How The Best Companies Defend Against Mediocrity And Rot

20:45You just in your mind, you don't say anything out loud. It's just best practice equals Kroger practice. This is someone who wants to be more like Kroger and less like Costco. Why would you want that? Again, no shade on Kroger, but you could be one of the greatest performing stocks of all time, or you could be this thing. We have to master these techniques. And the most important thing is to create selection bias. So you want investors and board members who are choosing to be with you because they believe in this mission, not just because they think they're going to make a quick buck from it. Even if they're investors who are, they are going to profit from you.

21:17You want to make sure their interests are truly aligned with you. I just was talking to a founder today that ran into this common problem where you put some awesome person on your board who you just think this person walks on water. And you forget that you take a venture investment from a venture firm. You're not taking investment from that individual person. You're taking investment from a company. Then that person leaves. And now you're stuck with some new person. And you've given all these veto rights, all these control rights to someone you don't even know who they are. You don't know if they're aligned with you.

21:43You've never read the LPA of these funds. Like you don't really know what their incentives are. So I think founders are generally much too naive and much too credulous about who's going to be a good long-term partner. And they're so easily bamboozled by people like, I'm founder friendly. We don't need to worry about this stuff. We're aligned. It's going to be good. But I also do need to be the ability to fire you at will, you know, whenever I want. It's like, I thought you said you were a believer in my vision. It's like, well, as long as I like what's going on, that's not actually what belief means.

22:11YC Startup School is back. We're hand-selecting the most promising builders in the world and flying them out to San Francisco for July 25th and 26th to discuss the cutting edge of tech and startups. Apply now for your spot. What about on the dock side? Let's say you get into YC, you've got a safe, you know, maybe you haven't converted to equity yet. The normal path, which is like pure founder shares, is like, all right, let me see if I can get super voting or let's write it in from day one. I guess the Delaware C Corp thing is actually a pretty big thing. A lot of AI companies have chosen to be PBCs or public benefit corporations on day one.

22:49What sort of best practice for people starting out now? I think PBC is an absolute must do and kind of like an utter no brainer. Of all the things in the book, it's by far the easiest thing. If you want to pick one thing to do, it's the easiest thing to do. It's a two page legal filing in Delaware. Your door is going to have it done for you tomorrow. And especially if you only have safes, if you don't have any like equity investors, You just turn into a PPC tomorrow. You don't even need anyone to agree. You just do it. What's interesting to me about the PPC, and most people get confused because they think it's like the same as a little bee in a circle you see at the farmer's market, which is something totally different.

23:20That's covered in the book too, but that's not what we're talking about right now. All it does is restore what's called purposeful incorporation, which for the vast majority of the centuries that we have had joint stock corporations on this planet, everybody understood and thought it was totally obvious that companies should be incorporated to two-day. do a specific thing. So literally a mission or a public benefit. It should have a public benefit. If you look at the 19th century, like companies that were created and you read their charter, none of them say maximize shareholder value. That would have been considered a crime.

23:51Interesting. I did not know that. It would say like, we've created this thing to create a railroad, to build a canal from place to place, to like, to do something specific. And the board's responsibility, the fiduciary duty, their first highest priority was to defend and protect that purpose. When we shifted to shareholder primacy, we forgot this really important lesson. So who did this? Who did this to us? Who did this to us? It's actually super wild. We'll do a history lesson. You're okay? I'd love to. This is incredible to me. So there's this story in the book about this 19th century situation that if you know Elon's takeover of Twitter or whatever, you're like, I know how this is going to go.

24:26One of the richest men in the world tries to buy, take over this company that was the Erie Canal Company that built and operated this canal. And he has unlimited money. So he's just like, no matter what it takes, I'm going to buy this company and convert it to what I want it to do. And the board directors, unlike modern boards, who are told when that happens, you have to become an auctioneer. So no, they were just like, we will fight you by whatever means necessary. And both sides went crazy. It was like a crazy fight. There were no corporate governance or even ethical standards like we have now.

24:58Literally the stories were like, they were both bribing the same state legislatures, legislators, and people would like take bribes from both sides and then vote with one of them. You know, like it was an epic fight. But what's interesting, if you read the commentary about it, people were scandalized because they did a bunch of bad and illegal stuff. But nobody was like, it's wrong that the board tried to fight this. They were all like, of course, they tried to fight it naturally. That makes perfect sense. And like I said, if he lost in the end, they fought him off using what's called a poison pill tactic, which now today we is you can just ask your lawyer to put this in your jocks and you can just have it if you want.

25:30If you don't have it. Why not? That's another tactic. So many of these things, you just have it. You don't have to wait for someone to give you permission. You just do it. So anyway, if he had prevailed and he had actually managed to convert the legal purpose of this company from make a canal to maximize shareholder value, that would have been considered a crime and the courts would have voided the company's charter. It would have given them the corporate death penalty because that would have been considered beyond the scope of what was authorized to be in the public benefit. So this was the rule all up in the US, all up through the end of the 19th century.

26:04The problem was in order to get one of these charters, you had to get your state legislature to give you one. Imagine if like you had to go lobby your local state Senate for permission to form a company. It was like very cumbersome. That part of the system was bad. So there was a big fight over the whole 19th century to create what was called general incorporation, which was just a simple idea that anybody who wanted to should be able to form a company for any reason, which we were very grateful that it It had to be fought. It was literally a battle statehouse by statehouse. Everywhere over the course of the 19th century, every state eventually came into compliance.

26:34The key date for our purposes is Delaware adopted this in 1899. So like not 1299. This is relatively recent history, 1899. But even in 1899, if you read the Delaware rule, it said that you can have a company for any purpose, but it still assumed you would have a purpose, a mission that was considered completely obvious. And yet over the course of the 20th century, companies more and more and more were being advised by lawyers to instead of writing in your specific purpose, just put a general purpose in there. So most founders have never read their corporate charter. I have no idea what it says.

27:04Shame on you. Go read it. You're going to read it. You're going to say, Eric, what are you talking about? It says here, the Acme AI company is incorporated to pursue. And there's like a blank space, like a Mad Lib. And someone has scrawled in any legal act or activity. That means anything. So it's all good. Wrong. So wrong. We'll get it to why. In the 60s and 70s, a bunch of academics and judges and like legal scholars, like a very small group decided that any lawful actor activity actually means shareholder primacy. Unlike general incorporation that they were replacing, they never put this to any kind of vote.

27:39In the history of the world, shareholder primacy has never been subject to any referendum, any legislative action, nothing. So it's weird. If you learned in school how a bill becomes a law, there's no law for shareholder primacy. Yet, If you ask any director on any board in America, what is your first duty, they'll say, to maximize returns for shareholders? So how can it be the law and not a law? Well, the courts just decided. There were guys like Milton Friedman, and they would write these op-eds where they write very famously things like, the social purpose of a corporation is to increase its profits.

28:12Notice they never said, they weren't like the B Corp people where they're like, well, we have regular corporations and we're going to have E Corp, extractive companies. And there's, this is the, no. they said the purpose of a company is. The trick was they convinced everybody that this is how it's always been. And we've all learned that. We were taught, well, this is just how it is. Well, it turns out we don't even need to get the law changed. We just have to start saying, no, we don't actually think this makes sense and we don't want to be part of it. And if you read the legal papers, I'll give you one last like funny bit.

28:42This blew my mind reading these papers. There's all these legal scholars who've had to write papers about why is this the law if it's not the law? And they write this stuff that's like hilarious. They'll be like, shareholder primacy is a legal obligation, not a legal duty. They're like, oh, that really clears it up for me. Like, what are you talking about? What? And so they're like, look, look, look. At the end of the day, even though this is not technically a law, it is the law. And it's okay for the courts to enforce it like a law. Remember, you'll be fired if you violate this law. It's very, it is the law.

29:13It's okay because. And if you sued about it, it would be ruled against you. Yeah, you will lose that lawsuit. The board of Twitter was forced to sue Elon to complete that transaction, even though they weren't that happy about it because they felt like we have this fiduciary duty. We have to do it. So different for the shareholders. And if they hadn't done it, they would have been sued and the lawsuit would definitely have worked. So they weren't wrong about their requirement. But why would we build companies like this? Who wants to be taken over at the barrel of a gun? So they basically conclude, if you read these papers, they said, look, at this point, shareholder primacy is what's called a normative consensus, meaning everyone agrees that everyone agrees that this is how companies should act.

29:55So I work with a lot of founders. I love to ask them, hey, are you part of this normative consensus? Does it seem right to you? Every founder I've ever met is like, oh, I'm not. Certainly not. I'm like, great. Have you ever told even one other human being that you're not part of this normative consensus until just now when you told me. Everybody I talk to is like, oh no, you can't say stuff like that out loud. You can, you can say it out loud. In fact, if it's a controversy, it can't be a consensus now, can it? So luckily we have the PPC tools. We have a bunch of tools in our arsenal where we can declare this formally, legally for our company.

30:27So we don't have to have, you know, social movement per se, but we could. But we could be fun. But we could. And also like, in the book, I call this the builder's intuition, that the best way to make money is to create more value than you capture, right, to build something that people want. You know, Tim O 'Reilly, all the legends of our industry all agree on this. They talk about this all the time. And yet we're all supposed to pretend these days that we think all kinds of making money is equally good. And there's so many ways of making money in our economy today that where you can get rich without creating any value at all.

31:00And I just think like, why don't we just stop pretending that we think that's good? No, none of us think it's good. We think it's all BS. Yes. So we should start, I think, as builders reclaim that sense of identity to say, you know what? Yeah, we're not part of this normative consensus. We don't want to do this anymore. We would like to have a different solution. Now, I think if we just say, well, because investor control is not working, we should have founder control. Honor control is not that great either because I know a lot of people who are like basically trapped, they can never quit their company because they're like the one, they're like literally the human shield blocking everything.

31:34That's too much. And of course, people die. Then what? So if you want to build a truly long-term solution, we got to look for structural solutions that do not depend on the goodwill of any individual one person. But we start to think about almost like building a government, like checks and balances about how do we balance faction against faction. And luckily, like there are good precedents for this. Interesting. So if you become PBC and you have a specific mission, you're no longer subject to being removed if you work against or make choices that are not maximizing shareholder value. Does that also mean that you can be removed if you're not working towards the mission?

32:10Well, unfortunately not. Interesting. It doesn't work both ways. The problem is directors, especially under Delaware law, have extremely wide latitude to basically do whatever they want, as long as they can justify it as being in line with what it says in the charter. It's helpful in this case if your directors are under pressure from investors to fire you because you're not being a shareholder. Maximizing the PBC can be a shield that they can use to protect themselves from being sued. We're working towards this mission. Unfortunately, if they decide to fire you anyway, it still doesn't help you.

32:42You can't sue them to be like, what the F? Yeah. They still get to make their own judgment. So a huge part of the problem is we are being taught today that the best practice is to have a combination of investor directors and independent directors. And today, good governance is the more independent directors. Why is that? Well, the theory, it's a reasonable theory that because independent directors are independent, what does it mean to be independent? For those that don't know, it means they literally have no stake in the outcome. They don't like they're not aligned to you at all. They don't have equity in the company.

33:10The idea is they're going to be - So random people. They're basically like - Eminent, eminent people. Eminent people. The problem is they have no financial incentive for the mission to endure, but they do have a financial incentive to be seen as pro-investor because how do you get independent director jobs? You get recommended by investors, okay? Founders, you got to do a better job at this. Most founders never recommend anybody for a director job. Investors do a great job of it. So if you have a board, like classic Silicon Valley board would be two VCs, two founders, and an independent. That's supposed to be fair because it's two and two balance.

33:45That is basically just investors control your company. All right. Don't kid yourself. The research, by the way, this is one of many, it's a whole chart in chapter nine of this book that just is called best practices destroy shareholder value. This is one of these best practices that like we have the evidence, like independent directors do not accomplish the goal that they're supposed to have because they have this actual conflict of interest despite their nominal independence. So the solution is just like investor directors are doubly accountable. Like if you put a GP of a venture fund on your board, they have a double duty.

34:15They have a duty to the company, but also a duty to their LPs. That doesn't bother anybody. We understand investors are smart enough to be able to handle that. Not a big deal. But independent directors don't have that because they're not really accountable to anybody. They're just accountable to themselves. But there is a solution. we can actually create a second entity, like a two-branch government, where we have outside trustees who have the responsibility of appointing directors, sometimes just the independent directors, sometimes all the directors. So that structure has been proven to be more stable than the so-called best practice of a single entity just run as a Delaware C-Corp.

34:47Can I tell you a story? Yeah. This is one of my favorite stories because here I'm going to tell you the premise of the story. You're not going to believe me and then I'll try to prove it to you that's true. Premise of the story is this story about a time when the non-profit directors of a company created more than$500 billion of shareholder value. In the 1920s, there's a woman named Marie Krog. She was living in Denmark and she gets a fatal diagnosis of an illness that has no known cure at that time called diabetes. Today, Marie is mostly famous because of her husband, August. He just won the Nobel prize.

35:18So he's a pretty smart guy. He asks her if she would, despite her fatal illness, would she accompany him on a lecture tour of North America? She says, sure. So they go to North America, they're meeting scientists, you know, and doing these lectures and whatever. At dinner one night, one of the scientists tells them that in Canada, someone has figured out how to isolate insulin for the first time, potential cure. So they're excited. And so it was obvious to them that they should go see. It could have easily just been like, can you send us some doses? We don't care. But no, they wanted to go see it for themselves.

35:43They meet the Canadians. They see this possibility and they say, look, we would like to commercialize this technology in Denmark. Can we license it for you? And they and the Canadians had this worry decades ahead of Martin Screlli. They were like, wait a minute. If we have a for-profit company that is selling a life-saving medicine, like let's say you sell a medicine to me that I need to live. I want you to charge me a fair price, right? I want you to stay in business. I want you to have every incentive to keep producing the medicine. That's great. But I would live in fear that one day you would wake up like Martin Screlly did and be like, wait a second.

36:15If Eric owes his life to this medicine, can I charge him anything I want? He's basically my slave. So they were, they foresaw this in the 1920s. So when they went home to Denmark, they made their agreement with the Canadians. What they would do is they would build this thing. they called it the Nordisk Insulin Laboratorium as a for-profit subsidiary of a non-profit foundation. So they built two entities instead of one and the non-profit had trustees and the for-profit had directors. That structure really was, it's a great MVP story, by the way. They had the first insulin and they produced it within like three months of getting back to Denmark.

36:46They got to work. They really, like this was an urgent problem for them because they wanted Marie to live, but also they wanted to save a lot of lives. Anyway, if the Nordisk Insulin Laboratorium sounds familiar. It should. This is the predecessor company to what we now call Novo Nordisk. This company has been gone for more than a hundred years with its scientific integrity intact. And people hear that story. They're like, well, maybe they were just lucky. Maybe the Danes are more friendly or whatever. Like people have all these dumb stories, theories about why. No. Every crazy thing, the same force that came for Jeff Lawson, the same force that came for Saul Price, the same force that has like destroyed so many tech companies.

37:17Of course it came for Novo Nordisk. They're a huge company. Of course it did. So in the early 2000s, it was a big wave of new best practices for pharmaceutical companies that they all needed to combine and do M &A to get bigger. So the for-profit board and all of its independent directors and everybody of Novodorus are like, oh, I guess we have to merge. So they go around trying to find a merger to sell the company. They find this company. They have a signed merger agreement. They're going to get a huge premium on the stock price. Now, at this point, Novo is a publicly traded company. They get this agreement.

37:46The last like due diligence checklist item they have to do is go to the foundation and get their permission to do the merger. The trustees are like, well, what is the purpose of this transaction? And they're like, our job is to look after the mission of Dovador Disc. We're only allowed to approve a merger if it's necessary for the survival of the company. And the favorite detail about the story is they had to have two meetings because they were like, we're going to get back to you. We're going to get the bankers. They re-huddle with the bankers. They bring the bankers back. And they're like, ah, since you said it's necessary for the survival of the company, this is the new best practice in pharma.

38:17It's eat or be eaten. If we don't merge, we're going to die, whatever. And the nonprofit trustees are like, okay, that's interesting. But what problem are we solving exactly? Because Novo Nordisk has been profitable for 10 years in a row, growing like 20 % a year. It doesn't have to do anything. Why do we have to do it? Why can't we just be a great business doing our thing? Anyway, long story short, the trustees say no. Merger over. People are so pissed at them because this is going to be like a$20 billion merger. It was going to make a lot of money for a lot of people. Bankers are pissed. Everyone's pissed.

38:45Now it's rare in business that you have these moments like with FedMart where you actually get to see the counterfactual. So we know for sure that if they had not done this, all of the major R &D programs of Novo Nordisk would have been canceled. We know because the company they were going to merge with two years later was bought by Merck and that's what happened. One of those research programs was in year, I think, 11 of 13 of inventing GLP-1. So because the trustees interfered here, the research program was allowed to come to fruition. You have to understand this was GLP-1 was such a difficult drug to produce that even 10 years in, they had no evidence whatsoever that it was going to work.

39:26And everyone was like, why are we funding this thing? It seems like it's never going to work, but they kept the faith. If you fast forward 20 years, this intervention caused Novo Nordisk to have for a time, a value cap, a market valuation greater than the GDP of Denmark. And if you freeze frame right that moment, you will have now noticed the The delta between what they would have sold for and what they actually are worth was more Short-care versus long-term, which is a theme over and over again. Over and over again. They became, I think their evaluation crested at$600 billion. I think though that builders have to take some responsibility here.

39:57Okay. I mentioned before that most founders have never read their corporate governing documents. Worth doing. Everyone's just like, well, my lawyer will take care of it. It's like governance. I hate even using the word governance because as soon as I hear that, people are just like, boring. Who cares? I mean, I remember with Lean Startup, Lean Startup is a book about management. And I remember telling people like, it's going to talk about management. They'd be like, management, so boring. Like, yeah. So because we delegate this to lawyers and bankers and whoever else, when it comes back to bite us in the butt, we're like totally unprepared.

40:25I think builders have to get a lot more savvy about this. First of all, make sure they understand what they're signing. But then also to, yeah, to put on the t-shirt with the fist to be like, I don't want this to happen to me. Like, this is not the kind of company I want to build. And I think we are not that far from being able to have an economy that is about building again. I really think we are close to that. The younger generations are super pissed off. This idea of shelter primacy has had its 40, 50 year run now. People who've grown up only under that system have seen its failure. We live in a time of institutional collapse and institutional weakness.

41:00And this is the thing, when companies collapse, when they go through these ethical, moral collapses, it's also an economic collapse. That's what's so interesting to me is it's value destroying. So we don't need to make a moral argument necessarily. We can just make an economic argument and the book is loaded with the evidence. For example, the Novo Nordisk style of company where you have this two-tiered foundation, that's called an industrial foundation structure in academic literature. Companies with that structure, there's a lot of them. The German optics company Zeiss had this structure in 1885.

41:31So it's not even that new. There's enough of these companies that we have a data set to see how they perform. Companies with this structure are six times more likely to live to year 50. Amazing. 10 % versus 60 % probability. So we as founders, when we're choosing our corporate form, we're being told that there's this business monoculture. All you can do is a Delaware C Corp, everything standard, best practice, best practice. Man, we've been deprived of our birthright. There's way more options out there than we're being told. And I just, I always tell founders, why are you having to hear about it from me?

42:00Yeah. Why didn't your investors tell you? Why didn't your lawyers tell you? Like, how come you, if you don't know this story, why not? Why wasn't in your MBA class? Why isn't is not in the curriculum. Well, we need VC funds to not be 10-year funds. Well, that's a huge problem. Just for the people, the audience, I mean, basically the standard LP agreement for a venture capital fund is 10 years, which also means that at the end of those 10 years, the money that was put out is expected to come back. So 10 years is... It's just not that long anymore. Especially, I mean, it made sense. Most of these practices come from a time when companies would go public like three years after being founded.

42:33Amazon went public, I think that way, raised like$20 million. Like just the scale of an IPO was much less of a big deal back then. It used to be the three-year overnight success. Now it's the 20-year overnight success. And of course, we have companies like Stripe that are like stubbornly just refusing to go public because why should they? And I think people wring their hands about this, but it's like, what do you expect, man? If you create a system that puts this gravitational pressure on companies, you have to expect people to fight back and resist. I don't think the tools we've used in our resistance are very good.

43:01I think we've been desperately grabbing for whatever we can grab because we feel like we're under a assault. Founder control, which is, I mean, honestly, what we advocate for. It's better than nothing. I mean, it's certainly better than investor control, which really is self-defeating. Founder control has all these problems. And what's interesting to me is people who do founder control have no bridge. They're stuck. So like, for example, one of the things I advocate for is that if you're going to do founder control, just write into the docs that if the founder control is ever defeated for any reason, there's an alternative thing that springs up in its place.

43:32You can just write this in your docs right now. You can have this at the seed stage. It's not that hard. Just say, yes, I'm going to have the Novo Nordisk Industrial Foundation structure, or I'm going to have one. There's a bunch of structures that I explain in the book. What's cool about that is founders think that having dual class shares makes you invincible, but it really doesn't. Dual class is defeated all the time. I give a bunch of examples in the book, like, you know, the stock price drops, everyone panics. Founders are forced out anyway, because at the end of the day, like having the votes is not the only thing that matters.

43:59There's a bunch of things that matter, including like investors being like, well, we won't give you any more money unless you turn this protection off. So I think the perception of being invincible and like being emperor for life, not only is it not true, those people still get betrayed, but you also, it has a psychological effect that's not healthy. It's called hubris syndrome in the psychological literature. It makes you less generous, less compassionate. It makes you more selfish. It makes you more afraid, conversely, of losing your power. So if you notice some of these like emperor for life billionaire types out on social media, like having a mental breakdown in front of us all, like part of what's going on is that this is a mental illness.

44:37This is not actually a good structure. Because we have these better structures, there's really no reason to do it or at least do it as a backup for after your dual class shares get defeated, which, you know, generally speaking, they eventually do get defeated, including by the death of the founder. So what then? Like, I think if you want to build a 50 or 100 year company, you've got to last longer than that. One of the more profound reasons to start a company is actually wanting to create something that outlives you. I think so. I think that's actually part of why entrepreneurship is so awesome, like as a career.

45:03The first time I ever heard of a PPC actually was from my friend Scott Phoenix. He started a lab called Vicarious, and he very explicitly said, I'm going to do it as a PPC. we're going to try to create AGI. And if we create AGI, we don't want to be sort of forced into a paperclip maximization world where you have AGI and it's self-improving. And then anyone, any shareholder could come and say, actually, we're not maximizing enough. And then you helped design the long-term benefit trust for Anthropic. So I'm curious, I mean, what was that like? Oh, it was wild. Yeah. Yeah. And listen, I do not take credit for Anthropics success.

45:48Okay. Just for the record, I played only a bit part and all credit to Dario and Daniela and the whole team. They're on such a run. Love them. But if you talk to people about why is Anthropics so successful, they'll often say something like, well, their inference costs are lower. Oh, that's definitely not true right now. Yeah. Or whatever it is, right? They have better, superior focus. The models are fantastic. Models are better. But like, if you ask why, you'll be like, well, they have better technical architecture, but why? Well, because they're better at doing this thing or that thing, but why?

46:14Well, eventually. It's people. Yeah, it's like because they have the best talent. Why is that? Well, because the best people want to work there, but why? Because they think they're the good guys. That's like a huge recruiting talent advantage. It's unbelievable. So many incredible people want to work there because they are, you ask for the focus. Why are they so aligned? Because everyone's on mission because the mission is primary. But why has an anthropic been able to be bullied from the outside? People certainly have tried. I think part of the reason is they have that magic formula. ethos plus integrity.

46:43They have this ethos of AI safety, whether you agree with it or not, they really believe it. I remember I met them now, they're world beaters, I know. But I remember meeting them when they had just left OpenAI. Their team was very aligned, the people that were leaving, people were leaving a really lucrative job behind to do this. So people really were there for the mission. They had what they thought were really aligned investors, including Sam Bankman-Fried. So actually it turned out not so much to be, but they thought that's what they thought at the time. It would have made that whole situation whole, apparently.

47:10the stake that the bankruptcy has of those shares is worth more than the whole than all of the entire fraud by a lot. And it's going to be worth even more when the time comes yet. So like one of the most bizarre situations in history. It's pretty wild. And in spite of having so carefully curated their cap table, like one of the most tightly curated cap tables I've ever seen for a company like this, a huge chunk of the company wound up being sold at auction in a bankruptcy auction. Like how crazy is that? So anyway, people always think if I just curate, if I just choose the right people, well, I thought they had, but they were also really worried about this paperclip maximizer thing.

47:44Like what happens if we're sold to the highest bidder? What happens? Well, they understood this technology is going to be worth trillions if it works. The incentive to take it over is going to be unbelievable. So we need a structure strong enough. And so we talk just like we're talking now. We had the same conversation then that we're having now. Again, credit to them for actually doing the work. But I remember working with them on their charter. And they had to defend this idea for two years because they kept writing it into the term sheets that they would do it, would do it, would do it. But it took time to figure out what they wanted to do.

48:13I think it was a series C when they finally established this thing called the Long-Term Benefit Trust, which is not a nonprofit foundation. It's actually what's called a Perpetual Purpose Trust, which is a different legal category, but the same idea, outside trustees who have the power to appoint directors to the for-profit board. People very frequently ask me, why is Anthropic the most courageous of the AI labs? I think this is part of the reason why. They have this structural strength to stand up for what they believe. And if you notice, when companies stand up and do the right thing, we live in such a polarized time.

48:41It's like, what do you mean the right thing? Are you saying they're absolutely right? They're the morally perfect? No, you want me to criticize Anthropic? I can think of lots of things. When I say they did the right thing, they acted consistent with their own values. Those values are consistent with human flourishing and they have the strength to defend them. So I know a lot of people, even in San Francisco, like San Francisco's got a lot of turmoil right now. Tech companies are not the most popular here right now. AI companies, maybe even less so. When Anthropic turned down that$200 million contract, someone sent me a video.

49:10The sidewalks around their headquarters had been chalked up with people saying thank you. Oh, wow. Yeah. Man, when I tell you that San Francisco tech company had its sidewalk chalked up, thank you is not the kind of language you're expecting. So like, because they have the strength, they get all these counterintuitive benefits. Claude went to number one when they did that. They couldn't have known that was going to happen. And who knows what's going to happen next? Obviously, long way to go with Anthropic and with the question of AGI. But I think the early returns are very promising that just taking a little bit of extra time to set the structure up in a thoughtful way has been incredibly valuable to their success.

49:45Eric, thank you so much for joining us. This is truly epic. It's an honor. I really think this is a message that YC founders need to hear and pay attention to. So I'm just I'm really excited to see this finally get out of the world. Thank you.