The AI Supercycle, California's AI Safety Bill Vetoed, and the Future of AR/VR | E2017

0:00Is now the time to create apps for AR. if you recall the google glass days they had the little translation app and so you could look at a street sign and it would auto translate it for you i got to play with that blew my mind i also got to play with the microsoft hololens which was ar blew my mind and i never got to play with magic leap but i'm sure i would have loved it and so it's just it's funny how so many things that i don't like to use like concur kind of just like stay alive in the world of technology and some things that were so great didn't quite make it but i think we've now reached the point when The hardware's gotten good enough.

0:34There's enough good apps. Yeah, I think we're probably about to the point when AR and VR are going to have enough consumer buy-in to be worth building on top of. This Week in Startups is brought to you by Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a SOC 2 report fast. Twist listeners can get$1 ,000 off for a limited time at vanta.com slash twist. Cloud Devs. Building the best remote team is tough, but you don't have to do it alone. Visit clouddevs.com slash twist for an unbeatable offer on hiring elite LATAM talent today.

1:17And Sprig, the product experience platform that generates AI-powered opportunities to continuously improve your product at scale. Visit sprig.com slash twist to book a demo and get a $75 gift card. All right, everybody, welcome to this week in startups. I'm Jason Calacanis. He's Alex Wilhelm. And we're here to go through all the news that is important to startup founders, venture capitalists and tech enthusiasts, I guess, more broadly. What do we got on the docket, Alex? A lot to talk about today. Yeah, so over the weekend, we saw SB 1047, the California AI regulation bill that everyone had an opinion about got vetoed.

1:54We'll dig into why we care and why it matters. Then we're going to talk a little bit about AR and VR headsets and what Jason is calling the startup graveyard. Then Swiggy's IPO and depending on time, a couple of notes on the open AI revenue trajectory, and then a new Twist 500 company. So Jason, quite a lot to get into. But before we start, we had a request from the friends and family out there listening to the show. I think this may have come from YouTube, but on an episode, a couple episodes ago, you said, we are on the precipice of the greatest super cycle in the history of business. And this person asked us to unpack that a little bit.

2:32So I figured let's start there. Okay. So let's define what a super cycle is. A super cycle is a technology comes out and it's so powerful. It's so transformative that it will push a bunch of founders to be part of that wave of technology fairly obvious when i mentioned them what a super cycle might be the pc revolution when people started having pcs at their offices uh in the 80s well that meant they needed lotus one two three they had something to do with this computer so lotus one two three microsoft word all these products started coming out um then we had the network revolution and connecting all these computers together now you could do instead of just microsoft word you could do document management you and i could work on versions of a document uh which became like super important for lawyers and then eventually the idea that you had versions of a document is something that everybody a college student uh high school student might have the ability to understand other super cycles obviously the internet uh and then we had cloud computing as you know mobile uh and then there were other things that didn't become super cycles vr ar very famously three or four times we've had to try to start that up this transformative technology didn't work ai we had it happen maybe 10 times in the last i don't know 50 years really like even the 70s and 80s um and now it's finally hitting batteries sensors uh the iphone smartphones people would probably consider that a revolution you look at that super cycle of battery and sensor technology enabled everything from smart glasses which we'll talk about today as well as electric cars right the battery packs on the original electric vehicles were literally like the battery packs i think from smartphones and laptops so yeah now here we are we've defined what a super cycle is we're obviously in the ai super cycle and what i think makes this the greatest super cycle of all is how much it will impact every aspect of our lives the smartphone was the previous one that impacted every part of our life but the pc didn't right cloud computing didn't they affected a lot of our lives but not every aspect of our lives and people you know this would be the i guess the smartphone would be the one i'd say was the biggest super cycle along with internet of our lifetime so we have those two and then this one and what's going to happen i believe in this super cycle is massive uh job displacement uh the uh static team size and then bionic you know augmented humans you know somebody with ai being able to do the jobs of five or ten people people who don't know how to use ai doing the jobs of instead of one person one-tenth of a person right so okay here we are that's why i think this super cycle is the one to look out for it now in a selfish way as an investor i'm looking at it saying if i can invest in and help i don't know a hundred startups a year maybe 200 even if i get more ambitious and we have the quality there over the next five years if i can place a thousand startup bets which i'd like to do in the next five years i have to figure out how to ramp that up intelligently in those thousand i've got a good chance of catching catching in that debt the next amazon uber airbnb robin hood you know let's call it a 10 billion 100 billion or maybe even a trillion dollar company and so when investors look at a super cycle that is what i think defines a super cycle and i think that's what makes this the greatest time ever to invest in technology companies public or private and the best time ever to start one.

6:18Yeah. So I agree with all of that, but to me, I think we're still underselling the point in time because everything you said is true, but I wonder if we're not going to see concurrent other super cycles. Like I think when self-driving cars give them three more years, really reach a greater level of market penetration. I think that could revolutionize how goods are moved, how people are moved, how friends move around, where we live, how we live. So I wonder if that couldn't also be a super cycle that could land at the same time as AI. And then frankly, I would say fusion, if it works out, if we do get to net positive, you know, but I mean, can you imagine a world when AI is doing everything from robotics to, you know, AI SDRs, we have unlimited clean energy and the cars are driving themselves.

7:04I mean, that's science fiction. i mean it's science reality science fiction is always like the roadmap of technologists and so here we are i do think fusion would create a super cycle unlimited energy means unlimited clean water unlimited clean water um and heat means unlimited food because that's what photosynthesis is is like you know light plus water so okay um and so and then robotics uh and ai combined so i'd put ai as like a subsection of that would be free transportation or you know close to free transportation and free fuel oh my lord you're correct there are super cycles coming that i think are going to dare i say change everything and then the question is how do you play a super cycle can you be too early or too late for it the two stories i wanted to talk to you about today are two that really dovetail with the AI super cycle in a major way.

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8:40On average, Vanta customers are compliant in just two to four weeks. It can take months without Vanta, and they automate compliance for GDPR, HIPAA, and more. So you You can sell it to bigger customers in whatever markup your startup is going after. Vanta is going to save you hundreds of hours of work and up to 85 % on compliance costs. Stop slowing your sales team down and use Vanta. Get$1 ,000 off at vanta.com slash twist. That's vanta.com slash twist for$1 ,000 off your SOC 2. Yeah, let's start with SB1047. So if you have been under a rock for a long time. That's a Star Wars character. I think it was in the Empire Strikes Back.

9:15Yes, it was green. It was shaped by three balls stacked on one top of each other. No, it's a bill. It's entitled the Safe and Secure Innovation for Frontier Artificial Intelligence Models Act, because everyone knows that people who legislate are great at naming things. Jason, the news over the weekend is that SB 1047 in California was vetoed by Governor Gavin Newsom and up went the fireworks. But take us behind the scenes. What was the reaction on your group chats that we don't get access to? Basically nothing. thing people have come to the conclusion that our government is captured here in the united states largely and that the winning hand is going to be no ai regulation in europe probably be the opposite um there you know you have uh if anything business is captured by government in europe and it'll go the opposite way so i think it'd be a tale of two cities yeah i think that's right so i want to go over a little bit of what happened why we're afraid and then we're going to wrap the section with what it means for startups so stick with us here um jason how much about sb1047 should we tell people should we give them like a rundown of what it was going to do and the concerns about it or do you want to be a little bit faster i think that's well i think we should explain maybe the top two or three concepts of how they were going to throttle monitor um ai because there there are fears that people have and the fears should be real um the fear of a job displacement is obvious we're going to have on 10 10 the robo taxi from tesla we have byd waymo uh and our four other companies partnering with uber on automation so the idea of being a taxi driver or a truck driver is going to radically change in our lifetime and it might change in i would say between five and 10 years depending on the jurisdiction so that's very real now what the government should do about that if anything i i kind of wonder as a libertarian leaning kind of person like with coal workers i kind of feel like it's a small number of people that drive a lot of votes maybe you know in society we just say here's you know when when these markets come apart just here's some training maybe and if you choose to take it you know here's five ten thousand dollars worth of training a nice thing a mitzvah for the government to do but otherwise you have to be responsible for your own future and see that coming and make changes in your career choices and or spending as an individual right like this is part of living in a free dynamic society as opposed to a protectionist society so anyway let's go through the top two or three things The fears are real.

12:03I don't think the fear of like, they're going to come and kill us is real. I think that's like the 1 % science fiction 10, 20 years from now. But I do think the job displacement is the one that unions and individuals should actually realistically care about. Well, that I think breakdown is why some people were opposed to SB 1047, because this is the bill all about catastrophic risk. And so what that means is what they call critical arms. It was talking about like avoiding AI systems, helping create WMDs that result in mass casualties, or mass casualties and mass damage from cyber attacks. So essentially, this was the bill that was thinking about the far future, the biggest models and the biggest risks.

12:44And that is how it was set up. So one of the reasons why this bill was so controversial is that it had a definition of essentially what models had to obey its rules. And those were ones that had computing that were built using computing power over 10 to the 26th integer or floating point operations or that cost$100 million or more to make. So Jason, you know, this bill wasn't about job protection. It wasn't about rescaling. It wasn't about UBI. It wasn't about the stuff that I think you and I really care about, which is people. It was about trying to put some guardrails in place to prevent AI from the future from becoming Terminator.

13:20And that's what I thought was kind of silly because it felt like it was waving at a future that we should maybe be afraid of and then trying to harm the present to get us there. and the way it did that was essentially adding civil and criminal penalties to companies that make ai models over a certain size uh if they did not follow uh the rules preventing misuse of cover models building kill switches filing lots of paperwork showing code listing where they got data and so forth so there's a lot of regulations for these large models and uh now no yeah so if you were to regulate large models in california and california is on the vanguard of creating regulations and creating new trends so just having been a california resident for uh i guess maybe close to 20 years of my life and a new yorker for 30 uh and now coming from the the proud uh hill country of uh texas outside of austin um what i'll say is you know california is beautiful in that you know yoga crystals organic food you know a lot of trends start here uh and you can goof on it but that part of the freewheeling spirit that i loved about california it accepted anybody even to the point of absurdity i want to be recognized as a puppy you know like literally we'll have regulation that like people who think they're furry animals need to be protected right it's it's it's lunacy you know you might put it under woke i thought it was kind of comical until maybe it wasn't um but you know it's great that we got yoga it's great that we got meditation and people would take that seriously and be part of the avant-garde and then on the east coast what i found growing up cynicism right and then we just have to and people will be cynical about yoga or whatever until they try it and then 10 years after it's popular in the west coast it's popular on the east coast putting that together it's a long-winded way of saying i think california likes to try like regulations and getting up in people's business in a in a very big way texas florida live and let live new hampshire live free or die there's like lots of different flavors in our country um and so california is going to california and this is obviously like kind of ridiculous to create all this regulation i know some people like probably sam altman and open ai or microsoft might actually want this because it creates a hundred million dollars a year in legal fees or ten million dollars a year in legal fees that will stifle other companies so or make it impossible for startups to compete because the legal bill would be greater than their team size their staffing bill so anyway good riddance to this one uh europe will probably have 10 times worse and um really the focus i think that the government needs to look at is what are we going to do if we We have cataclysmic job displacement.

16:15And you know what? We had cataclysmic job displacement multiple times in our history. Wars, COVID, stock market crashes. And we have this concept of unemployment. We have this concept of stimulus that we drop people, you know, $1 ,000 on people's heads like three or four times. So I'm not worried about it. If we have cataclysmic job displacement, we're a strong country with the ability to manage it i i do think it could create civil unrest though i'll leave it yeah there's there's always a risk of that in the near term um and you know it's what's funny is talking about this stuff it's it's how broad the impacts of ai could be and therefore that's how scattershot the the ai regulations are so when gavin newsom vetoed sb 1047 he also kind of flexed that he had signed a lot of ai bills um i'm not going to go through them all by name and number here, Jason, to save everybody, but they were working on things in California, like not using AI to create child sexual abuse material.

17:13Good. You know what I mean? No cloning dead people without permission. Pretty reasonable. Disclosing that an ad was AI edited. Reasonable. So there have been in California, some nibbles at AI regulation, but to me, they land on the side of use. Do not misuse this technology that has been built because that is the risk versus looking at the models themselves. And that to me was always the mismatch with this bill versus everything else, because we can sit down and say, hey, let's not let teens make sexual deep fakes of one another for about 8000 different reasons. Right. No one's really going to be posted that except for the most hardcore libertarian.

17:50But there's like seven of those. So we don't need to worry about it too much. But to me, this the idea of regulating at the model level was a big mistake. I think, by the way, that's like a really great point that I didn't even get to, which is, you know, Esther Dyson. who was a like a mentor of mine when i started in publication she had a publication release 1.0 she always made time for me thank you esther for that um and you know it really informed a lot of how i think about technology reading release 1.0 that she did with jerry mccalski and and her and you know she said you don't have to use this technology you could opt out of it if you disagree with what the company's doing and you you could not buy their product so if you disagree with cedar hills or you disagree with microsoft and how they're running things there are alternatives vote with your dollar and then the second thing she had said to me at some point was are we going to blame volvo when a bank robber steals a volvo and robs a bank or is there like another place to put the blame as opposed to volvo and so you know that that analogy is a really good one until it isn't you know if somebody makes an ai drone specifically designed to target a person by photo and murder them by attaching like a gun to them you know okay slightly different but the drone and the gun you know that you use for hunting or they use for making pictures those people maybe shouldn't be at fault if a lunatic puts a gun on a drone i'll just you know end my ted talk there but i do think you're right and it is one of the arguments i had with lena khan i love when lena khan takes action against specific things like i don't know the app stores are a good example the tax and app stores or bundling those seem like really interesting tactical things to go after philosophical things i think you get yourself in trouble right because now you're kind of like philosophically i want to stop technology and progress or philosophically i don't believe people should be able to own a firearm like it just kind of shuts the the discussion down and that's why i wanted you to just break down tactically like you did wonderfully here are you looking for an unbeatable deal on senior talent well if so you need to look outside of your borders according to g2 cloud devs is the best place to hire top lat ham talent that's latin america a market with millions of developers cloud devs is the largest pool of latin american talent with over 10 ,000 senior engineers who are rigorously vetted for communication and problem-solving skills.

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20:55Just go to clouddevs.com slash twist to pay what's fair for your next five star hire. Let me let me grab just a couple of quick things before we move on. First of all, we have a tweet from Martin Casato from Ingers and Horowitz. I just want to show this to point out the tone of many VCs who were very public about this bill. And of course, Andrews and Horowitz, a major investor in AI companies. So Martin says, unbelievably grateful to Gavin Newsom for doing the right thing and vetoing SB1047. This is the path to sensible AI policy and maintaining California's global leadership. I liked that. And then I'm going to grab one more.

21:31AI Funds, Andrew Ng, he's also the co-founder of Coursera, made a very important point, Jason. He said, looking ahead, let's keep on protecting AI open source and innovation. And one concern that people had was, okay, so these rules that SB 1047 would have put into place with penalties and regulations and boards, all were aimed at for-profit companies, it felt like. So what do you do if it's you and I passing, you know, code back and forth on GitLab or GitHub? Who's in charge there? Who has to report? Yeah, who's responsible? Yeah. and people were worried that it was going to chill the heck out of open source ai development well now we don't have to worry about that and i think that's good for startups because it means they don't have to go pay open ai for access they can just fire up a llama model and then run it themselves and off to the races so i which i encourage them to do by the way finish your thought there though well finish your thought and then i'll tell you why well i'll just say that we now have a competition in the market between the for-profit ai companies and the open source market and what happens with more competition more good products so we're going to have greater vision greater tension more competition i just love it i think this isn't that good but why do you recommend open source yeah i was going to say it would be really great for the startup community to build everything with the ability to unplug and plug into you know the open source community and that's what i heard from a lot of folks building startups we're using chat gpt but we expect to be screwed by them this is like the private chat um so we don't trust certain people at open ai to be reliable and in the way that people don't trust zuckerberg right and if you look at zynga you know uh mark pincus had his business destroyed by his quote-unquote friend mark zuckerberg who was like yeah you know what i'm just going to destroy zynga poker farmville and then they have to pay us if they want people to play that game and then you had mark zuckerberg talk about how bummed out he was about the uh apple changes and how he had to be like subservient to the platform of the iphone and i tweeted like how ironic that was considering he destroyed zynga and countless other startups to which mark piggas was like how does it feel zuck to be zuck and so you don't want to get zuck which rhymes with another word and you don't want to get altman i think and i that doesn't mean i you know think altman is not trustworthy but a lot of people have said to me i don't trust sam haltman with my business and i i wouldn't limit that to sam altman i think any platform you should not trust if it's a closed platform And that's why about 60-70 % of the people who are building with ChatGPT in a study recently that was shared with me said they were planning on moving to open source when open source catches up.

24:21The way open source is going to catch up is when brave people say, you know what, I'm going to give up the six-month lead that I get with ChatGPT and I start investing in the open source project. so um this is a great mitzvah uh that zuckerberg has done for the world in taking a very powerful model and making it open source so please support that and then make sure he doesn't put any um cuffs on it right like these open source projects there was a little flare-up between wp engine and wordpress this weekend there there can be some kerfuffles here there's another kerfuffle going on with a yc-backed company that forked an open source project and got funded for it and was like it's our project now bitches basically so there can be little kerfuffles in the open source world but generally you can fork your way out of them if you don't like what the you know the leaders are doing in those projects so please support open source i think i saw this was that the company in the latter case pair ai which is being built by the guy frying pan on twitter correct and i guess it you know he basically yc funded the project they forked it and i guess there's like a smoking gun of a tweet where he says it's like this project's ours now we're funded we're nyc so just like listen we pick founders because of their effervescent nature that's a that's a kind way of saying they're lunatics in in the best instances they're lunatics who will do whatever it takes to win yeah that's what we're self-selecting for folks i'm sorry i i have no f's left to give i made my money i'm more famous and have more influence than i ever thought i would ever have in my life i'm just gonna tell it to you straight here founders are selected by y combinator by their ability to break rules and i don't want to say commit crimes but being a rebel is the goal of coming to yc or even our programs now that doesn't mean we endorse breaking the law no but it does mean that there's a reason why they put sam altman in charge of y combinator y combinator and paul graham specifically likes the rule breakers who you have to go clean up after if and in my personal experience when i knocked stuff over sometimes sequoia had to come and clean up stuff that i did in the market and i think we kind of like people like that to back because the people who are trying to be like or follow the rules generally do not go as far as the rule breakers i think steve jobs made a commercial thanks for coming to my ted yeah yeah well also it reminds me of a really nice quote that you know i think has been shared widely which is uh well-behaved women rarely make history and i think i think that point is definitely made in in a feminist context but it applies very specifically here if you are well-behaved the best you can become is a vp at mckenzie there you go i mean you know airbnb is like okay you can't have a hotel out of your house but nothing says you can't take a donation from a friend for renting them your couch there you go okay let's take it to court and find out and that's how society moves forward so i have a high tolerance for the rule breakers benders yeah i don't want people doing unethical fraud that's like where i draw the line and i deal with that one out of a hundred i've probably had four instances in my entire career i put one or two of them in the the book angel i'll put three or four of them as composites you know i make a composite like here's a little storytelling time yeah of those but man i see people like literally commit what i would consider and the sec would consider or attempt to do things that i would consider just outright fraud like fraud in delaware court system fraud by the sec and when you're a shareholder in those situations you got to extract yourself right so important discussion to have with your mentors in the space of are you bending rules are you reinterpreting rules are you committing fraud and generally the people committing fraud are just bad actors who know they are the people who are bending rules are trying to move society forward and if you can always tell you can always tell by what's that term uh it's a latin term like key benefit who benefits qua bono qua bono that's my italian-laden c-o-c-u-i space bono who benefits who benefits if the public benefits because lyft got you a cheaper ride and they created the category of ride sharing and got and sidecar those two really get credit for not uber they created it first uber uber reacted to it actually uh when i interviewed travis at the all-in summit he actually talked about that and the second is like airbnb who benefits the homeowner and the guest benefit and then you're like oh i guess there's a little marketplace fee for uber and a marketplace fee for airbnb but in context it feels like they benefit last and the consumer and the seller benefit first and foremost yeah i think we can do a naval based uh summary of your point about founders so um no one wants to back someone in the navy because their process old-fashioned top down blah blah blah and you don't want to do a full pirate because they don't care about the rules and they'll just sink your ship maybe like an aggressive privateer you know like right right down there you know definitely out there for the gold but knows it'll follow a rule or two and therefore you won't end up in a fraud situation boba fett boba fett is not taking on the empire he's not taking on the rebellion he's picking up packages he's delivering them to the highest bidder whether it's java whether it's north vader and that's it and he's done just gonna do a couple of jobs i need to watch the like i still need to watch that show um can we just do a quick sidebar on open ai because you brought up sam altman and and all that so i have a little argument that i want to throw at you i think it can be argued that open ai is cheap at 150 billion dollars and the reason why is reuters reported that the company um now at a 3.7 billion run rate expected to have 3.4 billion in actual earned revenue this year not as a run rate calculation the company says that it expects and this is per their reporting 11.6 billion dollars in 2025 revenue which against a 150 billion valuation is only about a 13x next year's revenues which isn't that expensive i don't think for a company that's going to grow by over 200 in the next year if it hits its targets so to me i kind of get the number now jason the thing that i'm confused about is how do they expect to grow by like what eight billion dollars next year if you and i both think that open source ai models have as much traction as they do and will have in the future so if they hit their numbers cheap if they don't yeah so um i'll uh i'll i'll give the vinod quote those were just details he said that like at last year's all inside when we interviewed him when i was asking him about the non-profit versus price like those are just details well details are what matter um i think i'll give you the uh bull bear case according to me the bear case i think is that uh siri google search android uh and browsers and uh social media apps are going to intercept 90 of queries 95 of queries and that the only people who are going to go to a dedicated ai at like chat gpt's which you and i are addicted to and i use all day are you know just really high-end users and that those products will be free by big iron amazon meta uh microsoft and google can afford to give those products out for free and what they said about the user base of chat gpt is that when they allowed people to use it without logging in their user base went bonkers and which is google right you don't have to log in to use google um so they follow google there i think what's going to happen is we might experience peak consumer usage of chat gpt uh during this time period and then people will say why am i paying 20 30 40 bucks a month for this when it's built into my iphone now you and i will not because 500 bucks a year to do our jobs better and corporations might not seems like a pretty good deal right and i actually pay for the professional version for everybody on our team so we're paying 20 bucks times i don't know what the corporate is maybe it's 30 bucks a month so 600 i'm probably giving seven thousand dollars a year for our small firm to use chad gpt um and i would never stop if it was but 10 better than the other products out there mass consumers however do not pay for calendar apps it's true or email for calculators or flashlights they don't uh they don't pay for notepad apps so when people pitch us those we're like what's your plan here and they're like well we're going to be like evernote and it's like okay you evernote had its window but you know people saw like an easy to use notepad in the cloud and then notepad on your phone became part of the cloud and everything else became free so yeah i think the api calls on for open ai are going to are 70 of the revenue 80 of the revenue according to reports and the consumer fees are 20 or 30 percent yeah so i think they're an enterprise company and their partner is microsoft for enterprise and uh oracle apple are not going to give their business to sam altman and i think you're starting to see cracks in the sam altman deal making which let's be honest you might be the barry diller of our generation right now you might be the mike ovitz of our generation to the point at which it's almost comical right like people are like my god is there anything this person can't convince somebody to he convinced elon musk to give him 50 million dollars for a non-profit that absolutely no problem flipping it into a for-profit he has no problem going to the middle east and saying i'm it's going to be seven trillion dollars he apparently went to tsmc and yes all these incredible people and said yeah I just need like 7 trillion to build 30 fabs.

35:08And they're like, who's this podcast, bro. It's become like, almost like a meme. Like, Hey, this guy could come in and just literally take your shirt off your back and you would give him 20 bucks and get sunburned. And then he would charge you or like sunburn lotion cream, uh, after doing that. So shout out, Sam is incredible, but that can only take you so far, I think. And I think we might see the limit of that. Apple is not participating in the open AI funding. i read and then apple had chat gpt and their apple intelligence yep okay i think tim cook came to his senses we'll use you we won't give you money we'll use you we'll learn from you we'll use it as a bridge but ain't no way we trust an open ai you you lose that many team members you do all this fugazi behavior these big iron providers are gonna i think rethink their relationship with specifically sam yeah um because i don't think they trust him and i know the startups don't trust him so wait i mean trust matters yeah jason is this the bull case or the bear case i don't know where i was i think it's the i think it's like the bull case for sam's like the greatest deal maker of the century and the barricades for when you can take that too far in life okay um i do think they'll be one of the top three players but i do think microsoft google and apple and amazon and oracle are not going to empower open ai any further i think they're realizing they may have created a monster okay we all want to build products that users love And we all understand in the startup game, it's product market fit.

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38:02Is it possible to build the next trillion dollar technology company without owning your own iron? Can you build a trillion dollar company based off of someone else's data centers? not in the short term because all the iron's been accounted for so in this window in this game of thrones you have to have the coin to buy the most dragons and or scorpion you know things that shoot the dragons down right this is a game of dragons a game of tanks a game of pick the arena you know you either need to have the best gladiators the best battleships the best fighter planes whatever it is and in this battlefield that happens to be data centers and so you whoever has the energy the nuclear power plant the nvidia chips or other chips wins and i think the key thing to look at here is i think sam might get outgunned because if you they're losing five billion a year and they're making three and a half billion now i that's according to reports yes sometimes people get burn rate and spend confused all right there's three numbers um when you're looking at a startup revenue spend you do the math on those two numbers and you get to your burn rate they're saying they're burning five billion and they're making 3.6 billion am i correct in what the press reports are 3.7 but let's not let's not fight about that yes you're in the exact ballpark okay and they say the burn is five billion yep burning per year five billion they're raising six billion or so five to six billion i don't know how much cash they got on them this startup might have a less than a year of runway is that what i'm reading into this that they have three months of runway six months of runway and they need another six billion to make it through the next year is that what's happening here with open ai depends a lot on how fast the revenue ramps and we are dealing with run rate numbers and we are also dealing with expected end of year totals okay so we've confirmed 3.7 million run rate we've confirmed losing 5 billion according to press reports there we've confirmed this is going to be a five or six billion dollar raise yes how much cash is left in the bank would be the the the question you want to ask and if they're burning let's say five six billion they're burning holy cow 500 million a month just under that's a lot of money so if you're burning 400 million a month and they have a thousand employees those thousand employees or two they have a thousand employees i think is the number last i heard was 1700 okay so 2000 at 500 000 a piece you know you start doing some math here for the first billion that means four billion in data center electric legal whatever but let's just call it for maybe a billion in salaries and comp for that team they were incredibly high highly paid which i think they are and then you put four billion for you know uh big iron which makes sense because what's nvidia's revenue back in videos revenue into you know one of their biggest uh customers xai microsoft google apple these are all the big customers so yeah i think there's like an exit i'm not gonna say an existential crisis here but they're they're having a hard time keeping up i think so i i would read these numbers slightly less um uh worriedly and here's why the company was so much smaller at the start of the year in revenue terms that presuming they had a similar amount of compute costs, they were burning way more capital in January than they were in July.

41:53So I think their pace of losses should decelerate. And given their expected growth, I think also we could see them become on an operating margin basis, quite a lot less unprofitable. That said, even if they'd cut their burn in half, burning two and a half billion a year is still$200 million a month, or what is that like six seven million dollars a day it's still an enormous amount of money so i don't want to diminish the bait the burn i just i would be shocked if they're still at that pace of burn at the end of this calendar year and with that much money in the bank they have probably more than 12 months of runway but i wouldn't say it's more than two years unless they're infinite unless they need to increase their spend to keep up with amazon microsoft and apple and google i have a feeling that they need to increase their spend so your theory would be correct yes if they didn't you know that the revenue is increasing and they're not going to spend as much on data center right so you have these two uh lines revenues increasing right and then the cost of the data centers which is the cost of this business right it's not the 2 000 employees really it's the data center cost which is a new experience here for startups and this isn't really a startup if they're making this much money so you know i think this could be a serious challenge let's say they do have to invest another 10 20 billion in data centers which i think they do at a minimum if they've got to invest another 20 billion in data centers and they're at 150 billion they're only the 6 billion they're raising right now is only diluting them four percent five percent if they raised 20 billion at 200 billion now they're diluting 10 percent yeah i don't i this cap table is going to be fascinating to look at but this is a lot of chaos for one startup to be dealing with concurrently all the all these people leaving lawsuits competitors cash crunch or massive investment one or the other you know or both and open source.

44:05This is high stakes. This is a high, I would not make this investment. Yeah, no, you said that before, which is why I wanted to bring up the new revenue projection for next year. But it's interesting because we were talking about, you know, can you build the next trillion dollar company without owning essentially your own mass network of data centers and several nuclear power plants? The answer kind of feels like no. And to me, what that means is that the ownership of digital brains, data centers, and power, which is just heat, essentially, boils water, makes steam, spins stuff around, but it's always the same process.

44:38It's basically heat and smart sand. If you don't have mass capacity for those, you're kind of DOA. And that makes me kind of worried about startups because a lot of them are, they're cloud dependent from day one. So how can they really challenge the big iron companies if big iron itself is open? The answer to the question is they're not going to compete with them on this battlefield. field this is not the arena that they will compete with them um just like you don't see startups competing in the arena of hard disks or storage or cloud computing like when's the last time we had a cloud computing startup like the last volley was like rack space 20 years ago right so the arena is not going to be storage or data centers it's going to be verticalized apps and And if it's true that the open source movement is working, taking open source and having proprietary data and building something very niche and bespoke, I think is where startups win.

45:36Just like YouTube and Dropbox did not win based on their hard drives. And Dropbox tried, right? Dropbox built their own data centers. They thought that would be a technological advantage and they could never use Amazon's S3 or whatever. and they wound up i think doing exactly that and getting rid of their own data centers eventually so there was an argument this this argument reminds me of like owning fiber like google was going to own all this fiber google was going to own you know um uh you know and other purple people felt they needed to own the hard disk space youtube didn't dropbox did so yeah i think this all gets abstracted away and commodified very quickly and i that's the other danger for um um open ai is they need to make money uh off of these products and services microsoft and google do not and apple certainly doesn't so apple could take all the margin and apple intelligence is free and they use llama and they join forces with facebook or they buy some small anthropic like company and they start their own open source project and all apple needs to do is make siri work for what they said it would work for for the last 10 years and i think they intercept half of all ai queries right and then the question becomes do they build a competing search engine to what google has put together because why why would you share when you can have it for yourself i know there's a lot of money involved but long term i think you'd rather own more of the consumer than own a near-term portion of google's cash flows so and to add to that there's a legal case that the default that google has you know is an antitrust issue and that was my prediction here on the program was eventually apple will have a lightweight search engine i believe they should just buy the brave search engine or duck duck go or both and those are tiny little tuck in um you know under a billion dollar acquisitions that would be transformative and they would be good for competition so if you're listening lena khan in your last 90 days oh wait you're out of here uh your last six months i hope she gets a job in the next administration just because i want to see the the blood vein in your forehead explode on camera she's going to be a guest on here i guarantee she's working for andreason horowitz i'm calling it now she won't be accepting a job at andreason or founders fund or i cheat i'll give you the here's here's my odds y combinator and dreesen founders fund one of those three she'll work out i would uh 80 yc 10 andresen 5 founders funded and after that but i think it's gonna be a law firm hasn't she gone to yc twice already yeah she's she's getting up in yc i think she wants to be a partner she's young she's in her 30s she hasn't made money yet say that i love when you say young no no no you're closer to 40 she's closer to 30 so you're very old very old and look at yourself look in the mirror i mean you're a dad you're i saw the pictures of you running around with that baby strap to your chest so super cute should have seen how much how much baby spit i had on this part of my body in the last 24 hours it's nothing like dealing with baby liquids all over your body all the time dude yeah i we don't have time to go off topic about it i've had way too much baby liquid in my life so bloomberg has a story talking about ar and vr and headsets and efforts, Jason.

49:07I'm a long-term bull on AR and VR, but a short-term pessimist. But it seems that the winds might be changing. So we have some clips coming up, but start with why this story is buzzing in your bonnet. Well, false starts, as we've talked about, are part of technology. And so we've had a false start on AR and VR. And I thought I would take folks to the graveyard of startups because uh there is an important thing with timing when you are going to be part of a platform revolution whether it's ai or it's augmented reality event or virtual reality consumers have to be ready for it the platform has to be ready so if we were to look at for example ai there were ai startups four years ago using chat gpt like 1.5 to 2.5 and some of those didn't survive to get to chat gpt 3.5 and consumers embracing this technology and the technology not spitting out garbage um and so here we are you can do something like tax gpt or any number of generative ai startups or co-pilots and they actually work well enough that people are willing to pay for them congratulations the timing of that from inception and like the platform being built out seems like it was about 36 months okay let's compare and contrast that to ar vr augmented reality uh we did i used to do a conference with tech crunch called tech crunch 50 here is a company called tonchi dot that made a camera and when the first iphone added a camera uh they demoed this demo if you haven't seen it we're just going to play the video here and we'll go into the startup graveyard it's very scary oh insert scary graphic here and so here we go we'll play this video uh and what you'll see is this video is really low res because it was done i think 20 years ago at tech crunch 50 the event i used to co-host and i created with uh mike errington at tech crunch he was a bombastic writer um who you don't know anymore if you're a young person but here's the iphone i'm sure that's the original i think that's the original yeah with the hard thing so you can see the original iphone was the pack was the size of a pack of cigarettes uh or an ipod and let's just hit play here and we'll pause it when i say pause but you got somebody going down with the cci camera and this was tonshi dot this is from tech crunch 50 in 2009 15 years ago and you see he's clicking on items on the menu in a restaurant and getting like a yelp like experience yep um and it's augmented reality without glasses and then you know he's looking at things in a museum and seeing the details that would normally you know be on the wikipedia page for a piece of artwork with his phone and so uh and then here the the great example of like i'm at the subway and i'm trying to get information so this startup 16 years ago 2009 uh 15 years ago and they're talking about like how the technology for shopping would work etc and um the really cool feature was you could post an audio comment on anything in the real world so if you saw i don't know let's say you were at a monument uh you're at the eiffel tower and you want to just leave a message you can leave a message there for your friend was the idea when your friend comes and they would get an alert hey i left this for you know my friend at the apple tower really weird idea uh but here we are this is from the startup graveyard you would leave messages so remember this is during the social revolution when messaging was like a big deal uh like twitter was a had just uh emerged in 2009 facebook etc and so uh no keywords no search you just watch the world was what they were saying at the event and um that you could leave messages for your friends that was a weird one or you could leave items for your friends like a a little teddy bear almost like an emoji so that was seek ai seek ai camera see the ai in there um and it was by a company tonshi dot and this video of them presenting brought the house down uh because it was so revolutionary were you there by chance i actually was there because i remember red beacon winning and they had the cupcake delivery at during the finals pitching and yeah i think this is the one that bing sponsored all the bars and didn't card me and i blacked out on the way home.

53:38Oh, okay. Anyways, to be young and stupid again. It's a different era. Oh, for me especially. Yes. Little baby dumb Alex, don't take him seriously. But the point is, I remember this demo line and I do remember it bringing down the house and people were so excited about it because it was a way that melded the digital and the real. And it felt like finally there was going to be a stitch between them and your phone was going to, I guess, mediate this, we'd say now. Yes. But it was a fusion of two things that had been distinct before and people were hyped. And then we never talked about it again. And then we never talked about it again.

54:09And then Google Glass came out shortly after this. We'll show a picture of Google Glass in a moment. And then we had this demo at LeWeb. LeWeb was a conference my friend, Louis Lemaire, used to do. It was originally called LeBlogs, and it was in France. And then it became LeWeb, which became like the TechCrunch50 of Europe. And so here we'll play. And this is ARNav, an augmented reality startup from the web in 2011 what you see is a tablet these android tablets became a thing and um the concept was you would hold up your tablet and um here it's showing you you can hit play um walking through little squares as if you were in a tron light cycle and it's giving you augmented instructions of google maps and um you know the the dialogue here is kind of funny because they're just talking about all the technological limitations what's the processor speed in there how does it work um in this demo uh but you can see the things that we now have on apple watches or in google maps and this is where they started a long winded way again uh of saying you got to time your startup correct and so the question i'm going to put up here alex is these chunky glasses apple goggles are now um you know uh the chunky ar glasses that apple showed are not available they're outrageously expensive the ones the spectacles that are here's google glass um and you see mark and dreesen um john door and the guy in the middle is from google ventures you come to me in a second yeah i know him as that guy from gva i used to talk to though maris i believe um somebody will fact check me there and here they are that google created a hundred million dollar venture fund and this was the announcement of it and they all wore these glasses these glasses just had that little thing that a little object on the top right as you can see that would project into one of your eyes some like alerts so just imagine like the notification window being there so you can leave these on it would give you notifications in the real world like google directions so this was a stop along the way google got it right tonchi doc got it right this navigation they all got it right but they're no longer here and so a big part of running a startup is having the runway the fortitude as the founders to survive long enough for the revolution to arrive or to be smart enough to sell your company and cash out before you know you run out of money which oculus actually did that uh my good friend palmer lucky uh a friend of the pot palmer sold oculus you know really for a couple billion dollars would that company have survived on its own well magic leap no well did magic leap survive i don't know you know like okay so this is back to the the the the big boy and the big girl game right the big table this is the big poker table you're gonna have to have 50 billion dollars which is what i think meta spent on these things so far and i'm sure that's what apple spent 10 or 20 billion on their goggles and we're still five years away from it being a reality so the question for you alex is and i'll just get your general reaction on the startup graveyard concept here in your memories of it is now the time to create apps for ar uh i want a three-month mulligan on that question to see how the new quest 3s headset sells so this is the new meta headset and the reason why i care is it's 300 which is finally at that kind of like high quality low price combination that i think the ar vr world has been waiting for and now oculus definitely more vr than ar uh but it's funny how much of stuff that that is amazing isn't always a great business and if you recall the google glass days they had the little translation app and so you could look at a street sign and it would auto translate it for you i got to play with that blew my mind i also got to play with the microsoft hololens which was ar blew my mind and i never got to play with magic leap but i'm sure i would have loved it and so it's just it's funny how so many things that i don't like to use like concur kind of just like stay alive in the world of technology and some things that were so great didn't quite make it yeah i think we've now reached the point when the hardware's gotten good enough there's enough good apps i i don't want to shoot myself in the foot and someone clipped this in five years and mock me but yeah i think we're probably about the point when ar and vr are gonna have enough consumer buy-in to be worth building on top yeah so here we are and you know there was a little mini vr revolution when oculus got bought by facebook and everybody thought well now that's part of facebook and he's gone all in on it there's going to be a billion people with these headsets and therefore if i capture one percent of a billion i got 10 million people paying me whatever ten dollars a year a month whatever and uh you know it's obviously not happened but there are some number of people using this technology every day it's nowhere near smartphone penetration so then i guess the next question for you alex is do you want ar glasses do you want when we're talking here notes coming up instant messages coming in your door dash order your amazon arrivals all kinds of notifications the nick's trading for carl anthony towns coming in on your glasses all the time do you want that future do you want to be with your baby wearing your glasses and having ding ding ding ding ding ding while you're looking at your baby so look at my wrists there's no longer an apple watch on them uh i i didn't charge it one day and i took it off and i just said this is better because do you know what i got was every single slack you sent me would ping my chin it was so so annoying but i was i was a new employee so i was trying to make sure that i was super engaged and responsive and all that but what it did was just make me anxious all the time because my walk would do like substack notifications and emails and slack and ah go away i think that if we allow the notification creep of the current mobile world to persist into ar and vr it's going to be a garbage technology i don't think we should take the existing model and put it over there but when it comes to unlocking the world for me as someone who only speaks a couple languages awesome uh someone who likes to game and wants to have a better bigger screen awesome there's a lot of things that have worked there i just don't want it to become another slate for notifications which becomes essentially an advertising vector as anyone who uses uber eats knows i think it's really well said um i do not want these glasses in society oh and i've given it a lot of thought that's a big statement come on it's a big statement i think the reason i object to these most is that right now we are just trying to come to a reasonable um amount of manners for looking at your phone so i was at dinner um and i was at the minetta tavern very nice place and when i was i went to new york a couple days to see my dad shout out my dad and um i was uh my friend i had my phone on the table and my friend said would you put the phone in your pocket and i said okay he said it's not you when i see your phone it triggers that i should check my phone and i was like fair enough and i put my phone away and then um i am on the cusp now that i'm like really focused on my sleep with my eight sleep i get my score every day i'm really focusing on my sleep because when i find i don't sleep well and i get a low sleep score 40 50 60 even 70 i'm just not as good on air i'm not as good on email i'm not as crisp when i get 80 or 90 man i really feel the difference so the eight sleep is keeping me accountable and i took the dogs out of the bed i took eating late at night out of the bed i had a little more discipline with caffeine after three or four o 'clock um and um i'm getting in the bed earlier and then the smartphone's the last piece and i'm actually thinking i'm going to do a week trial of leaving the smartphone out of the room or in the drawer or on the stand my typical nighttime thing is to just listen to a podcast and or an audiobook and it helps me go to sleep i'm gonna try something else my point being these things are going to start this whole cycle over it's going to be another 10 years of us being at dinner or being at the playground or being at a concert and everybody holding up their phones and recording each other and not just being in the moment i want to be in the moment there are specific situations like translating there are specific situations like taking a picture of my kids there are situations like skiing where i want to know my speed and what the trails are or walking around tokyo i could see specific applications but i literally don't want to live in a society where these glasses have a camera on them i think they should be banned um and the pendant should be banned in public spaces where people don't want them the same way cigarettes are and i think that's where society will get to if you're a bar if you're a restaurant um if you're a school phone should go in the bags on the way into school just like they do at concerts like in comedy halls and i think these pendants and glasses if you put them on because if you take your phone out and you take a picture in a private club so so whatever you lose your membership it's that simple none of that and then they also have like a time period where you can use your devices and you can't so at the uh private club in the battery in san francisco their rule was that 5 30 laptops and phones could not be out in the bar area of the restaurant couldn't have them out you had to take it there were phone booths you could go to and it just made the place awesome to hang out at and so anyway that's what i hope i've been to some parties with high profile people in my life where they collect everybody's phones at the door best parties i've been and so these glasses are going to destroy another generation's ability to communicate with each other and they're going to make everything miserable again we're going to have another live news show on i think it's wednesday jason because there's a lot of stuff that we're not going to be able to get to but here's a hypothesis based on what you just said because i agree and i wonder if it's going to become the new way of determining class because if you think about old clubs you know you had to be a certain person certain lost name certain socioeconomic status gender ethnicity caste system famously the um what's the club on top of san francisco on top of the hill um there was one that no one can join no idea by grace cathedral it's like they never let me join well yeah they said they said no women no democrats no journalists which i thought was the funniest like yeah just in that order um i don't recall if it was that order but that's how clubs used to be right now though you mentioned soho house you mentioned the battery i would say slightly less impossible to get into but with stricter rules about how you act kind of once you're inside and i wonder if we're going to look at clubs as oh bohemian club thank you like digital deserts as a as a feature as a and there's a club nearby where i live called the hope club and i was just trying to find the rules for it but i couldn't find it in time but i'm pretty sure they probably have a low phone policy at a minimum and i wonder if that's going to become the thing people seek out and and really invest in because i don't want more pictures i know we're on youtube right now so ha ha ha but like i don't want more pictures of me and my family taken i don't mind my face being out there because whatever but you know i'm with you on this and i think we will need new rules about it but i want to make one last distinction you're talking a lot about google glass style spectacles what you know snap is working on metas more ray bonds that stuff i am less bullish on than vr as a concept and a platform and so i think i'm more bullish on immersive experiences versus augmented experiences i'm the opposite i think the vr stuff is for like a very subset of people who like almost like hardcore gamers i think there'll be something that will emerge like hardcore gaming where you have a pc and you care about the weight of your mouse i think that's vr um and i think ar is the version of casual games so i think vr is call of duty ar is angry birds plants and zombies okay well by you know call of duty famously has made billions and billions of dollars so i'll tell you both are great businesses yeah one of them attracts tens of millions of people one of them attracts billions that's all it's just different it's just different you slap an arpoo on that and we'll see who wins this argument jason i don't know are casual games or that's a great question because i haven't kept up with it i just made casual games or what do they call them title a games or a triple a is like your big games i play a lot of indie games but uh i think i actually made your point for you because casual games can make so much money that i wonder if their art poop isn't actually higher than hardcore gamers and so that kind of makes your point arguing against myself here um all right we're gonna wrap everybody we're gonna take one audience queue if we have any more fusion hm asks does jason have horses now very important question no horses um we are getting chickens it's we we did plants and a compost pile and now we're going to do chickens donkeys goats and then if the girls take to horseback riding we have a we have two horse barns on the property because there's a horse ranch before i bought it so yeah no that's the one thing i've banned from my children as horses um because i don't want to have to take care of them um sebastian jason given the current hype around ai what key characteristics should startups focus on to build a sustainable moat i said unique data but i'm curious what you have to throw in there i think data and user experience and brand are going to be the things that will define it you can use an excel spreadsheet or a google sheet to do all kinds of project management crm etc right and so there are templates for google sheets or excel that do project management and that do crm and then there's salesforce and hubspot there's notion and there's coda and there's asana and all these incredible tools uh this uh 37 signals uh what's their famous project mat base camp so uh you know you can um you know win by having verticalized software and i think luxury software which is superhuman kind of define the category is going to increasingly become a thing so if there was a version of zoom that was the elite bespoke version of zoom that had let's say 10 times the bandwidth with her person and redundancy and you know just allowed for a crisper experience and you know i don't know if that would be the vector under which the speed or just had better quick keys and better features and better recording you know people might go to that for example there's something called descript that a lot of podcasters are using now to build a transcript and edit stuff now you don't need that for transcription you can use the youtube transcript but the descript one's better you can use editing software audio editing software whatever but people seem to like to pay for descript which i would put in the luxury software category even if the price isn't luxurious right now so i think brand matters and um i think um ux and design matters and i think training data to your point really matters and you don't need to you don't need to be that much better than what's available for free you need to build trust in your brand i think a really good example of that might be some of the website builders squarespace is the perfect example i've used squarespace for over 10 years they're a partner of the program as well because they knew i used it when you use the squarespace website like every year they gift you 20 new features you don't change it doesn't change the price they're just like oh by the way you can sell content and memberships now and i was like oh that's interesting so you've added like a version of patreons you know software or whatever you know um and at some point you know people just add features like this and you're like ah i trust that this is not going away and that they'll keep adding features if i need them that's a really interesting concept i think for startups to think about it's a really good question so trust in the brand i think it's also a question that every vc in the world is trying to answer right now and i don't think anyone has the absolute you know be all end all answer um all right but we gotta go friends we gotta get live news quite often so if you're not following us on youtube like us subscribe us hit the bell i believe if you're listening on a podcast app we love you just the same you're all fantastic i'm alex that's jason at alex at jason over on x slash twitter we'll see you all soon bye