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0:00 AI bubble or not. >> >> And if so, what does that mean? Yes, 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 Carlota Perez. It has 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, carpetbaggers, interlopers that want to come take advantage of it.
0:48 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.
1:24 So you get a flood of those types of people coming at it. And so you 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 2 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, a 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.
2:21 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 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 even though I fundamentally believe this is an important real technology wave, the big players, even the Mac 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, which is called a circular deal because you're giving them money they wouldn't have otherwise.
3:21 >> Mhm. And when Dario was on stage at DealBook last week, he said, "Oh, I can explain. This is 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 CoreWeave money, but then also agreed to buy any services they have left over. This stuff's not ideal. Like if you were to say, "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." In 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."
4:17 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 is where someone has an in on an investment and they do a one-off VC fund, if you will. >> purpose vehicle. >> Yeah, it's a single entity just for that one deal.
4:47 >> in X, you have an allocation of however much money, and then they can allow sort of Jane Doe and John Doe potentially >> 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, carpetbagger. These are people that have come to this thing. And I just think you got to be quite careful. Mhm. The the investments that were made that have already had 100x plus returns were made a while ago, you know, before this thing started.
5:27 Mhm. And that's not to say there won't be any incremental AI investment that makes money. I think there will. 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 drawdown, 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. Cuz 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.
6:26 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." 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.
7:31 >> Yeah. 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."
8:03 And like that's just not the case. Yeah. 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.
8:34 >> 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 >> >> He said, "I got 50 of these things. People don't return my calls." He goes, "I wish I'd never done it." >> >> 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'd still be looking at AI-intersected opportunities if you're angel investing. Yeah. There's a weird reality out there right now, and this could end if ever a bubble is 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 it, the institutional investor.
10:03 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 relevant right now >> could die of neglect. There is no interest. I can't state clearly enough how there's zero interest and and I could I could 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. Mhm.
10:50 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 obfuscated 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 that's kind of fundamental models in these larger companies. From a career 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 the people at Anthropic or OpenAI and what they're working on. Like if it's the next thing they're going to do Mhm. 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 kind of back the next big model company.
12:18 Besides, if if you were, you need a billion dollars 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 OpenAI 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 has stuff has to be stitched together.
12:54 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 it would probably 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 proprietary data set of some type? Proprietary data sets, the more kind of workflows that exist are are better cuz 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 ShowingTime that helps you book in-person tours at houses as an example.
13:43 But there's putting the mortgage together, getting the sign-offs on. Like there's just all these tasks that have to be happened that can be automated. Mhm. 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.