TWiST News: M.G. Siegler Explains the Current Venture Crisis and Google’s Antitrust Woes | E2023

0:00medic kept telling us to our faces that there was no truth to that whatsoever which was also so fun it lied about a secret project yeah it reminds me of like asking google if they were going to produce a browser they're like absolutely not chrome it's like but wait on linkedin you have the entire team from mozilla foundation working for you now hey apple are you working on a car it's like absolutely not it's like what are these thousand people from you know tesla and car manufacturers doing in northern california at a racetrack i wonder other fun side of reporting Yes, exactly. Straight up lying.

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1:26Get 25 % off at linear.app slash twist. All right, everybody, welcome back to This Week in Startups. I am your co-host, Jason Calacanis, here live from the Battery, you know, that special private club in the Bay Area in San Francisco, a great club on Battery Street. and i was here in town taping a special episode of the all in podcast last night at david sax's lp meeting um and i don't know if that uh special episode will make the light of day but i did that in the favor bank with my guy david sax so that he comes to my lp and to my events with me of course my co-host the one the only he's cautiously optimistic alex wilhelm how you doing brother i'm doing um i'm doing fantastic but i i struggle we have a lot of cool stuff on the show today we have a live guest tons of great stuff i i just want to say that it's hard to focus today just given that hurricane milton is coming towards our family in florida so just you know let's all love one another show up help your neighbors send money send food whatever you can do let's just keep in mind that throughout all the politics of the current era we're all human we're all here so let's just take care of each other well and i you know i think it's a really beautiful sentiment um that we are all americans and then level up on that we're all humans and we all suffer and we all uh are fragile and how fragile we are you know to quote uh uh poet sting from the police how fragile we are and uh it is you know that song always stuck with me because you don't feel the fragility of life you don't feel it until you do you know and uh when you feel it acutely that's when you see humanity come out and you know this is something we can all as americans even in this divided time get behind and we will on the next episode maybe share a link or two of how you can help let's pray we don't need to help we don't let people you know that this is uh not as bad as it seems it's gonna be so and if you're there get the hell out of there i mean i got some family members i just got a text last night that some family members were debating going get the hell out of there there's this is not worth the risk you know to get yourself out of harm's way you're loved so we got a we got a great guest uh you know this is somebody who i watched his whole career like you alex and you know i'm uh a writer myself and when i hear somebody uh write something really good you ever get that feeling when somebody writes something really good and you're like god damn i should have wrote that myself oh if i don't get that feeling three times a week i know i'm not reading enough but i do agree that in this case mg did turn out what the kids call a banger he had a banger and you know i i read the banger and then i read it again today and i said you know what he really summarizes a lot of the discussions going on a different podcast at the lp event i was at so we don't need to um uh belabor this but please intro our our live guest today here on this week in service formerly from venture beat previously of tech crunch a short stint at crunch fund and then 11 years at gv ladies and gentlemen please welcome to the show mg sigler yes here he is how you doing mg hey guys thanks for having me it's good to be here thank you for the very nice words to uh to kick it off so uh let's get right into it uh you've been a venture capitalist and a journalist uh you and i share that there's a tradition of uh maybe a dozen of us who have done this oh malik of course michael moritz before that i just want to ask you before we get into your piece about venture capital and startups what what what did you learn in those early days at tech crutch when you and i overlapped a little bit um you know in the scene as it were what makes this such an interesting career path in your mind when i was a you know a reporter i never studied journalism in school i didn't intend to go into reporting i was just sort of writing about technology on the side i was actually working as a web developer when i got the call um as alex mentioned first from venture beat and then eventually to TechCrunch.

5:22And so writing has always been sort of the through line in everything that I do, you know, no matter what it is. And so writing about technology, you know, ended up being very natural, but I knew it wasn't sort of the end state of what I was going to be doing. And so I honestly didn't think the path to VC was something that was open. You mentioned some of, you know, some of our predecessors who had made the jump, but it was a different time right back then and so uh you know i think that it helped being able to look at so many startups at tech crunch and and sort of recognizing patterns obviously and trying to see if if that could um you know translate but there's so much that when i first made that jump that i did not know what i didn't know uh and yeah so it was uh it was a trial by fire very much in those uh early crunch fun days as alex is alluding to well you know one of the things i i notice about the the two jobs the two professions uh and i'm the same story i was not a journalism student i just started a publication because i wanted to write about what my friends were doing i learned journalism after it you know you when you you're a journalist you're trying to figure out reality and you're asking people questions and you're then building some sort of mental model of the story you know like what is actually happening here and why is it important and you know you've got this journalism thing who what when where why it's kind of table stakes but when you get into venture or into elite commentary um you kind of have to figure out what's the bigger story and why it matters right and that is i think the art of venture capital which is squinting a little bit and saying huh these things come together hey what's the world going to look like right uh and then the payoff when you write a piece alex is uh you know half the people hate you half the people ignore it whatever you know and then everybody moves on in venture you actually write a deal memo and and then you place a bet and then you wait 10 years to see if you have you have stake in the game right you get a lot of skin in the game uh and it's kind of like that doesn't exist in a story right like most stories don't pop up 10 years later and you say how much money did i make or lose yeah that was one of the early things i would always reference when people would ask me about that jump it was like in journalism and reporting there was rarely the notion that you would sort of say no right obviously you would turn down stories every once in a while but sometimes a bad story right was more interesting than a good story like about a bad you know startup that you viewed as as not performing well yada yada um in vc obviously you're saying no almost all the time and so that was probably the biggest learning curve of you know it's like yeah I don't really buy this, what they're doing, but you know, you could sort of see the interesting story angle here, but that, you know, that just doesn't matter for VC except for the pass, uh, on it.

8:15And so, yeah, that was, that was definitely a learning curve, uh, in that regard. Alex, why don't you, um, and I don't know if you have any thoughts on this, Alex, uh, you're, you're venture adjacent now you're in the investment team room. You work at a venture firm, but doing a random acts of journalism here. I don't know if you have any questions or thoughts there uh hearing us talk about it i've just been kind of curious though about about the jump over because suddenly you're on the inside of the information uh table mg because as a journalist you're always trying to get bits and bobs of information from companies and then suddenly everyone's sending you their financials so i'm just curious how much faster did you learn once you jump from journalism to vc and suddenly you know the curtains were pulled back yeah this is an interesting topic to talk about with both of you i mean because that that was probably i guess the biggest eye-opening thing is just you know not to um uh speak ill of of anyone in particular because it was really was like an industry-wide thing but there's just so much bs you know that's reported on that uh is just taken as fact right because as you know like people don't have sort of that inside knowledge and there's this very weird um you know dichotomy between those two worlds that really very few people are able to reconcile and so you know i I think that great reporters are able to sort of get very close to the facts.

9:33And oftentimes, though, the best you can hope for is sort of just directionally accurate reporting, right? Because, again, there's a direct incentive not to get that information out there. And if people want to put the information out there, there's obviously all sorts of other ulterior motives at play. And, again, good reporters know that. And that comes with experience often. And so there's great ones out there who do all that stuff and have that in their minds. But there's still this asymmetry at play always. You didn't start a company to run payroll, did you? Of course not. And that's okay.

10:06Because Gusto is here to help. Gusto will help you run payroll and handle your benefits, onboarding, and HR all in one place. Don't just take my word for it. 300 ,000 businesses trust Gusto today. As your startup scales, Gusto can grow with it. Don't just take my word for it. 300 ,000 businesses trust Gusto today. As your startup scales, Gusto can grow with it. State and federal taxes handled for your staff around the country? Handled. Finally, time to offer 401k plans to your staff? Gusto's got it. Need to get your compliance sorted out? Well, three out of four employees say Gusto helps them be government compliant.

10:46Even better, Gusto is simple, easy to use software so you can focus on what matters, building your company. So here's a simple call to action, want all that Gusto has to offer with no hidden fees and a discount to boot? Try Gusto and get three months free at gusto.com slash twist. That's gusto.com slash twist. I'm really curious though, the incentives you mentioned that encourage companies to keep their information private. In my experience, one of the patterns that I've seen is when I meet a CEO of a startup who's willing to share more and just speak pretty candidly, that company tends to do pretty darn well.

11:19And the more secretive, the more, I don't know, almost artistic about not sharing information someone is, generally speaking, the worse their company does. And so to me, companies that are open do better. So what are these incentives that get companies to be so clammed up all the time when they're doing well? And people would love to learn about that. To me, that just speaks to a CEO, an entrepreneur who's in command of what they're doing, right? If they're able, they're sort of able to know the ins and outs of their business to such an extent that they can talk about it openly in a way that not everything's always going to be rosy, of course.

11:52But if they're comfortable enough, both in their own skin and with where their company is ultimately going. And again, a lot of that, in my experience, at least talking to various entrepreneurs, comes from their own experience, right? Multiple time entrepreneurs are better at this than first time entrepreneurs, of course, for obvious reasons. But again, yeah, it's just like a level of confidence in knowing like, yeah, it's really hard in these early days. And there's a lot that's going wrong. But we ultimately believe that we're marching towards the outcome that we want to achieve. And here's why, you know, even though the X, Y, and Z is not happening as well as it should be right now, here's how we're going to get to that point.

12:26I would love to read more of those stories and do more of those interviews, but I just think people are so media trained to avoid saying anything that could be construed as things are going less than a hundred percent perfect. We end up with this very stilted conversation that you pointed out occasionally misses the mark entirely. And maybe the best we can do is get directionally accurate. I just wish we could do better. Well, I mean, if you were to look at it as a process, right? You have journalists trying to figure it out you might have people on the other side trying to spin it you might have other people just being candid and then you have game of thrones going on which we haven't even gotten to which is hey somebody got fired and they've got a grudge or there's one vc who wants to approve a merger and get a huge payout from their carry and the other ones are already rich and they want to go for the ipo and you know they're you got competing factions how often do we see something like that you know the uber example comes to mind you know countless other companies come to mind where you have you know factions inside of a company warring literally at war like game of thrones or just somebody got fired and you know they or they got demoted or their idea didn't you know make it through and they have an agenda so um it is a messy process and the messiest thing going on right now i think is the venture industry itself so maybe um mg you you started this piece off with this chinese character uh and this jfk reference one of the reasons i like writing is you have a point of view uh but you're also a good writer so you have some great illustrative moments and metaphors that make it worth reading as opposed to i would say nine out of ten pieces i see on substack which are just the author is trying to promote themselves or get followers here you had something you actually wanted to share so why don't you just tell us the premise of the piece and why you wrote it sure thing yeah well first and foremost that image i as i noted in my footnote there little um tag under the the image i tried like hell to get the right uh characters to show up in in an a in various different uh ai generators and it just would not work for whatever reason so you know we're still we're still in the learning phase with ai obviously but um anyway yeah so it kicked off basically aaron griffith at new york times who I think all of us know, you know, has been, has been around for a while as well at different publications.

14:40Um, she wrote the post about CRV, you know, that I, that I linked to prominently up top there, um, basically talking about how they were going to be returning capital to their LPs because of the current situation, you know, that they view that we find ourselves in as an industry. And there's the piece right there. Um, and you know, and the framing of it was obviously, wow like this is unique because you don't hear about this often and you know she goes into a bit about how this is actually happened in the past obviously after the dot-com crash and a few other times um there have been you know individual situations where again vc firms have returned capital but you know where are we now and why is this happening now it seems like all we hear about is the open ai fundraise 150 plus billion valuation and boom times again and so what's what's actually going on here and i think you know i think that encapsulates that there's a few different things going on here but but you know it really is sort of the best of times worst of times in many ways and yeah just thinking through you know having stepped outside of being at a vc fund for those 11 years as alex mentioned and now started trying to look at it from a step removed a bit it's just like where are we actually in in sort of a cycle if we're in one And it does feel like this is a strange, unique time in that we're coming off of real boom times over the past decade.

16:05And now, again, with this AI boom cycle going on, but at the same time, we came out of sort of the post-COVID era and all the Zerb stuff going on where a lot of companies, a lot of startups are just massively overvalued. And that's sort of what I guess is driving CRV here. yeah and the chinese character uh is the word for crisis and as you mentioned it's composed of two characters uh put together and one of them is danger and the other is opportunity the danger here obviously alex people are going to lose a lot of money a lot of startups uh are going to go out of business or valuations are overvalued and lps are going to lose money and the whole system feels like it's kind of stuck at times and the opportunity of course being hey if it gets unstuck so i think uh maybe talking a little bit about the the unstucking of the industry is uh you know part of what i think is going on here hi alex is the industry's trying to get unstuck yeah i think so there's there's two things that mg points out in the piece one is that there's too much capital in early stage and there's not enough i think good companies to absorb it and then also that the late stage market back to the crv example is pretty broken with limited exits uh evaluation overhang and so forth but mg it feels like both sides of venture are broken at the same time is there a solution that's going to have a through line through both issues or are we going to have to have different solutions for early and late stage investing yeah i mean the early stage stuff is is fascinating that's largely where i focused you know my time in in uh in vc and you know and i and i think when i tried to again take a step back and look at what was going on you know in some ways it was natural that you know there are things that bubble up i talked a little bit about crypto right obviously that that was uh you know something that that bubbled up before ai came about and then sort of crashed itself very quickly um and you know is still trying to find its legs under it right now but uh ai coming into its own is interesting timing because again as you note yeah there's so much capital out there all these make these funds from crv but they're even they're you know relatively small compared to some of the other players out there um who just have so much capital that they've been you know they've been looking for ways to put to work and so yeah late stage you know you pile in there into the quote-unquote winners and see how that works out but the early stage stuff is where you're really going to make your returns obviously as a vc or you'd hope explain to the audience why that early stage is where you're going to make your returns i think just on a back of the envelope math and you know we we too are i'm like super early stage year zero is where i've chosen to focus because i agree with this premise yeah so you know the general rules of thumb like early stage you're hoping to find something that's a 10x return obviously you're hoping for even more than that right the ubers of the world and and whatnot that that can be thousand ten thousand returns um but you know ultimately yeah the 10x is is sort of a reasonable um expectation for a great company.

19:03And then as you go later and later, you know, the gross stage funds, looking for sort of 3x return, you know, potential. And so earlier stage are looking for things that can really, really move the needle and be things that return funds, entire funds, all, you know, everything. If it's a hundred million dollar fund, a$500 million fund, if you can get one company and historically, you know, that's sort of the grand slam analogies, all the different analogies to hitting home runs and whatnot. If you can find one of those companies that will return the entire fund. That's how a lot of these historic funds have been made.

19:36And so these days, though, because valuations are so high, even in those early stages, it's become harder and harder to do it. And now even in our AI cycle, like when even OpenAI, right, their first fundraise beyond sort of the early seeding from Elon Musk and everything, you know, in that Microsoft round, whatever is valued at 3 billion or more, I don't even know if it's ever been sort of officially announced, whatever it was. But that's like the early stages of that official funding for the company is already over a billion. And you see a bunch of those now, obviously, with people who spin off from OpenAI and out of Google and from other places that are sort of experts in AI, they can, you know, they still can set the price of whatever they want.

20:15And so that just makes it really, really hard, obviously, at the quote, unquote, early stages, like look at safe superintelligence, right? That's one, the Ilya Sutskaber one that that spun out um and that's i guess already valued you know at a billion from day one and so that makes it just very very very challenging potentially to hit the 10x let alone thousand x 10 ,000x return yeah and in a fund that had 40 names in it a venture fund when you start thinking about portfolio management which gamblers would talk about as bankroll management you might have 40 names in a fund maybe 30 some funds as high as 50 taking out like seed and accelerators that That means to return the fund, one of them, just to get to break even, one X return, you got your money back, is a 40X, if there were 40 names in the fund.

21:02So that means it has to be a$40 billion company. Alex, we talked earlier this week about how few of those there are. I got absurdly lucky to hit two. Robinhood, I think it's worth 20 now, a billion. I still have my shares in an Uber. I still have a lot of shares and it's worth 160 billion. but like that list of companies that get worth above in this example 40 billion you can count in the last cycle since you the three of us started writing and investing you know i was a little earlier than than you i think mg in the uh right before you i mean you can count them on two hands give or take i mean maybe depends on what you count as like a tech company or what counts as venture back but it's not that many names all right i am probably guessing you've got a huge cloud bill coming in every month.

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22:57And now there is a limit here. This is limited to new OCI customers in the US minimum financial commitment and exclusions apply. Oracle.com slash twist that's oracle.com slash twist there's an interesting optimism mg in future exits and liquidity evaluations that we're not seeing today in the market that contrasts with the enthusiasm we're seeing in these investment deals so i'm just kind of curious what is the logic behind putting that valuation on safe super intelligence because i get ilia's fantastic but that just seems to be a number that's so high it almost it makes me doubt that this is a traditional venture transaction at all.

23:32Yeah, I mean, I guess and I get into this a little bit in that post, I guess the hope would be that there's a bunch of things coming into play now, first and foremost, obviously, interest rates, you know, coming back down. And so if that helps to thaw or open the IPO window again, which obviously has been pretty close tight these past couple of years, if that happens, you know, maybe there's an opportunity for some of these AI companies to go out there obviously everyone will look now at open ai given the valuation that it's at and and where else they can possibly go from a fundraise perspective uh privately to be able to to keep bringing more capital which they'll obviously need to do it seems like and so is there a window there and will the market be okay with you know potentially non-profitable not non-profits but morphing into poor profit companies but still non-profitable in that they're not making any profits um not non-profitable unable to show a profit these are two categories of companies want do not have um i mean obviously historically you know companies have been able to go out at various times when they're not yet showing a profit and amazon's famous example right of for years and years not showing a profit but the promise of profits and so will the market be okay with that they obviously have not been okay with that in in recent years and want everyone to be able to show those profits.

24:53And it took a while, but Uber was able to get there in an incredible fashion. Airbnb has gotten there. And so these companies mature into it, Tesla. And so, but are we going to be in such a world where open AIs can go out and save super intelligence? I mean, as early as it is, will they be able to go out? But a few other things, obviously at play. The biggest one, there's just been no M &A activity aside from these, whatever you want to call it, acquisitions, you know, these sort of acquisitions by another name that the tech behemoths are all sort of pulling off hiring. Did you come up with that one?

25:28Acquisitions? I don't know if I may have heard. Yeah, that's what I keep trying to push forward as the one that should be. I'm going to go with yours. It's the best one I've heard to date. Officially, we're calling these backdoor acquisitions, what I call the terrible branding, are acquisitions. So there were a couple of these where Microsoft and Google bought the teams a license to the software and then somehow got money back to the... investors yeah cap table yeah trying to figure out on a tax basis how that occurs without it being income because it's a license and then i realized wait a second i think a lot of these fundings occurred on notes and if they occurred on a note which is technically a loan you could pay the loan back with interest and you could do any type of deal you wanted with those investors you could say we're going to pay your loan back and give you 10 royalty or 10 in this or whatever pot sweetener and i think it would just be a loan being paid back which gets them out of the investment with upside in the shell company maybe pursuing a secondary idea because it seems almost every time they leave some people behind on the island to answer the phones when the when the feds call i mean that's what i was thinking it's like wait who gets left behind in the shell company the b players apparently i mean can you imagine how bad they must feel to watch the money ship sail away and you're on this little teeny island that no one wants anymore well i think what they do is they say to to your point mg like hey stay here for a couple years answer the phones here's a pile of cash and um you can just rest invest it's like a no-show mob job like hey yeah just go sit on these chairs like the sopranos go sit on these chairs outside of the uh esplanade and pretend you're pouring concrete and we'll pay you 200 grand a year as a supervisor and you can just sit there and drink beer i think that's what they're doing to be fair i think that they're so inflection which was the first one right that microsoft pulled off um and got suleman who's now like the in charge of all their ai efforts like that one sort of feels quite a bit like that it's unclear what inflection is still working on and in fact microsoft just rolled out this new product which looks like the product that inflection was doing the pie product right with their their new ai thing so like it seems like that was that situation the character one's a little bit different it feels like because yeah they were brought back into google the founders brought back into google and a few people like 20 or something of the company but they're still trying to work because they left them with like i guess this is all via reporting i guess uh the about 18 months runway so sort of your standard fundraise right so they're still trying to make it work as like a more full-on consumer company but yeah for the most part i mean these no one is under any illusion as to like what actually is going on with these deals and again it goes back to the idea that just no real M &A can happen because of the regulatory environment.

28:12And so we'll see what happens again, you know, obviously post-election and, and what, what they do from, uh, you know, the DOJ and everything else and, and Lena Khan's position. Um, if that sort of changes the dynamics of, of what can actually go forward with M &A, because right now it's just like the, all the tech companies that would normally be buying up some of these startups for talent, if nothing else no they can't really do that hence the acquisition model um you know trying to be able to do that until they're told to stop which you have to imagine after a number of these like someone probably says like yeah that's enough of this um type of thing but for now they're they're going forward did you say it worth the squeeze i mean that's what i'm hearing from the other side which is after figma paid i don't know what adobe paid it might have been a billion dollars yeah the kill fee was a billion yeah that's why alex is here because he knows everything he remembers everything that's things yeah i think that that's that's things your legal teams are bogged down forever like you know trying to work through yeah it's just right it's not worth it well and then the product team right what happens to the product team mg if the product team is like well we got to compete against figma and it's like no no we're buying it and it's like okay we're 18 months into buying this thing and we're still losing market share to them and we don't have a product in market and our customer base is like hey when can we make mock-ups faster and you know it just freezes everything.

29:32Yep and so so yeah so those two elements obviously being huge drivers of if this whole situation can thaw a little bit because it's not the M &A thing everyone's like oh my god you know god forbid Google or Meta can't buy another company but really like and I mean you know this you know better than anyone Jason like there's like the trickle down effects of all of this which I just think the second order effects that people especially you know the current um i guess regulatory environment just doesn't take sort of take into account is that like these diasporas of acquired companies are like what flow back into the system and basically keep it going and because there's no exits right now it's just like everyone is stuck and it's it's just not good for anyone and it's not just about the big companies being able to acquire things right i mean this is existential for capitalism because when you have a an ecosystem if you were to look at this like an ecosystem like the ocean right if you take out you know some of the predators and then some other species there's too many minnows then the minnows eat all of the plankton then their plankton gets screwed up and then the whales have nothing to eat it just causes chaos the singles and doubles are really the tuck-in acquisitions we call them singles doubles uh you know um aqua hires all of those things keep talent moving they let you retire your projects that are not breakout projects and shouldn't be funded and then take up time on the dance cards of the vcs so you know if you are on i'm assuming a dozen boards or eight boards something in that like a typical uh venture capitalist is if you've got three or four of those companies that were then be able to acquired now that gives you room to breathe and to take on three new projects to keep society and innovation moving now we're sitting here with 12 year old stripe stripe is still not public what's going on right and stripe's a great example of that right the callisons had a first startup that was acquired and was fine but it wasn't like the massive outcome but how many of these now massive companies are a result of entrepreneurs going back out there because they were able to get some sort of uh exit and you know move on from that initial idea actually off the top of my head zip two for elon uh and uh red swoosh for travis and uber that was like a 30 million dollar sale for me weblogs inc a 30 million dollar sale like you can add up a lot of these 30 million dollar 100 million dollar 200 million dollars sales that you know get the founding team 5 10 20 million bucks not enough for them to retire they still have but it's enough for them to actually fund their next company to mvp yes and feel good about moving on from it and and everything and those just are not happening at all right now which is wild Well, the good news, Alex, is I spoke to Reid Hoffman and Saks and I were in the Illuminati meeting the other night, and they told me in the Illuminati meeting that Lena Khan's not going to have her job in January.

32:30You know what? I just really want to have Jason live on camera if Lena Kahn gets her term extended because his head's going to literally explode. But I want to point out a slight conflation of deal sizes here because I heartily agree that the singles, the doubles, the talent acquisitions should be allowed to go through no matter the acquiring company. Small dollar deals. Let's go have a lot of fun. the adobe figma deal was 20 billion dollars and was an incumbent player taking out what could be a real challenger to their business that's the creative destruction that we want to see from startups so to me the figma example i don't think fits into the we really need to have better capital recycling and so forth i just think they're distinct given their size difference i think that that's probably fair i mean i don't i don't know enough about that specific deal but like Some of the others are just when they were investigating meta for buying the VR fitness company, Amazon not being allowed to buy the robot vacuum company.

33:30Like, what are we spending time on here? And, you know, let's keep this all moving. Yeah, fight the real enemy here. Like, those were tuck-ins. Those were tiny. and and it felt like those were vindictive uh slaps on the wrist like maybe i'll just show you we're not gonna let you do anything those were kind of like little jabs to say like yeah you know what remember you bought youtube remember you bought whole foods remember you bought you know the you know whatsapp and instagram we're gonna stop even before that and they worked if there was a chilling effect there's nothing like these these discussions just aren't happening now because of that just to not belabor all of this um what this also does to capital is if you're an lp in funds you have this uh great excuse um and a valid one to say you know what we're going to trim the number of funds that we commit to and we're going to take our commitments down and when i went on raised my last fund and i talked about it here on the program i had about i would say 80 percent of people say to me when i said hey we're raising our next fund they said i'll meet with you but we're pencils down right now uh for obvious reasons we're waiting for returns to recycle and we love you we don't want to waste your time but we will meet with you because we want to hear your vision and i took the meetings and i said i'm happy to take the meeting because then we'll at least start the relationship building for fun five and you know i was at this lp thing last night and And some of the same LPs who were literally not allowed because of their committees to invest in our fund, there were pencils down.

35:08They told me, hey, you know, and they kind of felt bad, but they didn't participate in the fund. And they're like, we really want to talk to you about fund five. Like we got some DPI returning. We got some things happening. So talk about green shoots. If we know 2024 has been just frozen, 2025 is looking like a really good setup here. new administration stock market at all-time highs soft landing feels baked in maybe we have a little recession but we can manage it you know uh the rates and inflation broken unemployment at a good number we're still hiring people but it's not like out of control what's the best case scenario if we flip on both switches m &a comes back and the ipo market comes back and we see stripe go out and maybe spacex goes out i don't have any information or anything or starlink spins out like people are saying you know whatever we see five or six of these things happen in in 2025 what's that what's our best case scenario here mg um yeah i mean all that sounds like a sort of best case scenario obviously yeah this year is totally moot like no one's going to do anything before the election once the election's over you don't have enough time really right to sort of make the call on on doing anything this year and so i think all of those things mna is probably going to take longer than the IPO window I would imagine to come back because there's all these like even today right like there's there's news about all the antitrust um you know stuff in process and and everyone's bought like legal teams are bogged down in that right so it's like that some of those teams would be working on different M &A deals and so I think that that's still going to take a while to come back but I also think sort of going back to the earlier points there are still just unfortunately a lot of companies that remain massively overvalued from that last cycle and so you know companies are either going to have to figure out what the outcome is that they're willing to take there um and and have more hard discussions obviously a lot of those have been had and and you know some companies have have taken down rounds and whatnot but there's still going to be more of that into next year so i think like your scenario is like the the pie in the sky rosiest one that can play out but it's probably going to be you know some sort of hybrid of things thawing a bit and getting better but it's still going to be a sort of long road with the wild cards of like whatever is going to happen with ai like what are those outcomes going to be like what do new companies how many new companies pop up and what do those start to look like because i'm also fairly fearful i would say about those a lot of the early stage ai companies that are just gonna sort of i if i had to extrapolate out i think will quickly realize that there's not really much of a big user-based product there beyond sort of, you know, the big companies that are doing everything already right now.

37:56And so, you know, that can also have some weird effects on the overall ecosystem, I think, next year. If you want to build beautiful software products, well, you need a beautiful development platform. But most issue trackers just aren't helpful and they feel like a chore to use. But linear is different. It's developer-first, incredibly fast, beautifully designed and it's purpose-built for how modern product teams work. With Linear, you can streamline bug reporting and task tracking, plan and spec new features, and manage your long-term product roadmap. That's why Linear is the tool of choice for tech companies of all sizes.

38:35Half of Y Combinator companies build with Linear, and it powers Cash App, Scale AI, and Vercel. So here's your call to action. See for yourself why product teams love Linear. visit linear.app slash twist to try linear for free with your team and get 25 off your first year that's linear.app slash twist on a consumer basis you you think that uh meta putting an ai search box at the top siri now i don't know if you've been playing with the latest ios 18 do you do install the beta on your phone yeah yeah i have it it's yeah and it does the glowing ring you can see they're taking it pretty seriously very pretty uh uh you know i was talking to sergey the other night as a name drop for you um they're taking it super seriously i can tell you that and you're starting to see it show up at the top of search results you know the little little google uh gemini box uh and microsoft of course with copilot and then you have chat gpt with 300 400 million monthly active users and this incredible app who's gonna win let's call it the the 50 of queries questions you know that are pretty easy hey tell me about the history of pink floyd you know hey what's in the news today what's a great recipe for sam and all that kind of what would be the weather equivalent the play the song for me equivalent in siri and alexa and that those early promising days when who's going to win the consumer uh query race i would imagine that at massive scale so you talk about yeah like open ai which is at an amazing scale which at gbt with hundreds of millions of of active users which is incredible for you know a relatively early company though obviously the company's been around for a while but a relatively early product is incredible um still i and when you think about the billions of user scale i come back to the idea that there's you know there's the apples and googles of the world which have inherent advantages with their devices in a billion pockets already and are people going to go out of their way to download a new app um to be able to use some of these services they have to be above and beyond better now i think um chat gbt and open ai have done an exceptional job of becoming sort of if not a household name at least a brand name that people know right and and again all credit to them for doing that and they've also done a good job on the product side like those are those are good products and obviously they had microsoft's help with all the capital and cloud credits and whatnot to be able to scale to where they are um but still do they have enough to get over the chasm and it's really a race in my head of like once these are all baked in you bring up siri and gemini once these are baked into all of those billions of devices are is anyone going to be able to compete with that and that's probably you know like one of these real questions in the next sort of couple of years because you've played with it the new series like stuff it's so rudimentary it's nothing compared to what open ai is doing and the gemini stuff is definitely more advanced but still like it still feels very very early compared to where it's at the way i would describe it talking to siri you know in this ios 18 ai apple intelligence is like talking to a toddler and then i think gemini is like talking to a really smart teenager and then chat gpt is like if you're using oh one it's a graduate student if you're using the regular one it's college student and so how quickly can that compress and you know we're talking to a phd student and then i think we're probably arguably maybe a year or two away from when you talk to one of these things you're talking to the smartest human being on the planet and they're and and the next 10 smartest people in a room as your servant like literally it's so clear to me that your discussions will be as if you had the 12 smartest people in the world in a conference room and you just came in and were like what should i have for dinner that's healthy and my daughters will enjoy and like einstein and nietzsche and you know elon musk and steve jobs all figure out what you should have for dinner tonight like and they have a four-hour conversation about it and then yeah that's what you're having for dinner 12 most effective smartest cleverest people in the world i don't know if that's who i want to plan my dinner party per se no jerry seinfeld's in there too yeah okay yeah because that i mean you're gonna end up like one crouton some duct tape like that's a strange it'd be a very deconstructed dinner but how how are those actually translated into products right like because that's what we'll met so we got all these other startups like the perplexities of the world and anthropics all great products but are they going to be enough to cross sort of again like the inherent advantages that Apple has, that Google has with their products in market.

43:26And obviously, that's why you hear about the reports of Sam Altman and Johnny Ive, whatever sort of product they're trying to work on. Because if you can have some sort of actual physical product, that's going to give you at least some opportunity. And this is what Zuckerberg has been talking about for months and years, that he feels like Meta overall has just been at an inherent disadvantage because they don't have a phone. right and so now they're trying with the glasses and they tried with sounds like they should have let chamath do it yeah chamath had yeah yeah no yet back in the day he was like literally meeting with phone vendors about a facebook phone and if even if they had just done it and it had five percent market share right now i remember that very well jason because i was reporting on that back in the day for tech crunch and and meta kept telling us to our faces that there was no truth to that uh whatsoever which was also fun they lied about a secret project yeah it reminds me of like asking google if they were going to produce a browser they're like absolutely not chrome it's like but wait on linkedin you have the entire team from mozilla foundation working for you now hey apple are you working on a car it's like absolutely not it's like what are these thousand people from you know tesla and car manufacturers doing in northern california at a racetrack the other fun side of reporting yes yeah exactly straight up lying mg i was just thinking about your time at GV and how that is part of the broader alphabet world and other venture capitalists, often the ones you're describing in the piece are more traditional firms.

44:58And I was just curious, does being a CVC in a period of time in which traditional venture LPs are being more conservative, does that mean that you don't see your firepower decrease? And does that make CVC, I don't know, a more advantageous place to be investing from when the markets get weird? yeah i mean uh at a high level you that you'd think that's the case but like the way google ventures is always set up was really to be a straightforward vc fund right so we're just thinking about the returns and yeah it's nice to have obviously one lp who is happens to be one of the largest companies in the world um as the capital source because yeah you have to worry less around you know a lot of the stuff that jason was talking about but still you know there's all the inherent tension is still there with like, if you're not bringing capital back in, like, you know, what's, what's going on here?

45:48Is that ever going to change? Is it ever going to start to come in again? So a little bit less, but you're not free from all the considerations, but it might be slightly more stable during periods of extreme change. Okay. That's less than I was hoping for. Yeah. Yeah. I think it's, it's fair to think of it as like, if the, if the mantra is like, we want to be long-term capital and everyone says that, but when you have the one lp again like that can really sort of take that uh and not have to have volatility in that i guess yeah it's very convenient all right and just before you go uh favorite ai tool you currently use jason and i were just talking about notion which has lots of ai all the way through it so mg what floats your boat in the ai world today i'm boring so i mean like i still use mid journey a ton because i'm doing all this image you know stuff trying to for different posts and stuff so that's that's definitely something that i've been trying but i am very interested in all the new voice stuff so obviously um uh chat gpt finally rolled out there uh you know 4-0 voice um assistant stuff and and google has theirs out there they're pretty compelling when you compare them to what like we talked about like the early days of siri but also alexa right and and apparently amazon's working on coming out soon with whatever their new version is but um but these voice things are pretty uh pretty interesting and fun to play with all right Well, that's a good encouragement for me to get off my backside and use more of them.

47:09But Jason, I was thinking as long as my dad still wants to use chat GPT every day, they have found product market fit because that guy does not like technology. I am now up to 30 to 50 interactions with a one per day. and i told my entire team if you open a new tab i want that tab to be oh one and i want to see everybody on of our 21 person team here at launch and this weekend startups using it at least 10 times per day anything you're going to work on start at oh one ask it a couple questions and then ask it a couple follow-up questions and it's unbelievable my favorite one now i do is hey check your work i think you could do better and make the answer you just gave me you know more concise and check your facts and it almost always does a better job it's like this is like dealing with people out of college again you know they whatever they whatever they bring you when you're the editor-in-chief and you're like this is good can you um spend two hours and make it a little bit tighter and they say how do you make it tighter i'm like i'm gonna leave that up to you this is when i was busy and i was an editor and then they bring it back and i read both of them at the same time and i say well how'd you make this better and they explain it to me and then i start the conversation it's like really interesting all right listen mg you're awesome uh come on again and uh congratulations on all your success and if you uh want to read somebody's words that are worth reading and not a waste of your time with all these garbage chat gpt created blog posts go to spyglass.org i don't know what spyglass.org is you used to do paris lemon what is spyglass.org i always every every few years i just have to reinvent and yeah go go back okay i like it so anyway spyglass.org you can get there and uh yeah you can get full access to the inner ring a hundred a year go pay for it go to the inner ring for 10 bucks a month why not all right everybody uh that's mg siegler and uh we'll talk to you soon mg congrats on all your success thank you both it was fun alex uh it looks like we have time for one more news story if you have the time oh and i got time we have lots of good options so you may choose between google getting hit with a possible dissolution or no bells for computer nerds or how the data center wars are still raging your choice i think we got to go with the google breakup we know that the doj has won this case against google and it has to do with the search and the advertising monopoly that's where we left off and we were all waiting for the other shoe to drop which is what is the remedy okay we know that they're guilty.

49:45We know that they're guilty of maintaining a monopoly. Am I correct in my recalling of this? Yes. So August 5th, 2024, the court found that Google was liable under quote, section two of the Sherman Act for maintaining monopolies in the U S general search services and U S general search text advertising. Those are not small markets, Jason. They are tens and tens and tens and tens of billions of dollars a year in revenue. So what does the government want? Well, I went through a very long filing and it's very detailed and there's lots of things that are going on. But the biggest headline that came out was the following quote.

50:20Plaintiffs, i.e. the government, are considering behavioral and structural remedies that would prevent Google from using its products such as Chrome, Pay and Android to advantage themselves. Structural remedies is, as it turns out, code for this company could get broken up. So the headlines you're seeing are DOJ considers breaking up Google. That matters. Jason, if you had to lay a bet, percent chance that Google gets broken up from this? Just tell me honestly, what, 5 %? I would say under 5%, yeah, like maybe 1%. These things are always a negotiation. If my memory serves me correctly when this happened with Microsoft, this took a very long time to hash out, and it would probably go across administrations.

51:02and so this doj case with google i believe started under trump and maybe even before trump's uh term so these things tend to go across uh administrations and then the remedy as i just said in our closing comments with mg i'm doing 30 queries a day 50 queries a day uh on chat gpt first now will google win me back as i told sergey brin they got to have a killer app i want to work in an I want to have a destination to go to that is solely for this. So I need a Gemini.com app or a Gemini app that I just go to and I live in and a domain name that doesn't have the shoehorning of Gemini into Google search.

51:46I don't want that. I want 100 % experience like YouTube is, right? Like when you go to YouTube, it's not like Google, you know, YouTube.google.com or google.com slash YouTube. You have to hit another tab like they did with Google plus their social network. It's got to be its own brand with 100 % of interface and UI around Gemini. Okay, let's put that aside for a second. The obvious remedy here is to not let them do the deals that they do with Apple. And so break up the Apple deal, that would be the obvious concession. Or, hey, if we have too much market share, we spin out YouTube. And I believe spinning out YouTube creates more shareholder value, is a very clean break.

52:28it doesn't break the advertising system yes those ad networks are all integrated etc but what you would say is you know the ad interfaces have five years a full five years to be you know separated so you have this sort of grace period of you know you just can't flip a switch and break those things up they're all on common infrastructure so youtube has a five-year deal with google or alphabet to host you know their content or whatever they can use gcp if they want but then eventually the ad interface and the logins have to kind of separate they have to have you know google has to have under 30 ownership of it and not have board control so you come up with some way to kind of do that kind of spin out is i think two things that could happen that would be a nice way to balance this but overall the market will have solved this problem is my prediction long before the department of justice does that's an interesting commentary about the legal system and its pace versus the current pace of change in technology and can you even catch up by the time you complete the legal task maybe you've missed the entire next cycle but there is some cool stuff in here jason i'm not gonna lie i know that this is not the um the we love antitrust podcast weekly corner uh but i do think there's a couple of cool things that could happen through this that might make the search and this stuff these remedies where are they coming from this is the government filed and said this is what we want or this is some leak explain to us the provenance of this yeah this is the judge in the case saying here is what we are considering for remedies they are still in discovery there's more i think they want to go learn more before they make any sort of like actual thing.

54:11And to be clear, Google is going to fight this the whole way down. But a couple of things that did stick out to me. One, you nailed it. One remedy that's being considered would quote limit or end Google's use of contracts, monopoly profits, and other tools to control or influence distribution channels. That is the big search deals that Google uses. And the reason why the government cares about that, Jason, isn't just it's a lot of money and it's buying access. It's that Google, by having access to all the searches, gets more data more data better search no other people can't get in so under m the accumulation and use of data remedy section the government is considering forcing google to make quote available in whole or through an api the indexes data feeds and models used for google search okay wait let's pause on that yeah explain that in plain your interpretation of that in plain english what would that look like would that be you know similar to brave uh and their uh search api they have for their excellent search uh product and you can then use it as an api i think bing has some access to search results that they'll let you do on your website so what what do you think that would look like in plain english a startup could do what i mean i think they could build their own variety on top of Google.