AI bubble or not? [laughter]

[snorts]

And if so, what does that mean?

>> Yeah. So, I think this is super

interesting. My my partner Peter

reminded me of a book that we had seen a

a while ago by Carla Perez. It has

[clears throat] this very benign title,

Technological Revolutions and Financial

Capital. It was written in like 2002.

And what Perez

kind of simplifies and notices, which I

just find perfect for trying to

understand whether there's a bubble or

not, is that every time there's been a

technology wave that leads to wealth

creation, especially fast wealth

creation, that will inherently invite

speculators, carpet baggers, interlopers

that want to come take advantage of it.

think of the gold rush, you know, and so

people want to make it a debate. Do you

believe in AI or is it a bubble? And if

you say you think it's a bubble, they

say, "Oh, you don't believe in AI." Like

this gotcha kind of thing. And if you

study Perez, and I I think this is

absolutely correct. If the wave is real,

then you're going to have bubble-like

behavior. like they come together as a

pair precisely because anytime there's

very quick wealth creation, you're going

to get a lot of people that want to come

try and take advantage of that or

participate in it. So, you get a flood

of those types of people coming at it.

And so, it's odd. There's a real

technology wave that's that's

fundamentally changing the world and

there's also massive speculation

simultaneous. Yeah, they come as a pair.

I recall not too long ago, maybe two

weeks ago, saw a short interview with

your friend Jeff Bezos and he

distinguished between financial bubbles

and industrial bubbles and cited and I'm

paraphrasing here, but 2008 as an

example of a bad bubble, right?

financial bubble versus let's just say

the early 2000s like 99 98 99 2000 where

a lot of very important technology was

created that then was durable after the

fact and created new generations of

entrepreneurs and a lot of economic

growth and he believes that AI would

fall into the industrial bubble category

of things. But I suppose given that the

dancing pair you described come

together, how would you [clears throat]

think about investing in private

companies, modern venture capital at

this point in time? And just I suppose

as it's changed since you were most

active,

>> a quick comment on that industrial

bubble thing. You know, one thing that

is surprising to me is that [snorts]

even though I fundamentally believe this

is an important real technology wave,

the big players, even the Max 7 have all

decided to do things from a deal

perspective. You've read about these

circular deals and whatnot.

>> Could you explain what you mean by that?

>> Yeah. I mean, there's a lot of talk out

there, but it all started when Microsoft

invested in OpenAI, OpenAI agreed to buy

services from Microsoft. Yeah.

>> Which is called a circular deal because

you're giving them money they wouldn't

have otherwise.

>> And when Daario was on stage at Dealbook

last week, he said, "Oh, I can explain

this. It's not that hard. Amazon wanted

us to spend money we didn't have, so

they gave us even more money." And I'm

like, well, that's precisely why this is

a questionable behavior. But it's gotten

bigger. You know, Nvidia's handing out

money, and then Nvidia gave Coree money,

but then also agreed to buy any services

they have left over. this stuff's not

ideal. Like if you were to say,

[clears throat] "What's crisp, clean

accounting?" You know, you wouldn't do

these kind of things. And some of them

say, "Well, it's not material." And

which I would say, "Well, then why are

you doing it?" I've asked other people

to try and understand how even big

sophisticated companies might get

speculative using a word from the

previous discussion. And I hear things

like, well, you know, loss aversion

tends to go down when you're winning.

Like if you're on a hot streak in a

casino, you take more risk. Things like

that. But it is surprising to me. When

it comes to retail investors, I mean, I

would be particularly

concerned for them at this stage in the

AI game because there is a plethora of

SPV vehicles. You've heard that phrase,

I'm sure, SPV. This [clears throat] is

where someone has an in on an investment

and they do a oneoff VC fund if you will

>> special purpose vehicle.

>> Yeah. It's a single entity just for that

>> to invest in X. We have an allocation of

however much money and then they can

allow sort of Jane Doe and John Doe

potentially

>> and they take a rake on it and there's

people promoting SPVS in situations

where they don't even actually have the

underlying stock or maybe they hope to

get it. It's the wild wild west and most

of the people on that edge I would put

in the category of interloper carpet

bagger these are people that have come

to this thing and I just think you got

to be quite careful the the investments

that were made that have already had

100x plus returns were made a while ago

you know before this thing started

>> and that's not to say there won't be an

incremental AI investment that makes

money I think there But your odds right

now of of that being the case are really

really low.

>> Yeah, I would add to that and say, and

this this applies to me as much as

anyone else, but your actual risk

tolerance

may differ probably does differ

significantly from your your perceived

risk tolerance if you haven't had a huge

draw down, right? If you haven't

actually ridden a few of those waves and

see how you respond in those

circumstances.

And you should be, I suppose, skeptical

of how you view your own intestinal

fortitude with some of those things or

maybe the losses you can absorb because

I recall, for instance, I've seen this

many, many times, but with these types

of SPVS, people get involved and let's

just say they're not typically an angel

investor, they don't have the experience

of watching 60, 70, 80% of their

investments go to zero or become the

walking dead. and they sign off on all

of the not necessarily waivers, but they

accept accept accept on like the SPV

terms of service, which all say you

could lose all of your investment. This

is incredibly risky.

>> Yeah.

>> But then when it does go to zero, you

know, the financial and psychological

impact is catastrophic.

>> There's a lot there's a lot of people,

and I think this comes from a very good

place. I think they're very

well-intentioned who look at the world

and say, you know, well, first of all,

you know, rising inequality, like why

can't everyone have access to the same

things? And and then companies are

staying private longer. So they say we

need to institutionalize

the generic public's ability to invest

in private companies. And the problem, I

think there's two problems. one you just

hinted at which is most private company

VC backed even go to zero like the

majority which is not something people

really they sense that they want the

lottery ticket they want the the Uber

they want the one that goes to the moon

>> but they don't understand that that

comes along with it

>> they don't want to buy losing lottery

tickets for 12 years

>> right exactly and the second problem is

the information transparency in the

private company game is just low. And I

think the institutional investors have

come to understand that and kind of know

what they're getting into and know how

to evaluate things. But if you come at

it with a public market mindset

thinking, oh, every set of financials

I've been handed is is audited and is

correct and like that's just not the

case. It's it's super loosey goosey. So,

if you were, this may be a difficult

question, but if you were angel

investing

right now, how would you be thinking

about your approach?

>> I'll tell you a funny story. When I

decided to hang up my gloves, if you

will, and stop making institutional

venture capital investments, I had a

whole bunch of ideas about what I wanted

to do next. And one of them was, oh,

I'll do a bunch of angel investing. You

know, Bezos did it on the side. You

know, this would be fantastic.

>> He did pretty well with his angel

investing. I was explaining this to a I

won't say who it is but a a Silicon

Valley CEO very successful and he said

what are you going to do now? I said I

was thinking of doing angel investing.

He goes why would you do that?

[laughter]

He said I got 50 of these things. People

don't return my calls. He goes I

[clears throat] wish I'd never done it.

[laughter]

So there is a unglamorous side to it as

much as there is a glamorous side. And

you've participated in this world

before. What would I say? I think if I

were doing angel investments, I'd try

and find an intersection of people that

are super curious and are playing with

all these AI tools, but bring a

perspective from a particular industry

that gives them an advantage in that

area where they could simultaneously be

maybe the smartest user of AI in their

genre, in their vertical. So despite the

or maybe because of because we talked

about the pair

the AI bubble, you would still be

looking at AI intersected opportunities

if you were angel investing.

>> Yeah, there's a weird reality out there

right now and this could end if ever a

bubble has popped or whatever, but the

institutional investors have zero

interest in non AI deals.

>> Mhm.

>> Zero. It's more black and white than I

could be successful in

>> for people who do not know the term.

Define the institutional investor.

>> People who are paid both a a salary and

a piece of the return to be active

investors of other people's money using

other people's money. But the reason

that kind of matters is if you angel

fund a deal and have any hope of it

raising money in the future, if it's not

AI related right now,

>> could die of neglect.

>> There is no interest. I can't state

clearly enough how there's zero in and I

could I could [snorts] simultaneously

make fun of that reality, but I could

also justify that reality, but it is the

reality right now. And by the way, while

I mention that, I feel obligated for

your audience. Like, I don't care what

field you're in, you should be playing

with this stuff.

>> Like, it has the potential to impact

your role in your career. And the best

way to protect against any risk of your

career being obuscated or eliminated

from AI is to be the most AI enabled

version of yourself you can possibly be.

How would you think about maybe you can

give a hypothetical example of looking

for someone who has very very

sophisticated domain expertise

and experience who's now intersecting

with AI and has a unique because of the

combination perspective on things to

invest in as an angel investor separate

that from something that's just going to

be consumed by the fundamental the kind

of fundamental models and these larger

companies

>> from a career perspective. perspective

or

>> from an angel investment perspective,

how would you pick folks you don't think

are just going to end up working on

something that gets replicated in short

order by the bigger companies?

>> The key is just to stay pretty far away

from the edge of whatever. I mean, you

can go online and see interviews with

people at Anthropic or OpenAI and what

they're working on. Like, if it's the

next thing they're going to do,

>> I don't think you're going to be

protected. But as I think about, you

know, founders and angel investors,

you're talking about a pretty broad

array of things at this point. As I

mentioned earlier, you're not going to

back the next big model company.

Besides, if if you were, you need a

billion dollar angel investment to go

make that happen. Like, it's just really

the game's changed. There's so much

money involved. I think you're going to

want to be off the beaten path anyway.

When I think about these deeper

verticals, I don't think it will make

sense for open AI to go crush every

little vertical

>> waste management.

>> And even if the model's capable of

understanding that subject matter, there

are workflows, there are data sets that

are local to your customer and that

stuff has to be stitched together. Mhm.

>> So I think having an understanding of a

particular industry and and one that's

not going to be on the next thing to do

list at OpenAI would probably be your

best bet.

>> Got it. So is it fair to say if I'm

understanding you correctly that

effectively looking for something that

would not be a high priority for one of

these larger companies and also a

proprietary data set of some type?

proprietary data sets. The more kind of

workflows that exist are are better

because you can build software around

those things.

>> What is a workflow?

>> The thing that popped in my head, I'm on

the board of Zillow. You know, Zillow's

been investing for the past 5 years in

tools that help the realtor do their

day-to-day job.

>> Mhm.

>> They have a tool called Showing Time

that helps you book inerson tours at

houses, as an example. But there's

putting the mortgage together, getting

the sign offs on, like there's just all

these tasks that have to be happen that

can be automated.

>> Tasks that can be automated that can be

integrated with AI. The more of that

stuff you can build into a system, the

better off you're going to be protecting

yourself from a model that just answers

questions, right? Which is why which is

why I brought it up.