The Self-Driving Unicorn You Need to Meet & MicroStrategy's Bitcoin Bet | E2052

25:01So, you know, I'm really excited that you're in the fight. And I'm excited to see if I order a Corvette, if I can order Wave in it. I really am coveting this new CA Corvette, Alex. I can't, I'm a functional, I'm a functional idiot when it comes to driving now, because I've been using my Tesla FSD since they incepted it. It was called autopilot. And the idea of trying to stay exactly in the road or doing the, you know, adaptive cruise control, it's just so much better and so perfect now. I get car sick if I'm driving and other people in the car are going to get car sick. When you compare it to how smooth, you know, these systems are, they're getting really smooth.

25:44They do seem to be jittery, though, on certain interactions like a traffic circle, a left turn. They seem to jitter a little bit too much. They're not decisive enough. As we wrap here, is there a solution to that lack of decisiveness we see in these systems? Yeah, well, you know how I mentioned working on the hardest thing first? I mean, starting in London, it forced us to tackle that immediately because you leave our office and immediately you're in roundabouts, lots of merging scenarios. You've got jaywalkers everywhere. And if you're jerky, it's going to be a very, very uncomfortable ride. I mean, the key solution is just going to a self-supervised large-scale system that can learn emergent behavior that's like if you think about if you have to hand code all of those factors that require you to behave of things that might cut in risks and other factors it's it's just going to cause frequent slowing down emergency stopping whereas letting the system watch those kind of dynamic scenes and learn emergent behavior that our car pulls out and nudges into traffic pushes it way through crowds and also courteously lets others come in in front of us where appropriate that kind of stuff you see everywhere in London.

26:51How do you I mean let's face When humans drive, they cut corners and they break rules consistently. We all know that. We all know that people roll through stop signs. We all know people, you know, yellow means go a little faster when it in fact means stop. So how do you balance what the training data is going to learn from humans, which is to on the margins, break the rules or to bend the rules, let's say, let's say bend the rules versus what the law says, which is come to a complete stop, nudge up to the intersection. I mean, there must be some balance here. And I wonder if it requires going to regulators and saying, hey, this is not how humans drive.

27:32This is not how they take a traffic circle, you know, the by the books method. I think it's such an important point, because if you think about, say, cognitive AI, these large language models, it's a bit of a wild west around some of these safety questions and rules. But the advantages that we have in embodied AI is there is a pretty clear rule set and I think you need to be able to separate out the safety rules and then within what is like a safe envelope to make just driving decisions, there is a large design space of behaviors that you can have there. And so what I think we're motivated to solve in self-driving and where I think we will quite possibly see the solution to AI safety is a system that can provably stay within the bounds of those rules, but within those bounds provide a sense of collaboration and customization that, you know, the passenger or an own occupant can help prompt the AI to drive in a certain style.

28:24But those rules can be fairly well set. And then that driving culture that I was describing, it's very different from London and the US and AI has been able to learn how that does differ and drive naturally. If you don't do that, you see a road rage all around you, people, you know, pissed off if you're not merging in the right way or, you know, accepting the right driving culture in new york you don't give an inch in la you kind of you know shake your fist at each other and you know but you kind of let people merge on the margins and then in texas people are like no no you go no you go go ahead go ahead it's very interesting even in the united states how different it is the three major cities four major cities i've lived in are distinctly different and it's largely because in texas people have guns in their cars and everybody's nice to each other because you don't want to get in a road trade instance in texas i understand because it's going to go a certain direction everybody's very and they're very um polite in new york nobody's got guns everybody just kind of yells and screams at each other and that's as far as these interactions generally go so are we going to be in a situation where eventually the ai models drive like new yorkers or texans are you gonna be like i'm gonna drive like a new yorker in texas and it gives you a warning hey maybe you need to be a little more polite kid from Brooklyn.

29:40Never turn on the Boston driving mode, Jason, because everyone - Turn on Boston for sure. I mean, people from Boston are the worst. The worst. Terrible. Well, we're building some fun demos where you could drive for a couple of minutes yourself and then ask the car to drive in your style, or you could prompt it and ask to drive in a certain way. The key thing is it just knows the bounds of what's safe and within that, it should be fully customizable. If you travel a lot, you got to deal with renting cars. It's just a fact. It can be slow, confusing, and most of the time, the experience is stuck in the past.

30:11It takes an hour to rent a car, two hours to rent a car. And I recently became aware of a really cool startup called Kite, K-Y-T-E. With Kite, instead of going to a gingy desk tucked into the bowels of some airport parking garage, a car is delivered right to you. That means you can get a new professionally maintained car brought to your door without dealing with the lines. And I use this. Many of you know, I moved to Texas. I'm in Austin. And I was in the Bay Area. I was going to be doing a lot of meetings. I was going to be traveling around. I needed a car. All my cars are in Austin now. So I popped out the Kite app.

30:43Bing, bing, bing. I had my car waiting for me at SFO. And I avoid waiting around. And I had my own car. So I could go to all these disparate meetings I had across the Bay Area. You can manage your entire trip in Kite's app, meaning you can avoid waiting around while someone else enters your data into a computer by hand, one slow keystroke at a time. It's like that scene from the movie with the sloth at the DMV. Anyway, Kite doesn't do extra fees. It operates in large cities around the United States, and I've used it in both LA and San Francisco and love it. Here's your call to action. Download the Kite app or book online at kyte.com.

31:21That's kyte.com. Go ahead and download the app now so you have it ready to go. Use the code Jason at checkout. You get 10 % off your first rental which could be significant don't forget to use the code jason download the app kyte.com right now yeah it's going to be interesting to say uh you know i'm i want to be zippy uh they do have like i think in to to tesla's innovation they do have a sort of more aggressive mode in their self-driving preferences where you can change lanes more often or not at all which the whole point of self-driving i like is not changing lanes i like the idea of not changing lanes because changing lanes means i got to pay more attention i got to be more vigilant you know as opposed to alex and alex alex squared but you could just you know kind of chill more if you're in the right hand lane and it's just or in the middle lane you're just cruising at you know whatever five miles above the speed limit yeah where do you guys want to go go autonomous driving um when we had uh bill gates over he asked to go go for some fish and chips here in london ah we could do a podcast in a car totally we'll do it next time we're there uh great job and uh oh yeah there it is bill gates uh test driving is he did he invest or is he just a fan has he invested yet no microsoft is a great partner of ours but um there was there was a fan he's uh he's been a great supporter of the company well it's fantastic to see so many players out there competing uh to a great competition makes for great products so we wish you the best and we'll check in with you in six months and hopefully you'll have some cars on the road in the u.s available uh in the uber network or lyft or doordac hopefully you'll be delivering some burrito great to uh catch up with alex and we'll talk to you soon cheers jason cheers alex bye oh wow it's great to see alex uh how much progress we're making here huh like everybody is so uh dialed in so what's interesting about that entire interview is that it reminds me of a company called deep gram and they were doing neural networks you know way before the open AI boom.

33:19And if I recall correctly, I was talking to the founder and he said, look, what we did was we just took all of language and then we had a computer just learn how to talk or how to translate. And I was like, well, that's pretty cool. And this to me, with my lack of deep technical knowledge about AI does feel like a similar approach. And I'm very excited by it. I just, I want someone to make this work in Providence. I don't care if it's Tesla or Wave or Waymo. I just want someone to bring it to where I live. That's what I want. Yeah, for sure. It'll be great to have this on the road and more options available.

33:51It's nice to see some competition in the space and it's not just Waymo and Tesla that you'll have upstarts. And I love the idea of people providing this technology to other platforms, Alex. That's actually going to be one of the big wins is that you're not going to be able to buy a car that doesn't have this in it and if there are models uh multiple in the models pursuing this you know you'll be able to look at their track records and compare them in the same way you know when i buy a car i think about my daughters and my wife and my dog my bulldogs and yeah what's going to be the safest so i'm like model x suburban model y i want the safest cars for them to be in and so i think what's going to happen is people are going to start looking at the safety records how many miles did this drive how many interventions did it have how many accidents did it have how many fatalities god forbid did they have and um that's the that's the way i'm going to judge these oh i i dead on and also i just think by the time that you know my thought is when my kids are 16 what will be the choice and i think by then is going to be so clear as to feel irresponsible to let them drive let alone a stick shift a comment from the audience sebastian asprella says interesting no guns for example in holland and everyone is polite and courteous between drivers so jason there's disputes about your gun your gun uh driver philosophy what i was told maybe somebody was being cheeky with me but they kind of gave me the you know texas discussion like people don't do home invasions people don't get in road rage incidents because people generally speaking have a firearm on them and so like the idea of going into a restaurant and robbing a restaurant at gunpoint there's going to be more guns in the restaurant than on the perps coming in to rob the restaurant in all likelihood yeah yeah yeah i mean it's like the okay corral basically but you you don't know it because you you would you don't see them people just have guns on them and uh you know i see signs it's very weird you know moving to texas where the signs i would see in new york were if you have a gun you go to jail for a year minimum like and there's no discussion that's what they try to you know really explain to new yorkers and then in texas it's kind of like in our establishment we don't allow firearms please do not bring keep your firearm in your car or whatever please don't bring your it's almost like they're asking you nicely we prefer you don't have a firearm in this restaurant please just you know but it's not like there's a metal detector at the door no so i'm kind of like why is that sign even there that sign kind of makes me believe that people are going to bring their guns in anyway.

36:28I wonder if it's a liability thing. So you have mentioned several times on the show that, uh, you had hoped that the twist 500 would get filled out a little bit faster. We've been juggling a lot of different stuff. Yeah. Babies. In fact, the babies, I mean, you know, the moving the company to Austin, adding shows, we've been doing a lot, a lot of fun, but Maddie and I, who is on the research team and also the twist team, we're going to get to 250 by the end of the year. Oh, love it. Great. So that is our, that's our pledge to you. So we will get that ball re-rolling. So expect more interviews, guys.

36:59If you like twist500, twist500.com. Check it out. But yes, Jason, MicroStrategy. I've been in the documents today. I've been digging through. I can answer your question. This is what I like with our pick and roll here, our two-man game. I have been mixing it up on Twitter and hearing a lot of people saying, this is a Ponzi scheme. And the way they're describing Mr. MSTR, MicroStrategy, which is run by Michael Saylor, who is an effervescent, enthusiastic entrepreneur. This company has existed since the late 90s. He got in a bunch of trouble with the SEC previously. It's been up and down. The software business, as we've talked about, is de minimis and declining, but the Bitcoin business is vibrant and being invested in massively.

37:40If you bought shares in Mr. At the Peak last week, I think it was Thursday, it was trading at an all-time high of$540 a share. When I woke up this morning and I just glanced at it, it was maybe 380 or 390 or something. It was 370, 130, as we speak. Oh, okay. So it's 370. So you've lost, I don't know if you made this trade, you've lost$150 a share, maybe$100 a share or something, depending on when you got in. So this clearly was overheated. And I am not the only one who is saying, is there something here that the markets should be concerned about? Now, one of the great things about markets, Alex, is they are self-correcting.

38:22If there is an opportunity to short a company, there are a group of people who like to do that. If there is an asymmetrical outcome here where people believe that you should pay two and a half times for micro strategy and then the value of their Bitcoin because Michael Saylor's got some financial wizardry at work with these convertible notes slash bonds, you know, financial instruments where he's going to acquire more and he's going to corner the market on Bitcoin because he now is the number one holder in Bitcoin. after satoshi and above the united states government which has been uh seizing bitcoins that are used illegally and trump says he'll never sell them so there's two aspects of this that i just wanted to put on the table right now one is i am long bitcoin i have always been long bitcoin i bought a bunch under 100 my wife bought a bunch at 100 mine got hacked back in the day when you um had marketplaces for these hers did not and they've we've made a lot of money on Bitcoin.

39:17So I love Bitcoin. I think it's real. The fact that governments have abandoned it and the fact that it hasn't been hacked is incredible to me. And I believe it is here to stay. Micro strategies now, the second piece of this is people like Vinny Lingham and other folks who are in the Bitcoin community are very concerned at what Michael Saylor is doing. And they think he's going to damage the Bitcoin ecosystem and the, dare I say, brand and the trust in bitcoin because of these um volatile in their minds uh acquisition strategies he has but what in the documents what have you discovered and you can of course comment on what i'm saying i don't have any beef with michael saylor i don't have a horse in this race even though we own bitcoin we're never selling it we think it's a great part of distributed um you know diverse portfolio so we like having it it's not personal with michael saylor less people think i have it in for him or i'm jealous of him i'm happy for any entrepreneur to be successful obviously i've been successful myself in my career.

40:13Absolutely. I just am always concerned when I see something disconnect from reality of markets. And Alex is an expert on markets as well. And we like to talk about it here. It's not personal. I'm not blocking him from being on all in. If the other guys want to have him on all in, I'm happy to have him there. It's not my decision. It's a group decision. So anyway, there's everything you can say. I know he's been asking to come on all in, you know, which was number seven in the rankings last week. Yeah. So I just want to be careful also platforming somebody and getting more of the audience to buy shares in something when I think there are red flags everywhere and other people are saying red flag, red flag, red flag.

40:49I'll stop there. One of the reasons why I think the story is worth coming back to today is the religious intensity of people's complaints about you asking questions about the company. Because to me, if I sat down and said, Zoom, the software that we use to record the show quite often, the lovely enterprise software company. If I was like, red flags, everybody, I'm really worried about this. Everyone would go like, well, okay, fair enough. You can think that. But when it comes to anything that touches Bitcoin, you end up dealing with these religious fanatics. And I've been trying to find a comment from our live chats.

41:21We're doing this live today. Someone was like, oh, the guy who thinks he's an expert about micro strategies is now expert on real estate. And I'm like, you came into our chat to complain about Jason's tweets to that degree. What are you doing? I mean, I own a little bit of real estate and I was on the board of Blockable for many years and invested millions of dollars. And so I do have a slight education on manufacturing of homes and mobile homes. And I've interviewed a bunch of people on it. I don't claim to be an expert on either Bitcoin micro strategy or home construction, but I do know how to ask a good question or two.

41:54And that's what we're here for. By the way, you should hope that people are constantly asking questions about companies that report their numbers publicly because that is the immune system of the market. The market will self-correct over time, but we can shorten those loops by asking a lot of questions. So, Jason, you wanted to know, what are the debt terms? What is this convertible debt that this company is putting out? So, I went into the documents. These are the$3 billion worth of notes that are due in 2029. They are convertible debt. And you asked, are they senior? They are. They are senior unsecured obligations.

42:27They do not bear any regular interest and the principal does not agree. Okay, why are they valuable? The notes are convertible into class A common stock at a ratio of about 1.5 shares per$1 ,000 of principal in the notes. So that means that they will convert to a stock at about a$672 per share rate, which is a 55 % premium at the time of issue. Which is almost double now because stocks come down. Stock has come down, yes. But usually in a convertible, you can also get your money back with a little bit of interest. And it depends on who gets to choose that. Sometimes the company would get to choose that.

43:10Sometimes, and this is where the devil's in the detail, the people loaning the money would get to choose that. So that's where, and I don't know if they have to disclose that or if they have disclosed it yet, but this is where it could get very interesting. because the$3 billion, those people could just say, hey, I'll take my$3 billion back plus 8 % a year, some interest on it. That could be buried in the documents we don't know about. If it is, they're going to have a major in five years. It could be$3.5 billion or whatever it is that has to go back to those individuals in cash. That cash has to come from somewhere.

43:46so either they have cash or they sell shares in the company or they shell the underlying bitcoin if bitcoin were to be lower this thing could as opposed to going up to 540 dollars and 100 almost 100 000 of bitcoin it could go the other way i think and that's one of the problems with owning a large percentage being the number two holder in bitcoin if they have to liquidate it could have a massive price impact so i can answer that to some degree so first of all starting in uh june 1st of 2028 quote holders of the debt that microtrategie has sold have the right to require the company to repurchase for cash all or any portion of their notes so a year before they actually reach their maturity point the the people who loan the money can say we would like our cash back please thank you with interest or not with interest uh repurchase price equal to 100 of the principal plus any accrued and unpaid special interest.

44:44I tried to chase down the definition of special interest throughout the - That's in the document somewhere. So they must have defined what special interest is. I'm going to guess special interest is like plus one LIBOR or something or plus three LIBOR or something. Who knows? Because there's no underlying coupon rate, it doesn't seem to be connected to what we normally look for here, Jason. So I think basically they can get their cash back and the interest is relatively de minimis compared to the principal amount. But what that means is if the people who hold this convertible debt do not think that in 2029, when the notes mature, that they're not going to make their money that they were hoping to, they can just get their cash back.

45:20And so that's when this feels Ponzi-ish because Michael Saylor is essentially saying, look, here's a call option on our equity down the road in the form of a convertible note today. And if you want to make your money, great, but you can also make us give cash back. And if they need to repay, then they might need to liquidate some of their Bitcoin, leading to a cascade. Because if the Bitcoin value goes down because they sell it, then their share price will go down further. And then all their convertible debt could become essentially a thing that to be paying cash. So I hope that made some sense.

45:52I spent a lot of time today reading SEC filings. Well, I think it is important to understand the mechanics of this. I think the SEC is going to require them to share a lot of this, maybe more than they've already shared. and then consumers will become more hip to what's going on here and i think somebody um at a higher pay grade than us sure who works in accounting who's a cpa could literally build a model here they know how many bitcoins they have it's 200 000 or something i think uh maybe it's 300 000 whatever the number of bitcoin is yep and then there's a price at which and i don't know what their cash reserves are because he doesn't like to keep cash his whole concept is the treasury is in Bitcoin.

46:32Yes. So I don't know how much cash he has. And then you'd have to predict how much cash is he going to have there. And I think he's talking about doing this every year. So I wonder how much more of these converts he's going to do, because I think the concept was to do a convert every year or do bigger converts and buy even more Bitcoin. So now you have the criticism I've heard of this. Yes. Is he's going to have an incentive to do a bigger convertible. that convertible then is going to go buy more bitcoin clear out holders people have been long from holders who've wanted to move large positions so if you wanted to move a billion dollars in bitcoin or five billion in bitcoin like now you got a whale in the system who wants to buy it and they are a large portion of the buy side that would drive the price up price goes up stock goes up ability to do another offering goes up and maybe this can keep going for a long time or would the people who are providing this convertible debt say you know what interesting offering we want tighter terms we're going to need clawbacks we're going to need a 2x liquidation preference, we're going to need some more structure here.

47:48And maybe they'll put in there, if Bitcoin goes down below this number, you've got to liquidate and pay off 25 % of this. If Bitcoin hits this number, you got to liquidate it, pay off 25 % of it. So maybe the next note, depending on how Bitcoin goes, will be more structured and have more covenants, as they say in the business. In other words, things that if they get triggered would cause actions to occur, i.e. a default. Yes. There are a lot of default terms that exist, but they seem to be mostly around changing company control, which is a pretty standard thing, for example. And there's some anti-dilution preferences in there as well.

48:22The thing that I have not been able to understand and chase down and really get to the root of though, Jason, is why MicroStrategy trades at a multiple to the value of its underlying Bitcoin. Everyone agrees the software business at MicroStrategy is pretty much moot. And we all know the value of the Bitcoins they hold. And by the way, last time they told us it was 386 ,700 Bitcoin. Just chase that down for you. But why do they have this massive premium on the net asset value of their underlying Bitcoin? And I have not found any answer. I read your tweets. I read the responses. And people were mad at you for asking why and then just saying, do your own research, which didn't help at all.

49:01So have you found anything here? Here's the thing. When people tell you, put in the hours, do the research. and when michael saylor says i can't explain it in 300 characters i have to come on the all-in podcast to explain it or this week in startups to explain it i get a little nervous yeah because almost all the businesses and i've invested in 400 startups and you know i've been a journalist for you know over a decade covering them done 2 000 episodes of this podcast i've been around the block let's say uh in terms of assessing businesses anytime it's too difficult to understand in my experience yes i'm not saying this is micro strategy but when people tell me do your own research have fun being poor you know it's too complex for you to understand the last person who told me it was too complex for me to understand was do kwan he was picked up in montenegro i think do kwan was um the stable coin that was the algorithmic stable coin uh well help me out here jason what was it called do kwan was doing terror he was the CEO of yes Yeah, I think he's in jail.

50:02We can link in the show notes to his episode here. He tried to explain to me, I gave him two or three times to explain to me how this all worked, and he was arrested. I'm not saying Michael Seller's going to get arrested. What I will say is there is a pattern. yes if you were to ask i don't know adam newman to explain how we work was worth i think he said hey community ebita he came up with his own term community even yeah b2c yield i think is a term that michael salary used this morning btc yield that i didn't know that there was a yield associated with bitcoin i don't understand what he means by that term like is it it's not yield so uh community adjusted ebita for folks who might forgot was the famous metric that essentially we work invented because adjusted EBITDA was too strict to make its numbers look good.

50:51So they had to make it - When adjusted EBITDA is too strict, you got a problem. You got a big old problem. Now - Red flag. BTC yield is something that I flagged and I said it was notable in our notes on Monday, which was my sarcastic way of saying WTF. So BTC yield is a term that does not reference yield. What it does is draw a ratio, as far as I understand, between the total number of Bitcoin that MicroStrategy owns and each block of 1 ,000 shares outstanding. And so it's essentially how many Bitcoin per thousand shares of MicroStrategy that are out there. That's not yield. That's a ratio. It's the ratio of how much Bitcoin you get per share.

51:29Whenever people make up new terms for revenue or expenses, any of this stuff, it's going to be a pink flag or a red flag. Pink flag is what I wave on the way to a red flag. Red flag means stop, don't participate in this. the pink flag is can we ask some questions if you're a micro strategy holder my best advice to you if it was a family member said hey i put a hundred thousand into this i double my money my best advice to a family member and this is not financial advice for anybody else this will be for my brother sure my mom i'd say sell it you doubled your money sell it and then go buy bitcoin directly if you love bitcoin because now you're going to get four bitcoin for every one that you bought last month if you in fact doubled your money and it's you know this whole thing not your keys not your coins you know you probably want to own it yourself have your own coins or maybe be in something that's super trusted like coinbase or robin hood and i'm i'm long-term sure holding robin hood but you know here we are another great episode i'll have michael saylor here on this week in startups if the other guys want to have him on all in happy to have him on he can explain it it's not personal with michael saylor just so we're clear i'd love to have him on the show it'd be a great conversation.

52:38But just to be clear, we couldn't figure out the root cause of why they traded such a premium to the NAV. No one's managed to explain it to us. No financial coverage has explained it to us. I've yet to read a single good explanation of why other than stonks go up. And that's not a good long-term investing position in my view, Jason. But yes, we got to wrap. When are we back? What's our return from Thanksgiving plan? I think we're Monday. We're Monday, Monday, Monday. So we'll see everybody on Monday and talk to you soon. Bye. Thank you.