some pixie dust in this. And oh, now you've got an AI co-pilot. And oh, here you go.

42:51Jerry Murdock:Well, you know what? It's a good thing you mentioned that because we're in a new era now. We've gone to what I call the co-work era where it's really more agentic, where I mentioned autonomous agents. And I think to those few companies that have deployed autonomous agents successfully, a co-work is becoming the new trend. And as co-work becomes more successful and more stable and more broadly used, I would be really concerned about SaaS companies that don't have some kind of system of record or some kind of AI strategy in place to succeed. Because the co-work era, it begins the threat. So the threat to the SaaS world is just starting right now, but it's still early days so you've got time to pivot if you sas company you got time to to do ai and bolt on ai and and figure out some other direction but if you're not doing that now

43:43Harry Stebbings:good luck good luck if you're not doing that now dude i look at p today and i i like the model but i'm looking at your toman bravos of the world and i'm just like ouch like i'm i really like Orlando and he was great on the show and I'm really I want to succeed but fuck that's a hard job you've got with your Cooper and your Anna plans of the world do we just have a vintage which

44:09Jerry Murdock:which sucks and we just get over it well you know it's amazing I mean in 2001 TPG had a terrible fund and vintures like everybody did they survived it because they had a whole lot of telecom investments that just evaporated forceman little had a lot of telecom investments and that led to the end of the firm. Firm ended, died, no more, Horstman Little. So look, I suppose these PE firms that have challenging portfolios, they have time to do something about it now. But when and if a financial dislocation comes, that's the problem because they're all levered up. The problem with the PE business is the leverage on the businesses.

44:47Jerry Murdock:And if EBITDA drops, churn increases. And if it happens rapidly through a financial dislocation and there's a margin call effectively on the debt

44:57Harry Stebbings:yeah it's gonna be tough gonna be really tough dude a lot of these assets are like four to six x levered i mean it's like it's high yeah it's high i mean look at uh leopold was only three

45:08Jerry Murdock:and a half x levered and he had to sell a lot of assets i agree it doesn't look good but look they have enough ebda today and they have pe firms that know their survival's at stake and the pe firms have time to come up with some strategies as long as the market stays up. You know, this is the point I was making that the global markets are critically important to what's going to happen into the tech sector. Critically important. And if you have a dislocation, I think it was Tom Lee that called for a 10 % decline or drawdown in the S &P this fall. If he's right, if it's any worse than that, I don't know how people handle it when assets deflate and you're levered up.

45:48Jerry Murdock:I don't know how you handle that.

45:50Harry Stebbings:You said that like, you know, the 10 % drawdown. And you said earlier about fire and inventing fire with the frontier models. Sam was like, hey, administration, take 5 % of frontier models. Do you think the answer when you create fire is you have to be owned at least partly by the administration?

46:06Jerry Murdock:Well, first of all, that's never happened in the history of the United States until this current administration. So that's never been necessary. I don't see why it's necessary now.

46:16Harry Stebbings:If you look at utilities providers in the UK, you have your British Gas and British Telecoms. I know they're not now because they were sold and privatized. But you had your Royal Mail. Actually, the majority of utilities were state-owned.

46:31Jerry Murdock:But look, I mean, you have a history of socialism in European countries. Post-World War II, socialism has existed and people have always supported that. And I do think there was a need for the governments to get involved because there wasn't the capital markets available to them like they were in the United States. Obviously, in the United States, there's been public-private collaboration. But Sam's already built the company to this size without needing to give sell 5 % to the government. So why does he need to do it now? I mean, it makes sense if like a Manhattan-style project, if we did that for AI 10 years ago.

47:07Jerry Murdock:well, fine, you know, do it because it's strategically important to the country. But today, given the size of them, I think the only reason you do it is for political reasons.

47:17Harry Stebbings:Talking about strategically important for the country, do you think it's right that we have export controls on chips?

47:21Jerry Murdock:I think it's important that we think about how we're going to deal with our technology. We need to really have a strategy. I'm not a believer in sort of regulation for regulation's sake. Put it in the context. Give us a strategy. Let's publicize the strategy. Let's debate the strategy. Let's have people responsible for it.

47:42Harry Stebbings:We don't need just some regulator to come out and say, let's just do this. Do you worry about the dominance of Chinese open source models and the ability for backdoors to be introduced into their models? Or do you think this is grossly overestimated?

47:56Jerry Murdock:That's a really good question. The main thing about open source and Chinese models today is, one, all these models are not going to exist in 10 years. There's going to be completely different one. So if there's backdoors today, they better do what they're going to do now, because they're not going to exist in 10 years.

48:13Harry Stebbings:What do you mean by that? Like Kimmy won't be a dominant model in 10 years?

48:16Jerry Murdock:I mean, all the open source models that we're doing right now, they won't be used. They'll be replaced by something else. First of all, within 10 years, I believe we, and I think some people are thinking two or three years, continuous learning models will come into existence. That means that every generation, every model we have today dies, goes away.

48:38Harry Stebbings:Two things. What is a continuous learning model and why does that mean every generation dies?

48:43Jerry Murdock:Because today, one of the most important goals of the model builders, particularly frontier models, is continuous learning so that it can do more complicated tasks, just like humans. In theory, we're continuous learning, but robots, so physical AI, will need to have some ability that maintains its memory so it can continuously do complicated tasks and learn and deal with dynamic events that come into it. And so these models will be fundamentally different than the models that have been trained to date. And so continuous learning models will come in, and once they're deployed, there'll be a whole new breed of open source models based on this new capability of continuous learning.

49:26Jerry Murdock:And then those will evolve into what's called lifelong learning, which is truly more how human intelligence works. But those models, in my humble opinion, will replace every model that exists today.

49:38Harry Stebbings:Does continuous learning and potential lifelong learning not denigrate the value of frontier models?

49:44Jerry Murdock:Well, they're going to replace frontier models. I don't think you can bolt on continuous learning into an existing frontier model.

49:51Harry Stebbings:I think they're going to try and the early stages will look like that.

49:55Jerry Murdock:But I think ultimately it'll call for a new form of architecture and completely new training, right? When you train a model today, it's kind of static, dumb, it's trained. Then you go out there in the world, right? And so continuous learning models, I think, will be architecturally different.

50:10Harry Stebbings:Would you have done SSI at 30 billion, Iliad's company, which is supposedly coming out with the first version of that continuous learning model end of August?

50:17Jerry Murdock:I don't know him and I don't do model deals like that unless I know them or someone I trust knows

50:23Harry Stebbings:them. So I can't say. You said there about training being kind of a shot and done. I'm an investor in McCall. I think data itself is much harder than people give it credit for in terms of acquisition, cleaning and deployment. How do you feel about data providing companies as a commodity or as a valuable asset?

50:42Jerry Murdock:Well, data keeps changing. So the thing about data is it's not static. There's, of course, value to context, right? Data gives you the context and memory, right? And so I do think that if you're an enterprise business, your data, the way you do it, will be different than the way someone else. Take hamburger companies, right? I mean, Shake Shack's data is going to be utilized differently than say Burger King will do it or McDonald's. And so I do think that there's going to be highly unique use cases for data that is really important, but you have to have a system where the data continues to evolve and change and the underlying utilization of it can change as the data changes.

51:25Harry Stebbings:I think I buy Lynn's thesis that you'll have specialized models for companies and part of the training for those models will require additional surplus data and then you'll see the likes of McCaw go from purely selling to frontier models to selling to enterprises and even mid-market who need specialized data that they might not have and that massively opens the TAM. That's the 200 billion dollar opportunity.

51:49Jerry Murdock:Right now, models are especially task-driven to a large degree. When models and frontier models are doing some levels of creativity, but we really went into deep creativity, like go solve climate change. You're going to need a diversity of intelligence. You think about board levels and you think about management teams. You need diversity of intelligence to be able to solve really difficult problems. And so the market is going to change from let's just solve tasks and do it a great way. Let's do minimal creativity with writing and visual arts to being, oh, we really need a lot of diversity of intelligence to be creative enough to solve the problems that matter and the problems that we're going to get paid for.

52:37Harry Stebbings:I find everything that we talk about today so exciting. And then I just have one pullback in my mind, which is just a lot of wise people say you always overestimate what you can do in a year and underestimate what you can do in 10. Is that the case here? Am I massively getting ahead of myself when I think about a lot of what we've spoken about and actually calm down, kiddo, it takes longer than you think?

53:00Jerry Murdock:My feeling is that continuous learning, it feels like it's two to three years away. Maybe it's 10 years away. We don't know. I mean, we've been thinking we're on the cusp of solving cancer for the past 15 years. And we got a little bump with the new sort of drugs like Catruda to do cancer solving problems with the immune system. But we haven't solved cancer yet. We're managing it better. But we thought we'd be over by now and it hasn't happened. So I think I apply the same thinking to continuous learning models. We are getting a little bit of success with sample efficient models. Sample efficient models means when you just get a little bit of data, a small sample, and you can extrapolate enough beyond that to come up to be useful and to learn, you know, from that small sample.

53:50Jerry Murdock:And so learning from small samples is starting to happen. But when they actually become robust enough to be useful, I don't know. And my feeling is these things take a breakthrough from where we are. Just like with cancer, we need more of a breakthrough. And the complexity that they're trying to solve is huge. So I'm not going to bet against them. But I would say what could send us into the valley of disillusionment is a combination of a global financial event and a failure for the models to continue to grow and evolve. And we're going to get to a place that if we don't solve SAPL-efficient models and we don't solve continuous learning, we're going to feel like, hey, our inflated expectations are somehow not being met.

54:35Harry Stebbings:Jerry, I'd love to do a quick fire with you because I could talk to you all day. Who goes out first, OpenAI or Anthropic?

54:41Jerry Murdock:It appears like Anthropic.

54:43Harry Stebbings:Over or under, NVIDIA will be a$10 trillion company in five years.

54:48Jerry Murdock:Over.

54:49Harry Stebbings:Why is it so mispriced then right now? It's been flat for the last 12 months despite numbers going through the roof. I don't get it.

54:57Jerry Murdock:I think it's because the market doesn't go like a rocket ship forever. You're going to have these plateaus. And I think that there are areas of things not really accelerating as fast as you think it is. We don't know because right now there's these circular transactions that are obfuscating real growth in the market because the hyperscalers are sort of trying to get ahead of the game. But we don't know. You know, I mean, demand is going to have a lot to do with people having money in their pocket. And if you have a 10%, 15 % dislocation in the markets, people are going to feel poor. And that's going to affect the credit markets.

55:37Jerry Murdock:That's going to affect everything. That's going to affect demand. It always does.

55:41Harry Stebbings:I can't believe I'm about to say this to you, Jerry, but fuck it. We've known each other a while. In the UK, we have a game called Shag, Marry, Kill. Okay. I'm going to apply it to three companies. And the application is kill is short. Shag is buy quick, but you'll probably flip it. And marry is you're in it for the long term. You've got Meta, you've got Google, and you've got Microsoft.

56:03Jerry Murdock:I'm going to say because of the scale, I'm going to say long term for all of them. No, really? Here's why. When Meta's got 2 billion users with all their things, when Google's got 2 billion users with all their things, there's a kind of stability in that because consumers are really slow to accept new changes and things. So because of those two companies having such a substantial consumer business, and Microsoft's consumer business is good too, it kind of acts like a buffer, a stabilizer that gives them time to catch up. I mean, let's face it, all three of them have failed on the coding agent side, but I don't know if they're going to fail forever.

56:46Jerry Murdock:I think you have to say this mass customer base gives them this incredible time to catch up with problems. And that's why they're going to be trillions of dollar companies for at least a decade. They may not be as important as they are today. That's not the question you ask. But as an economic buyer, would I hold their stock for long term?

57:06Harry Stebbings:Yeah, I would. Even Microsoft, no model, relatively shitty AI products, you'd still be a bot.

57:13Jerry Murdock:Yeah, here's why. They control communication for the global enterprises. Microsoft email, as dumb as it is, I mean, exchange, whatever you want to call it, that's not going away. That thing is a money machine that cannot change. It cannot just disappear. By the way, you know, what's really interesting, we talked about the speed of AI and stuff. They won't be able to control agent communication, but human communication, that's not going away. And they're going to be able to monetize that forever. You can't get rid of it. It's not like it's, you know, your cable system at home. We can say, fine, I don't need infinity anymore.

57:50Jerry Murdock:Get rid of it. You're not getting rid of Microsoft anytime soon. It's going to be around. Sadly, you know, Facebook is the same. You're not going to get rid of it anytime soon. And these guys have built these kind of businesses because of the scale that supports their underlying business. And the consumer is, in my humble opinion, the thing that's keeping those companies afloat more than anything.

58:11Harry Stebbings:You got a short one of the Mag 7, which would you believe?

58:14Jerry Murdock:Well, it would be meta. And it would be meta because that's the one that may become boring. It may become like a telephone company. I mean, it'll just be this malaise, like owning an AT &T or something. That's what you kind of think about it.

58:30Harry Stebbings:So I push back. It's the largest ads business in the world. It's got WhatsApp and it's got Instagram.

58:36Jerry Murdock:Yeah, WhatsApp. I mean, again, they control human communication on WhatsApp in a very meaningful way. They haven't monetized it yet. But those users, they're going to find ways to keep the users. You got 2 billion plus, maybe there'll be 3 billion in five years. I don't know. We had half the world using your application. I'm sorry. That's something that's stable. That's a stable thing. I can't say it might be boring. They'll just generate dividends out to you. So as an economic buyer, you don't necessarily always need growth. You can take big fat dividends and just punch the coupon. At least for the next five years, it's going to be considered a safe haven.

59:12Jerry Murdock:The Mag 7 is the Mag 7 because people say, hey, I'll put my money there. I might be underwater for a year or two or less of a return than I had. But long term, those things are going to be there and they're going to benefit with every positive cycle in the markets.

59:26Harry Stebbings:Is Apple's AI strategy unforgivable mistakes or is it genius patience waiting to see how a developing ecosystem plays out?

59:35Jerry Murdock:The answer to that is something that it's going to be hard to know. We'd have to go sit down with Tim Cook now that he's retired. Maybe he'd tell us. What is the culture around AI at Apple? How are they thinking about it? What are they doing in there? You know, I know they're using Cloud Code, huge, massive Cloud Code customer. But how are they thinking about it? Do they have anything innovative to say? Have they been intelligent, watchful observers? Or are they just dumb consumers? If they're consuming, sorry, they're in big trouble. They're going to suffer. But if they're watchful observers and they've got something up their sleeve, then we could be surprised by them.

1:00:12Harry Stebbings:Which PE firm will navigate the next five years best?

1:00:16Jerry Murdock:Ooh, that's not fair. That's a tough question. I wouldn't want to make that bet.

1:00:21Harry Stebbings:Which will navigate the worst?

1:00:23Jerry Murdock:Well, I don't know who's worse, but my company, Insight, they have a very small PE portfolio. Very, very small. It almost doesn't even matter. So I think I feel the best about them long term because they've been really intelligent about how they deployed the capital there. But the people that are all in on PE all the time, I just don't know about that. I think they're highly at risk to any kind of financial dislocation.

1:00:49Harry Stebbings:Which venture investor do you think has fared most well in the transition to an AI world? Good question.

1:00:56Jerry Murdock:Well, look, I mean, I think there's five or six firms that have just done phenomenal. The guys like Menlo that did Anthropik, how do you say early, but early enough, you know, they're going to do great. Benchmark, while they missed Anthropik and OpenAI, they've done amazing with Factory and a bunch of other great ones that we've talked about. So I think despite the fact that I'm missing the big frontier models, they have a great portfolio. I think Koshla is also phenomenal. I mean, Vinod with Avin and, you know, his companies, they did amazing. I think Koshla is in that group. I mean, they're just going to crush it.

1:01:36Jerry Murdock:Koshla, Menlo and Benchmark have all just done amazing.

1:01:39Harry Stebbings:I have one final one for you. And this is kind of the beauty of what we do, I think, which is seeing the future hopefully ahead. What seems crazy today that you think will be quite obvious in five years' time?

1:01:51Jerry Murdock:Ah, that's easy. Blockchain for agent payments. Blockchain is in the valley of disillusion right now. It's really in a bad spot. I mean, IBM CEO came out and said, Bitcoin's at risk of being hacked in three to four years. Tom Lee came out and said, Bitcoin's at risk of being hacked in two years. Google said that Bitcoin's being hacked in two years. And that greed element of blockchain, which is exactly what the Bitcoin thing is all about, in my home opinion, is about greed, you know, is bringing down the whole blockchain thing. While Solana and Ethereum, they're looking like they have a long-term potential.

1:02:32Jerry Murdock:And I do think that new things like Venice or Aki Naki or what Robinhood did with Robinhood chain, great. They got a billion in revenue probably. globally, those innovations, whether you're tokenizing stocks, or you're going to do payment rails, or you're going to use blockchain for buying inference, like on Akinaki or Gonca, those things are going to be real innovations and people are going to be blown away that blockchain has found true utility other than some supposed form of utility.

1:03:05Harry Stebbings:Jerry, I've absolutely loved having you on. No, seriously, I learned so much from you. I love what I do because of shows like this. So thank you so much for joining me. And you've been amazing, dude. Cheers. Take care. But before we leave you today, every great software company eventually runs into money. Uber had to move it. Shopify had to hold it. Airbnb had to settle it. Money movement stopped being a fintech problem. It became a software problem. And increasingly, God, it's an AI problem too. ZeroHash is the infrastructure that makes global instant money movements seamless. One API integration for stablecoins, digital assets, and modern payment rails, so builders can stay builders.

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