a16z Podcast - Steven Sinofsky & Balaji Srinivasan on the Future of AI, Tech, & the Global World Order

Episode Date: August 11, 2025

There’s been a wave of M&A deals lately - Meta and Scale, Windsurf and Google - and a lot of it points to something bigger: how regulation, capital, and innovation are colliding in 2025.In this episode Erik Torenberg brings together Steven Sinofsky, former Microsoft Executive and Balaji Srinivasan, founder of the Network School, and author of the Network State to break it all down. From acquihires to “acquifires,” from FTC crackdowns to the deeper battle between the state and the network, this is a sharp conversation on the future of tech and power. ResourcesFind Balaji on X: https://x.com/balajisFind Steven on X: https://x.com/stevesiLearn more about The Network State: https://thenetworkstate.comLearn more about The Network School: https://ns.com Stay Updated: Let us know what you think: https://ratethispodcast.com/a16zFind a16z on Twitter: https://twitter.com/a16zFind a16z on LinkedIn: https://www.linkedin.com/company/a16zSubscribe on your favorite podcast app: https://a16z.simplecast.com/Follow our host: https://x.com/eriktorenbergPlease note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures.

For four years, it was just a desert. The state blocked IPOs. They're blocking M&As. There's just an all-out anti-tech assault. D.C. is the zero-sum game. There's something positive out there, so it has to accrue to the D.C. power base. Figma managed to make its way through that.

Absolutely no thanks to the state attacking it. And then Lena Kahn decided to take a victory lap on this, which is, as I said, it's like the assassin congratulating themselves for helping to elect Trump. There's been a wave of M&A chaos lately, meta in scale, windsurf and Google, and a lot of it points to something bigger, how regulation, capital, and innovation are colliding in 2025. In today's episode, I brought on Steven Sinovsky and biology screen of Boston to break it all down. We get into how deal-making is changing from aquilires to what biology calls aquifiers, plus the deeper power struggle between the state and the network and what it all means for AI, startups, and the future of tech. Let's get into it.

As a reminder, the content here is for informational purposes only. Should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see A16Z.com forward slash disclosures. There's been a lot going on in the world of M&A in the last month, et cetera. There's been the meta-R-H scale. There's been the windsurf saga.

There's been Galena Khan discourse surrounding Figma. And I wanted to bring both Bologi and Steve together to kind of reflect and discuss at a higher level of how we make sense of what's happening in M&A land. And Baudi, I know you've had some thoughts recently. So I thought I'd let you open. Yeah. So there's actually like three, I think, separate issues that are all kind of interrelated. And they're all kind of related to how U.S. capital markets are becoming tougher, but the interim capital markets are opening up.

Those are the windsurf, scale, character, and so on, this new kind of deal structure, then the Figma IPO, and then finally the new Genius Act. And to briefly summarize, since Sarbox, Sarbanes-Oxley, in the early 2000s, which was passed in the wake of Enron, that was the intent to stop Enron's, but actually did stop ideas. So the number of public companies has just declined. Number of IPOs has declined. And tech companies started going private for longer. And then now with the FTC antitrust harassment of the last several years, that also started to cut off the M&A window. So for four years, there was just a desert. And DOJ went to interfere, for example, with JetBlue's acquisition of Spirit, Spirit went

bust, Roblox had issues. A bunch of companies suddenly died. Go ahead. Rumba, Rumba. Rumba. I mean, kill a robot. Yes, they said, robots is fine. Sorry, Rumba, you're right. So, first, the state blocked IPOs, and so we had to go private for longer and build a whole PE kind of model. And then they're blocking M&As,

and so essentially that just caused, I mean, among other things, there's also the assault on AI with limiting the number of flops. There's the assault on crypto, with the SEC, essentially doing lawfare against the whole space and debanking companies. There's just an all-out anti-tech assault. And then the amazing,

thing was Figma managed to make its way through that and actually get to IPO, absolutely no thanks to the state attacking it. And then Lena Kahn decided to take a victory lap on this, which was, as I said, it's like the assassin congratulating themselves for helping to elect Trump. It was quite a remarkable statement, but it really gets to the heart of sort of the way that D.C. is the zero-sum game. And so there's something positive out there, so it has to accrue to the DC power base because otherwise there's not enough positive left over. And so it was sort of this absorbing the one glimmer of hope that's out there and ignoring the long, long tail of carnage that they've recently caused.

That's right. And basically the thing is they take credit for the good things and the bad things, oh, well, that company must have sucked anyway or something like that, right? And actually, the DC thing, I'm not sure this is apocryphal, but I remember I think, I think Gates said something in the late 90s or early 2000s, actually before the whole antitrust thing, which you guys actually had to go through. You had to go through the whole thing.

Something like, he wanted something to do with Washington at all, just wanted a code. And they said, well, that's fine, but some politician said, but we're just going to hold hearings on you, and then you're going to have to donate to us. Do you remember that? I remember somebody wrote that up. Go ahead.

I think that there's just, I mean, part of what you said brought up two things for me. One is that, yeah, I mean, like the whole thing about computing, is that except for the IBM antitrust case, which started in the late 1960s and pretty much lasted through me in high school, the whole role, computing just kind of arose without government regulation, without government oversight,

and even with the internet, with actual, with just government funding it. And so it's this very weird thing, if you're in the business of governing and regulating, that this giant thing that swallowed the economy happened without you. And also, to be fair, the entire software industry, in a sense, happened that way.

You never needed to be licensed to be a software engineer. There was never approval to sell software. I mean, the most approval that the government got involved in was it used to prevent mail order laptops and desktop computers because they had radios in them. And so they needed FCC approval. Yeah, they needed FCC approval in order to finally ship computers to home, which is something that a guy named Dana Lewin,

who ran the Computer History Museum, he really cracked that working for Apple in the early 1980s. And that's how McIntosh made it to campuses, was that they figured out how to work around the FCC, and then Michael Dell had to do the same thing in the PC world. So you have this whole industry that swallowed the economy, basically, happened without any hearings. I mean, there were just no hearings even.

And so it's remarkable when you think about it. Yeah, so my framework on that actually, and not that I use this for everything, but I think it's a useful framework, is network for state. And like the network, the intranet and the state, you know, the regulations and the government also informal things that are aligned to the state, because network's intangible, the scale of the internet and how quickly it grew is still something that even today, you know, Orbel had the same, which is like it takes an enormous effort to see what's in front of one's own face, right? And what's it front of front of the face? Well, it's a phone. It's a screen, right? The internet is simply the most popular thing in the world, perhaps in human history.

It's completely ubiquitous. It's upstream of AI. It's a stream of phones, upstream of drones, upstream of everything on social media and so and so forth. Upstream of the election. Twitter elected Trump and then Twitter Deep Platform Trump and then ex-elected Trump.

Like, the internet's like upstream of everything. And yet because it's invisible, we don't think of it as a primary actor yet, which is, I think, the whole other point. The other thing is, I think one the most remarkable future historians in writing about this era will say something like, you need a license to cut hair and you need a license to do this, you need a license to do that. If you didn't need a license to own a computer, the most powerful device ever created.

Right? Thank God. Well, you know, it's super, you raise a really good point. And I, look, I'm not going to try to be the other side, but I can sort of defend that side, which is, it is true, you needed a license to apply makeup in a salon or give a massage, but, you know, not to write software to change the world. And I think it's so interesting to think about the mindset of the regulator because, of course, all of the antitrust laws, if you go back, whether you start with the Sherman Act or the Clayton Act, they were based on these very tangible distribution-constrained, resource-constrained world where, like, Well, you can't own the railroad tracks, the railroad cars, and the coal that ships on all of them, because that's like this vertical integration thing. And like the PC industry just, it didn't have any of those constraints.

And the computing industry, only for that brief time with IBM, where it costs tens of millions of dollars, and IBM actually chose to only lease them, not to sell them, which of course, it makes a ton of sense in the world of technology because owning a depreciation. asset that doesn't matter in a year is actually a bad idea. And so, but all of those laws came about for that. I mean, even these crazy elements of it, like when they do merger and acquisition analysis and they try to understand market share, which is not in the law. There's nowhere in the law that it says this, but they go and they hire these people and they compute like the HHI Index, which is this way of, they take all the players in a market. So right away, you presume that the market is well defined and has end players.

in it. And then they take each one's share, meaning you can actually measure it, and then they square the share and add those all up and divide by the number of players and decide if that's like greater than 0.25, less than 0.75. And then they go, oh, monopoly. This has been the challenge in computing forever. Like, even just take, like, what is the market for word processors? Is it like the thing called a word processor? Is it everywhere you can type? Is it only if you print it? And you very quickly can't figure out, like, what's the share of email? Is it the client?

Is it the server? Does it depend on features? Is it mainframe hosted, mini-computer hosted, PC hosted, or now cloud? And so all of these things, Steve Jobs put up a slide at the iPhone lodge of mobile phone share, but he very deliberately chose to measure it

by the manufacturer of phones so that it diminished the share of Windows phone. But he also could have just done it by operating system, which would have made a completely different chart. But what was the right way to define it? When Microsoft was going through instant E-Sanctrust, we had 100% share of the Windows market. Well, duh, and this is what you get into,

like when you look at a deal like, not even to pick up, but to pick robot vacuum cleaners. Do you count Optimus in the line, the share of robot vacuum cleaners, or is it only the spinning ones that cats sit on top of that dock in your living room corner? And they've always struggled with this, but they don't admit it. And so they apply this sort of econometrics to the whole thing that make it seem like

it's this perfectly well-defined, well-reasoned thing. And even to this day, I don't think people, they would say it would be incorrect to define the phone market as iOS versus Android, because China would have something to say about that. Android itself, it's just not the same product across them. And do you count? Actually, I give three reactions that, because I think there's a bunch of things. I just want to shoot at that.

Yeah, yeah. So the first is on like definition of market, it's actually Eric Schmidt's also talked to this, but basically, for example, when the iPhone came out, people didn't think of it as a competitor in terms of being a camera, but it was one of the most popular cameras

because it was ubiquitous and it was essentially zero incremental cost and it was internet connected and it was programmable. And so even though the image quality is very poor and the number of pixels was a little relative to a TLSR or whatever, it was a very popular camera. but it wasn't thought of as a camera as a primary access. And often the Christensen framework, you know,

the late Clint Christensen, this whole disruptive innovation concept is something comes in and it's not really recognizable as a peer to the existing products in the marketplace, but it's better on some critical access and it gains adoption in that way. And then eventually it's a substitute, but it takes a while for people to even acknowledge it's coming in there.

And then you also have a fuzzy set sort of thing where, for example, Google and Apple could be on operating, systems in Google and Facebook compete on ads and Facebook and Apple compete on headsets and so and so forth. And so there's lots of fuzzy set overlap kinds of things. And then another point is the entire concept of, oh, look at all that Bennett-Demond said this good saying, which is think about all the technoplies. There's so many of them.

Ha-ha. Right? Yeah, which is really, and the issue is they try to use these formulas as sometimes a substitute for judgment and sometimes amassed for animus, right? where really, you know, Elizabeth Lauren was saying she wants to build an anti-crypto army, but really she wanted to build an anti-tech army. And that's just like a particularly explicit thing

where it's like she's in a tribe that's against our tribe. And as you said, put yourself in their shoes. Like first order as people of the network versus them as people of the state. People of the state, it took me a while to understand them, but fundamentally what they want more than anything else

is to get a piece of the state to get a baton, to be able to be like assemblymen of this or undersecretary of that to have a piece of the state this baton and they can allocate capital and start doing things for the good of the world and making you this and forcing you to do that

and it's all about coercion power over other status and the use of force implicitly or explicitly. Whereas our framework is the total opposite. We don't want anyone to have power over us. We're not asking to tell anybody what to do. We didn't consent to being in our organization. We just want

like a bare domain name like Reddit.com like a field that we can build up on ourselves and no one tells what to do, you know, maybe an investment or something, okay, maybe it's a board seat or something, but in general, you were just able to build on your own. And these two kinds of things can coexist for a long time so long as we're just typing and doing math and they're off regulating bombing countries or whatever it is. But as the network grew and grew and grew and grew and this point of Europe, right? Yeah, as the network grew to tens of millions and hundreds of millions and then eventually billions of people, we were like a,

you know, this thing just grew to state level. And now these two things started conflict because we felt legitimately that we're the CEOs, the founders of these companies. We built them from scratch. We should be able to have authority on what happens on these networks. And these guys started to see, wait a second, their authority, whatever it is on paper is actually being limited in practice because, for example, I'd say you're a taxi and dying regulator. The actual regulator of taxis is Uber or Lyft because they have real-time tracking, they have star ratings on both sides, or the FCC or something like who issued licenses.

Well, the actual regulator is speech or what have you, send YouTube, Facebook. So our expansion, our peaceful, visible internet expansion, started implicitly taking market share away from them and sends up regulatory power. So the empire struck back. They attacked us hard. And I can actually, if I squint,

I can actually also understand how we would think like them, and then vice versa, right? So how would they think they don't want others to have power of them? Well, they don't like the fact the network is getting so big it's able to dwarf them or whatever. How would we want to have power or something? Well, within our organizations, we want to be able to flip a switch and make something happen.

And if there's a resistance to that, that's a huge pain, and we want to be able to make that happen, we'll reorganize the company or something so that it can be better and more functional. There's another way of actually, have you guys ever seen the political compass? Yeah. Yeah. So it's the top left, authoritarian left, authoritarian right, libertarian left, libertarian right. And so if you roughly, roughly, roughly sit in the lower right corner, adjacents are often allied, but diagonals don't get alone. So a libertarian right, I can sometimes understand the nationalist and I can understand the libertarian left,

but the Lithuan Quadrant always seemed foreign to me until I ran a large tech platform. You know why? And of course you probably have. So, because, Steve, you probably had this experience as well, but the libertarian right framework is everybody has consent and you pay them to do something and it's a market-based process. And that works for many things. But let's see you're running a giant tech platform with hundreds of millions or even billions of people. And you want to change some parameters set. You cannot put that up for auction or discussion with everybody on everything, right? Instead, you're going to just flip a switch and they're all going to be basically opted into this and they're not going to get paid and they're just going to

do, right? Because otherwise, there's literally no way you could possibly have. have, like, and, you know, the complexity of these systems, every algorithm change, every update, every this, every that cannot be something that's like, you know, there's five, you have five million parameter settings in any, you know, even Chrome, as complicated as is, it sets like, you know, a zillion of those settings for defaults, right? So you have to pick defaults. And for the most part, the state, the platform will actually know better than the people

because it's got all these analytics and so and so forth. So you can put yourself into the Elizabeth Warren headspace, if you think of yourself as a system administrator of a platform where you have lawful authority over it and you built it from scratch and so it's different. I think the difference boils down to the competence law, right? The thing is these platforms are at least competing with other platforms, and if Apple or Microsoft or Google makes too bad decision,

then the people on those platforms have exit. They have choice that can move between platforms, so there's ultimately a market constraint. But the actual monopoly is at the DC level where there wasn't a practical switching option between things so they could just mess up the platform, interest all the time, and us being the apps on that platform, if you think the state as a platform and companies as the apps on that platform, we would not have that much choice. Let me pause,

Eric, get your thoughts. Well, I think that's a fantastic observation. I mean, one way to think about that is you, you know, and we probably won't even agree on some of this, but if you look at what the European Union has done with app stores, you actually see that dynamic playing out precisely, which is, you know, you have Apple who basically said, look, we want to build platform that we built PC platforms. We understand what it was like to build the Mac. We know how security violations happen. We know how privacy violations happen. We know how quality degrades over time due to software and third parties and apps. We know kernel mode versus user mode. We know all of this stuff. So when we built the iPhone and the platform for the iPhone, including the app store,

we actually were like we whiteboarded out and we deliberately said, well, we're going to constrain the API so that apps can't steal information from other apps. We're going to be secure. and so we're not going to run a bunch of stuff in system mode. There's not going to be third-party drivers. So there's no kernel mode, all these things. And then the European Union comes along after the success of that and then says, you know, good idea, but we actually want to return the phones to being PCs again. So now here's our Digital Markets Act, which basically says phones have to be back like PCs.

And Apple's like, time, time. You do understand we literally set out to be more secure and to be private. You, the GDPR people, we actually wanted to solve this problem on the phone. And we wanted to be secure. And they're like, you know, you're right. So we're going to put in a thing that says,

and vendors should be allowed to be secure. And you're like, well, what does that mean? And they're like, well, you have to actually go figure that out, but just know that as the regulators, we're demanding that you be as open and free as the PC, and so. secure. And you're like, we did that once already. That is precisely what we went and did. And so you get in these kind of crazy loops. And it's actually not unlike the loop that the media had

with the internet, which was, you know, we believe in curation and editorial and control and own the distribution. And the internet's like, well, we have a way of doing distribution and we have a different view on curation and control. And then you get in these loops where then the media decide, well, we like the distribution that comes, but now we want to constrain the distribution. But we like the distribution, but we want to editorialize the distribution. And then the regulators come in.

And so that diagonal on the political compass is really just, I'm actually walking in your shoes right now, and I realize what it is that you did. But I want to want that, and I don't want to be tyranny of the ore. I actually just want security and openness. They just, I think a big part of it actually, honestly, boils down to the fact that they are simply not numerical and they're like AI agents.

AI agents were helpful because they allowed me to model like a, like a, you know, I think all three of us are actually fairly verbal people, right? So we can write and so and so forth. But we also have the system two thinking, you know, in common's, you know, phrase or what have you, where you can just go heads down, you can program, you can do the math,

the numbers actually have to add up, right? You have to do the spreadsheets that, you know, that has been a numerical thing. And one of the things that, you know, I realized is a good chunk of the people who are in the American state, not the Chinese state, that's a different thing we could talk about that. But the American state, a good chunk of them are those who are selected for having verbal and not numerical slash mathematical bill. As distinct from, let's say, in the 50s or something like that, where in the 50s because marginal tax rates were at 90% in America, there were 100% in Soviet Russia, you know, go to jail, do not ask go, $200, do not collect $200 or do. 200 rubles. They're at 90% though in FDRs, America.

So, you know, there's a book by William White called The Organization Man, where it was this extremely centralized environment, very corporate. You know, you couldn't really found a company or anything like that. It was very hard for Shockley and Fairchild and so on to do what they did. But at that time, the Elons of the world would have worked at NASA or run NASA, and the Patrick Hollisons would have probably run the Federal Trade Commission and so on. And whatever was written down legally, they would just call each other and make it work, right? You'd have a bunch of CEO-level people, founder-level people, because they couldn't found companies.

They were channeled into the government to make it work. Similarly, in the Soviet Union, when you couldn't – those guys couldn't do entrepreneurship, they put all their energies in just pure math and science. And that's why there's some amazing Soviet mathematicians and physicists and so on, if you're familiar with that. Because that was an area where, okay, you know, that kind of technical mindset could at least do something, you know. Anyway, so because they're selected for this, one example of this, you know, did you remember this Lorena Sanchez or Lorena Gonzalez who told Michael, Michael Salon that he was a billionaire, right?

Or how Bernie Sanders is like, million is and billionaires, right? Which is like seeing meters and kilometers, right? Because actually, it's like a thousand X difference. Or like, you know, when Brian Williams, Narragave, the MIT editorial board said that, like, Bloomberg could give his fortune and divide it and give a million dollars to everybody, right? So that's like three examples where I really start to think they don't, they think like billion means like big number, you know, like a primitive tribe who'll have numbers for like one, two, and many, right? So like they just don't understand like one E9, you know, like the

difference between a billion and a million or the difference between, for example, someone who has a billion dollars liquid, someone who has a billion dollars net worth. a billion dollar fund, a billion dollar valuation. And this leads to, like, they literally can't do, it's not like they can't do machine learning and they can't do gradient descent and they can't like divide or like, you know. And to have some sympathy for them, if, if I was to say, what's the difference in a picofrod and a microforad, right?

Unless you've done something with hardware, you know, like what's a lot of capacitance and a little capacitance, like there's a scale there for capacitance or reductants or something like that, that unless you're actually done electrical engineering, you wouldn't have an intuition for it. But they just have no intuition for scales of money beyond their personal experience, like a thousand bucks, beyond something that's in their bank account or checking account. They just don't know what's above that because you haven't run organizations or done investments. Like a billion might as well be a trillion, might as well be a quadrillion.

Why don't we bubble it up a little bit and talk a little bit more about this M&A stuff? Because I just, I'm completely fascinated by, by, let's just take it in general, not about Figma, but just this kind of crazy revisionist thing that goes on with M&A. Like, for me, like, one of the big things is you have to just start from the premise that when a giant corporation does M&A,

it's literally like a speculative investment that has... It's a power law, but for M&A, exactly. I love that you said that. Right, that has a power law return. Like, there's only two truisms about corporate M&A. One is it literally, provably, a net destroyer of value. Like, no matter how many studies get done at HBS or at MIT Sloan,

I literally went and when I was teaching at HBS, I spent hours in the library and pulled all these, like, papers with math and calculus and stuff in them that were against M&A because I found M&A at Microsoft very, very difficult to pull off. Because Bill was mandating this constant synergy and synchronicity across products, and M&A was like a huge perturbation

to that whole system. With the exception, like something like PowerPoint, which was a huge one. I'll get to PowerPoint, because that's near and dear to me. But all the business literature on M&A is it's a destroyer value.

So you would think that the regulators would be out there against M&A, not because of the success it has, but because of the failure. Like they should be out there. The regulators should be saying, hey, companies, you shouldn't buy companies because you just destroy them.

But you never, ever hear them doing that. And no company sets out to destroy it. And so I actually did in the biology. I actually brought my visual aid this time, which we'll put up on the screen. Oh, wow. But this is like what the New York Times, your favorite, NYT, what they said

when Google acquired YouTube. And so the headline on the front page of the New York Times is dot-com boom is echoed in the deal for YouTube. followed by like 500 words about copyright infringement and they're overpaid and it's just five guys and kitten videos and it's got like pull quotes from all these people explaining what a disaster it's going to be. So then you...

All right, well, I've got, I love that because I want, can you put this one on screen? So Instagram, you know, Instagram was something where at the time, John Stewart said, because Instagram had no revenue, right, at the time Facebook. bought it. Little square pictures, too. Like retro square pictures with filters.

Yeah, yeah, yeah, yeah, exactly. And John Sir was like, Instagram, the only thing that would be worth a billion dollars would be something that would instantly get me a gram of Coke, you know, or something like that, right? And so the thing is, Instagram, today, it's been retconned as this evil, obvious move

for the evil monopolist. At the time, Zuck was supposedly an idiot for doing it because, first is, it had raised it $500 million the day before Zuck offered a billion. so double evaluation. Second, that was about 25% of Facebook's $4 billion on cash in hand. Third, it was like weeks before the Facebook IPO. Fourth, the board wasn't good sold. Fifth, Instagram had no revenue. So the balls to do that, when you're going into an IPO,

need to reassure the market that, oh, you know, this boy genius CEO needs, you know, all these idiots to say, oh, idle supervision is needed, blah, blah, blah, right? So, you know, why would Facebook pay $1 billion for a company and no revenue? with Facebook's public offering only a few weeks away, spontaneous and impoverisational business moves become more curious. You know, like, you know, or Hacker News, this is not going to be one of the best tech acquisitions

of the next decade. Instagram is a photo service and a sea of other photo services. Can someone please tell me how Instagram's actual content is worth anything seems like mostly a huge waste of cash? And then Alex Wilhelm at a market cap of $950 million, the New York Times is worth, quote, less than Instagram. True. True. That would I'll give them.

That's true. But I think it's also, like, you have to actually read the reasons why people thought, because the reasons end up being these very pedestrian, sort of non-math, unable to see exponential growth, like not strategic. They just, they always fall back on something. Like, in fact, you know, Instagram was on revenue.

YouTube had no revenue, but also it was like this morass of copyright violations and how will Google ever figure that out? And no one ever wrote about the potential. And of course the potential... Yeah, and go ahead. See what you say. The potential is the part that it's

the venture bet that the company is making. And the interesting thing is, big companies make the wrong potential bet 90% of the time. Like they generally always think, you know, like they'll do like a HP autonomy acquisition, which is a very famous, went off the

Rails acquisition during the enterprise software world, where HP just thought, well, this is sort of this nth tier player in enterprise search and information retrieval, but we'll buy them and we'll put our magical Salesforce and platform strength behind it, and that will fix everything, which is like 90% of the M&A that happens, the big company just assumes that whatever it's strong at, it will just wave that dust over this failing business and it will make it great. And I think that that's what, it's always like this venture aspect of it that's missing

in this retcon that they should have stopped it or that they should go back and stop it because it got made into a success against all of the conventional wisdom at the time. It just completely blows my mind that that's the framework for evaluating an M&A that people would use. I mean, you know, like nobody's

going to go back and retroactively consider whether, you know, Roomba really would have been better off being bought by Amazon, even though it should have been. You know it is, everybody wants a piece of a reward. No one wants a piece of the risk, right? So when the state goes and blocks these

acquisitions, they assume no downside risk. They're not like taking, you know, hey. Like, for example, Adobe had to pay a billion of Figma for the breakup, right? Like the breakup fee or what have you, you know, the fact that the deal didn't go through. So it just goes in medals.

And then these people at the hoodspot to take a victory lap, you know, there's really just, you know, you know, stolen banner, valour? It's like Stolina Valor, right? Lena Khan's stolen valor, right? And genuinely, like, Dylan Field and the Figma team superhero, this. But just to talk about that for a second, like with an MNA, you made a bunch of good points, Stephen. I want to kind of add to that.

First is, absolutely, there's a power law for M&A, just like there's a power law for startups. and the best M&A you do can completely transform your company a lot of that are essentially failed and sometimes it's a little bit unpredictable. Number two, I think, is in general, a company usually needs,

in my view, and you may disagree, needs to be about 100 exercise of the small company in order to acquire them. And the reason is, if it's even only 10 exercises, I can only think about one deal where it was about 10 exercise and it worked, and that was

an illuminous acquisition of Calexa, where it's like a must win, that's in the genomic sequencing space, but that, or genome sequencing space, that's where there was like a really important technology that became like the basis for everything Aluminah did for the next decade, and the entire executive team was bought in on it

because 10% of your cap table, 10% of your equity is like a huge amount. It's basically more than you're going to spend for the whole year, maybe for multiple years at a time. And so a 10% bite is massive. It has to really be 1% and that's still a whole integration effort.

That's number two. And the reason I say there's lots of founders at various stages will be like, oh, I'm acquiring another startup. And I'm like, start to start a deals never work in general because neither of them have money. Maybe one of them can shut down and join the other one. That sometimes it works once in a while. But in general, they don't work.

That's why M doesn't work, but A works. Like merger usually doesn't work with acquisition works. Well, AOL and Time Warner and stuff. What a huge disaster that was? Yeah, exactly. Again, once in a while, it's something like, you know, see jobs, Pixar, and all the ones that work or sweet generis where it's like they really acquired

some amazing founder as part of that. It then leads a company or something. The third thing about M&A, as you again said, is that the smart big company values them on the basis of the big company's distribution, right? And it's this product times that distribution is something. However, the dumb big company just thinks they can just roll up anything and sell it,

and that just doesn't work, right? I think one of the huge, I mean, the responses, by the way, on this Figma thing, and then let's get to actually WinSurf, I want to talk about that as well, and then also the Genius Act. The response on the Figma thing, I think, fell into one of three categories. The first was the Elizabeth Warren School, which is just anti-Crypto Army, anti-tech army, they hate tech guys, and I actually like that because that's just like pure tribal animus, okay, meet me on the 50-yard line. You bring your guys, we bring our guys,

let's, you know, win the battle through the idea. Let's go, right? I actually prefer that because that's like explicit conflict and it's just, you know, tribe versus tribe, you know, got the war pain on. Okay. Then you've got the, like, well-meaning maybe, but, but, you know, I often can't tell if they're trying to kill us or they're just actually arsonists or what have you, right? which is, oh, we're going to have more startups if we allow them to become big and not be eaten by these other companies or what have you. And I struggle for the analogy or what have you,

but it's like, I don't know, you can't hire somebody until you interviewed 20 people because then they'll be like the best of 20 people and we're going to let you hire the best of 20 people. What it does is, first of all, you shouldn't be interfering that choice. Second is that if you cut off the flow of M&A is, obviously most companies aren't either good enough

or it's really tough to make it all the way to IPO. Like Oculus, for example, down 10 years ago, they were burning a lot of cash. They probably couldn't have made it to IPO. A lot of companies are like that. They're burning cash where they're valuable to a big, deep pocketed acquirer, and there's like maybe one or five guys who could buy them, 10 guys, 20 guys, whatever the number is,

but they really can't operate as a standalone company. They got to proof of concept enough. right so in that circumstance you know airlines are often like this where there's a ton of fixed costs to go into it and you know like mergers make sense because they have routes and stuff like that the jet blue spirit one right so when they block those deals they are actually destroying value right and moreover they one of the biggest issues in this related regulation general is they think of it as oh this is punishing the big tech companies the punishing of the companies it's actually even though it's an annoyance to them the short run in the medium to longer and make

some stronger, because if the big companies can't buy, well, first of all, figure out other things. We'll get to these complex deal structures. But second is, that means less money for because when a big company makes a big acquisition, that's a big surrender. Because it means a big company couldn't have built it themselves. Like Google had Google video, but it had to buy YouTube for 1.6 bill, which certainly caused, I'm sure, some churning internally by the Google video guys, right? And most of the time, a big company is there's some faction inside. It was like, we could build it ourselves or, you know, no, no, we're paying too much or something like that. So it's often a surrender for a big company to do this.

It's not what they wanted to do. They didn't want to pay a billion dollars or whatever for this. And then that surrender money, it goes and excites everybody. They're like, let's make a million Instagrams when you see a big billion dollars for the Instagram acquisition. And then you get Snapchat and then you get TikTok and you get all these other competitors. So Facebook, it's like throwing fertilizer on, you know, thing to spring up a thousand competitors that, you know, all start attacking you. right? And so the actual way of regulating big companies is with a thousand startup piranhas, not by dysregulation. Let me pause here. I think there's more. No, that's a fantastic observation

because you always remember that in a big company, whenever something new that's adjacent pops up, the immediate reaction is, okay, we're selling this giant blob in software. We're selling this giant blob of software, and this thing is adjacent to it. So our blob needs to have that thing. and that's what immediately gets the antitrust regulators, oh, but that's expansion by leverage or by tying or something like that.

Tying, oh my God. What does tying mean? Tying means you're tying peanut butter and jelly together in a standards. Tying is like business strategy 101. Now, 10 years later, the truth can be told, I'll tell you. Right.

Microsoft did nothing wrong. But it is, and so you have all these meetings at a big company, which is, well, should we make it or should we buy it? And it's just make versus buy. And that's the conversation that you're going to have. And, of course, this is the funny part about... The companies are finding it hard to make, though.

But this is the funny thing, because, you know, if the regulators get involved, then they get all the memos and all the emails. And it turns out, inside the company, half people said we could make it, and half people said we could buy it. And all the people said, we have to have this thing. And they said it with varying levels of hysteria. And it's like, we have to have this. This is going to put us out of business.

Or, well, this would be really nice. and we have some customers on the peripheral asking for it. So which one of those enters the discovery for the regulators? The hysterical person who's probably the person on point losing a deal in sales or the engineer that just is mesmerized by the exciting implementation of something. And like that's exactly what that's the sale. But then they still go back and have the make versus buy. They always make one of two choices.

They almost never really just try to make it. But if they have to, because the one that they want, there's only one, they can't buy it or whatever, they, it's very, very hard to succeed on the make versus buy when you go to choose make. So then you go buy and there's a fork in the road. About two thirds of the time, the big company says, wow, the leader is really expensive. But we have our magic distribution beans. So we're going to, we're going to pick the number two or number three that's like way, way cheaper and get it in a fire sale. And, of course, that never, ever, ever works. Like, Microsoft...

When is that ever, when is that ever worked? I'm actually trying to think... It doesn't. But, like, you have Google bought Motorola. Oh, yeah, double-click. Google bought a, double-click, and then, what is it, A-Quantive? Microsoft bought a Quantive for $5 billion. You had Sprint merging with Nextel, which was like two number fours, if that was a possibility.

You have Microsoft and Nokia. I made a giant long list. You had everybody in the phone business that needed, or everybody in the chip business that needed modems. And so then they went and everybody bought these, like, number two or three modemakers. Like, Nvidia almost got overtaken by a P.E. Rater because it bought a modem company. And that was a signal to the market that it was completely confused about gaming graphics. What do you have to, why would you compete with Qualcomm from a gaming graphics company?

And this just goes on and on and on with that kind of thing. But then you still get to the point where you want to buy something, which is, still a power law return. But again, one of the things that doesn't get taken into account is that venture investments or acquisitions from a company can actually be really transformative to the big company, which is a thing that the regulators don't really see because they see the world as a static fixed pie. So they think, like, once a company is like IBM and owns mainframes or is Microsoft and owns Windows, well, that's just what it should do. It should then just make Windows forever and just be the Windows company.

This is where tech people are very, very different because they just assume tech has this finite, you know, sell-by date and that the tech is just not going to be all that useful down the road. So, so you know, you have to reinvent yourself. And, you know, like, it's not like people in, you know, 1985 thought Apple was going to be a phone company. And, and like that, that whole mindset, it just sort of escapes people. Like, here's an example of an acquisition.

that was hugely transformative for Microsoft that nobody knows about today, which was in the throes of the rise of the internet in 1996 or so, we bought a company called Front Page, which was basically a word processor for the web. And it was a way to design a whole website and to also do something that nobody else did, which was you could edit on a PC, push a button,

and those things would end up on the internet. Like that was a step. At the time, it was actually pretty good. It was super cool. But what it did to Microsoft was it, like, saw, you know, I was in office, we did the deal, but we had a fight with the Internet Explorer team who thought they should do the deal, but they didn't want to do the deal until they saw us wanting to do the deal, which is the whole how things work in a big company.

And so we ended up, first we had to solve the bidding war within our company, and then we had to get on the phone with Mark and do the bidding war against Netscape for this company in Boston. But the thing that it did was it galvanized Microsoft to say, you know what's really important on the internet is editing. And nobody was really solving the way to edit

this very finite thing called HTML and publish it to an Apache web server. And so we finally figured out that like editing on the internet was not going to be like Word. And it was going to be a different kind of tool that involves script, that involved

programming. And that's what led to a series of things. But the people we brought brought in were experts in the Internet and editing on the Internet, which we just didn't have. And although the product never materialized as a big Microsoft thing, the people infused that DNA into the company that enabled Microsoft to go and figure out how to do editing in a browser, which turned out to be incredibly important. And that kind of thing is transformative. But it also transformed the whole industry. Like, where would we be today had we not figured out these dynamic websites and the way you could edit web in the browser and stuff, like, that wouldn't

have happened because we were just not innovating there. And I feel like that whole thing is missing, even from the Figma, which, again, the specifics of Figma aren't really super important, but it was a whole new innovative category of how to do tooling, which then gets to AI and tooling. So I think that's a good way to get us to WinSurf and everybody else. Okay. Yes. In general, one of things that's been happening is due to the not just past, people

people can only remember maybe a name it's like a fleeting kind of thing they're like, well, Lena Con is gone so therefore nothing is changed. US first Google is a giant interest case still going. FTC First Meta is still going. All the antitrust stuff is also not just all these other countries that ganged up on the

stigma thing. There's just every lawyer at all of these companies like their number one priority is do not get us into some you know, antitrust situation. So because of that, a lot of the big companies have been forced to, quote, innovate on deal structures and do things that are new. Scale, character, inflection, adapt, covariant are all endwindsurf.

They're all very similar, right? Where essentially, they are, they're not all the same, but, you know, we have a, so there's a typical acquisition where you have an acquired, let's call it Google, and it buys a company, and what it does, when it buys company, there's a process, which, you know, most people watching the show will know, but if they don't, there's something called the capitalization table, which says, who owns what shares, and there's something associated with it called the liquidation waterfall that says, who gets what money when? And so, you know, for example, if there's debt providers, how they get paid, and who gets paid in the middle, who gets paid

at the top, the preference stack, who's at the bottom, common holders, and so and so forth, right? So the capitalization table and liquidation waterfall gave a very well-defined process for who gets paid when you just buy the whole company, right? Eat the whole thing. Okay. Then you've got something which is like an aquahire. An aquahire is something where, and I'm just describing these basics, just to set the context for what the windsurf thing was. So an aqua hire is something where

the acquired company doesn't really get any money. It's not usually done through the liquidation waterfall. Instead, the company just shuts down, but there's a press release that says it was acquired. And then the team goes and gets jobs at the

new company. Maybe there's some cash that's given to the investors. But essentially, the it's way better to at least get an aqua hire than to have a total go-to-zero moment because you get the status if not the money, right? That's one way to thinking about it, right? And now we get to the third thing, which is what these deal structures have,

where they have an aqua-hire component, but they also have what I'm calling the aquifer. Okay? So the aquifer, what is, the aqua-hire component is in these like six deals in scale, character, inflection, a depth, covariant, and wind-surf, the big company basically bought the top AI researchers and engineers out of the smaller company

and paid a huge sum for that. But then it wasn't actually buying the company. The company was left as a shell or as actually an existing entity. And then let's say, for example, the case of Windsor, if you had 40 people go to Google and about 200 people were left behind. But there was a huge chunk of money that was left in the bank account of the 11th, left behind entity, and it's usually set up, and it was in the case of windsurf, in such a way that the money that was left in the company is what they would have received through the

liquidation waterfall, right? And so the point is that an aqua hire, you get the status, but not the money. And an aquifer, you get the money, but not the status. Okay. So that leads to the whole windsor trauma. In the other five acquisitions, you know, you've seen the dark night, you know, Bain, he's like, we need one of us to be in the wreckage brother, right? So whoever was in the left behind, you know, company, right, was somebody who is well-behaved enough to basically be like, okay, salute, I'm going to go kind of down with the vehicle. I'm going to divot in the money out, you know, deal with it silently and so on and so forth, right? It was, you know, you know, like there's a line of succession for the presidency and it's like president, vice president, like, I think it's like the Speaker of the House, blah, blah. And you get to, like, number 37, it's like the Secretary of Interior or something like that.

It's Key for Sutherland, the housing and urban development. Right, right, exactly, right. So the key for Sutherland is the designated successor. If the entire leadership structure is decapitated or, in this case, acquired, right? If they're all raptured, right, that is a person who is behind who is now the president. Now, one of the things I think we need to do in our contracts is we need to have, you know, like comes to a key man provision? Yeah, yeah.

We need to have a non-key man provision, which is, this is the designated executive who is in the event of an aquifier-like thing, and we can decide how to describe it. It's not an acquisition, because there's an acquisition, then you have all the FCC, blah, blah, blah, blah, blah stuff, right? But in the event of an aquifier, this non-key man stays behind, he gets maybe a little more money than he wore a lot more money, whatever, very initiates, because he's not getting the status of being,

acquired, okay? But he executes an orderly shutdown of the company, doesn't have any drama, yeah, and just dividends out the money, okay? The issue is that this deal structure was new enough that the other five times it went fairly well, but in this context, what had happened, and just to give you some details that I'm aware of, first, most of the windsurf employees are just being hired in the last few months because they were all sales guys. Second, Google, when acquiring the company, didn't want to acquire these sales guys, because Google has its own sales team. Google just wanted the engineers, right? Third, Google put 100 million plus

in the bank account of WinSurf, where the intent was to dividend it out. But the guys who were left behind didn't understand what's happening because there's sales guys that just think about money or whatever. And the problem is it was so constrained in terms of what could be said about what was going on since it's not an acquisition guys,

right? Since they couldn't say anything about what was actually happening, the people who were doing the deal couldn't communicate clearly about what was happening. So it just looked like, oh, my God, the founders left and they left everybody in the lurch. Oh, they broke the social contract. And so that's not actually what happened at all. What happened was the FTC and others had made apposition so difficult that they had to do this other structure.

And it resulted in the people left behind, not getting the hint about this. That's one interpretation. The other interpretation is the people left behind got money but not status. So after all, if you put yourselves in their position, like normally in an acquisition, Google might have acquired a 250-person company and they might have kept 40 people and the other 200 people, they said,

hey, we're not acquiring. But those people would have had a face-saving thing and they would have had a line out of their CV saying, my company was bought by Google, I decided to do something else afterwards. And you know what, that's actually a common thing because it has to be both parties have to agree. Both the big company and the small guy,

you know, have to agree, hey, I want to still work at Google rather than do another shard. And it's very common. Everybody has a broad, warm halo. Your exact exit number isn't published online. Whether you've got an offer letter isn't published online. So everybody who is acquired has a junction point where they can choose to go to the big company or not, and they have the status and the money, right?

So the issue with the FTC interference in that is it broke the status part of the transaction where the guys left behind didn't get status. But they did have money. So what do they do, rationally for them? They negotiated a second acquisition with cognition, where they got the status of being acquired. Now, the issue is, cognition's like 60 people,

and acquiring the 200 people of WinSurf, that gets back to our earlier point. Usually a company can't buy something that it's not 10x greater than. So it'll be very challenging for, I think, by the way, nothing against cognition, nothing against WinSurf, nothing against any of the people here.

I wish everybody the best. Cognition's awesome company. Windsor's awesome. Verroon is awesome. Nothing bad to say about anybody. Just describing the incentives. right so cognition will find it challenging i think to integrate those 200 people and i'll be also challenging for them to lay anybody off because they you know said oh we we brought everybody on

i think um on the on the windsurf side basically like verun's side he's muzzled so he can't see anything and in general my view is usually the guy who's getting pummeled on social media and can't speak is usually not as bad a guy as it's made out to be he just literally can't defend himself, right? But to defend him, it's, this deal is essentially the same as the other five deals. The difference is the people left behind, you know, didn't want to play the key for Sutherland role or what have you, just because, you know, for our reason, which is, which is their prerogative. The way we solve in the future is a non-key man clause. And there's somebody who's maybe paid more to shut down the company, turn off the lights, because it does suck. I grant that

that that sucks. And I understand why their egos were wounded and so and so forth. But ultimately, the person to blame, one of the other things that happens here, isn't something like this. The last person with a face is the one who's blamed, right? Because Varroon has a face but Google doesn't and the FTC doesn't

and then the general anti-tech, antitrust, U.S. versus Google, FTCRs meta kind of stuff doesn't, right? So the last guy with a face is blamed, but the faceless stuff isn't. You know, it's almost like Bostchia seen and unseen, right?

But blame the FTC, blame Lena Khan, and there's one of the thing, which is someone asked, well, why isn't the current administration reversing this? And the answer is the current administration for totally different reasons

I think they have a legitimate bone to pick with big tech because of the censorship and so on and so forth. But as a consequence of that, many of the cases that were started have been continued, right? So it's not like this thing just completely went away. The new administration is friendly to little tech, mostly, but unfriendly to big tech. And continuing those cases.

And then this is the big tech, little tech interaction effect that's going on there. All right, that's a lot I just said. Let me pause there as more I can say. Well, those are super, I mean, very tough stories. to hear. And two things really jump out of me. One is just purely on the shaping of the landscape and what's going on. I think these are extremely important, let's just call them deals. And the reason they're extremely important deals is because the way are, I would say with near

certainty or in general, but for me personally, we're undergoing a platform shift now with AI. We don't know. I can't say who the winner is. I don't want to say. It's not really important. but there is a shift in where the nexus of the broad tech ecosystem energy is going to be from mobile and cloud to AI. Now, whether or not that's a complete break or the same players move to that transition, don't know. But what that means is first and foremost, the most exciting things that are going to be going on in the near term

are in the tooling to enable the platform. And that's especially true because the way that the AI and platform shift is happening is there's just a lot of players and there's a lot of people. And it reminds me a great deal of the consolidation of the PC operating system world, which was there were dozens of PC operating systems in 1980. And when IBM came out with the PC and Microsoft came out with DOS, part of that consolidation was due to, to the implementation of the basic programming language that had already gained strength across many of the platforms, but this consolidation that on boot-up, there was basic, and then this proliferation of tooling

that appeared on DOS because Microsoft invested irrationally in tooling, IBM invested irrationally in tooling, far more than there were any independent toolmakers. And I think what's happening in AI right now, when you look at all of the energy around coding, is that this is really building the tooling for the AI era. And so it's going to be an irrational investment

because tooling itself is never a really huge business because you have to have it. And so it's sort of this, well, if you have to have it, then there's going to be many alternatives and there are going to be some low-price ones, some high-price ones. But the people that want to have the predominant platform will invest irrationally in tooling.

And so that's why you're getting these deals that don't look rational because there's just a bunch of tooling. the second thing is it's really important to put this in perspective if you're one of those people who think that this is kind of gross or hacking the rules in some way which is antitrust law was itself designed if you go back to the Sherman Act it was this very vague it was barely three pages of legislation and it was really designed to attack one specific thing and the word trust in that context just meant contract And so what was happening is between the railroads and manufacturing and resources and stuff,

the way that interstate commerce happened, a company in one geography would sign a contract with a company, a provider or a vertical partner in another geography. And the interstate commerce laws had not yet really been established. And so it was sort of this free-for-all of like these exclusive contracts by geography, by resource type, by train tracks, and it was locking out whole parts of the country from the availability of those things. So this antitrust became break up these vertically integrated

or these horizontally constrained entities. And then when the Clayton Antitrust Act came along, it said, oh, you know, the real problem is pricing and tying. And so then all the laws became about how much you can charge, can you have exclusive deals, not exclusive deals. And at each step, well, you know, the first time, well, then Delaware came along

and started being really favorable to companies that were doing business in multiple states. And so you ended up with this sort of, and I don't want to get criticized by legal historians or business historians or whatever. Like, I'm not paying fast and loose. I'm trying to be abstract about what took place over 30 years. But then, you know, then when pricing came along,

well, businesses just started to develop all of these different ways of dealing with pricing. Like one of the most common things people know is like, if you buy a lot of something, you get a better price. But if you actually read the Clayton Act, like that doesn't appear to be legal. And so then it took a whole bunch of court cases

to just make this very basic premise, which is the more you buy, the better price you get because I like good customers. Or if you commit to not buying my competitor's products, we'll give you a good price. And the Clayton Act was like, you cannot do that. And you're like, but that seems to be a fairly reasonable constraint. Like, you're not going to buy it for me

and play that off my competitor, and I'll be nice to you. And so all of these things. And so at each juncture in the evolution of regulatory oversight, like the next step of it was what could be viewed as a hack to the systems that got put in place, which generates this animosity with regulators. And of course, you can go back banking is a classic one

where checking accounts didn't have interest. And so someone clever with software invented this notion that you have a checking account and a savings account, and your savings account has all your money in it. And the minute you write a check, we move money from your savings account to your checking account. So it stops earning interest, we pay the check, and you're covered. And that was called a now account.

And that innovation allowed you to have interest on a checking account, which turned out to be a really big thing. When MCI came out with like, we want you to use our deregulated long distance, but we want you to only get a really good price when you call 10 friends and family. We'll give you a really good price. So everybody around the country signed up for MCI when phones were deregulated, and how to make a list of all of their friends, which of course turned out to be this massively great marketing tool

because then they would take that list you gave them, give you a discount for calling those 10 people, and then hit those 10 people up to be part of friends and family. But that was just like a software innovation that completely worked around this idea that the price of long distance should be the same for everyone everywhere. And then AT&T did it with free minutes up to unlimited long distance calling. And so what's happening now is just like,

okay, the regulations have been fixed for a long time. We want to invest irrationally in platforms. You're making this part of it very difficult. So we're just going to go figure out an innovative way. And so we have to be careful because, of course, they are going to circle back and make this difficult in some way. And that's the cycle that you get in with regulatory oversight. And, you know, you could be, like, I've always the guy,

I used to stand up and fight about, like, this feels like the guy in basketball who decided that when there's seven seconds left, you should intentionally foul someone. I always thought that is like the most unsportsman-like thing because I'm like, they didn't invent fouls

to like be executed on purpose. They did it so you wouldn't poke the other guys' eyes out. But it became part of the strategy and that is like the ultimate American capitalism is exploiting the rules that way. And there, you, well, so

and it's also the issues is this. It's also Silicon Valley. Yeah, yeah. So I think that what happens as the following is that You start out in a totally honorable, I think fairly honorable, you know, capitalistic way.

And then what happens is when the government attached you enough, then sometimes the companies that survived that get a taste for the one ring. Yeah, yeah. Right? And they're like, okay, well, you know what? We just built this huge lobbying team

to defend ourselves. What if we go on offense, right? And they're kind of corrupted by it in a certain way. And the one issue, there's like, I think, you know, You know, in chemistry, if you think about like reaction kinetics, sometimes you can have a bunch of time constants

where you have this reaction, this reaction, this reaction, they're all going, and you have to actually do the math, figure out which one goes first, you know. And so I think there's several things that are all hitting at the same time in the space that I'll just give them a quick succession. The first is these big companies are now getting the taste. They're forced to, they wouldn't actually want to consider this in the first place, but of, you know, getting, like, rather than buying the cow,

they're getting the milk for free, right, decapitation rather than acquisition, right? Now that they know that that's a thing. Actually, it's faster than an acquisition. Just leave the money in the car. You know, it's almost like a deal. You're just buying something from somebody. It's closer just like a big, big purchase order almost

than it is to an acquisition with all the complexities that are involved in that. So now they're like, oh, I can do that faster and less overhead. Let me have five of those, right? Yeah, yeah, yeah. So that's like, that's like one thing that's happening where you're giving big companies now a taste of this. And it's like, you know, so we'll have to figure out our deal terms to account for that as something that counts as an exit, but doesn't count as an exit, you know, we'll figure it out. Okay. The second thing is, AI is making it so that you can do more with less, more with fewer people, right?

So this will be a more common thing where there's an internal, you know, amplified intelligence rather than. artificial intelligence. You're going to have a stratification within every company and between companies where the top people will become more and more valuable because they can just do so much more, so much more quickly, right? And the third thing is, you know, one thing people say about AI that I actually don't agree with, didn't agree with then and actually I don't agree with now is this is the worst he'll ever be, you know, that this was used to say, right? But I remember with Napster, Napster was actually the best it was, and then all the copyright lawsuits and attacks, and it made it worse and worse over time.

Google Books was amazing, and then all these copyright lawsuits jelded it enough so that you could get like some little snippet preview, and then you couldn't see the whole thing, right? And so it's quite possible, I would even say probable, that the combination of all the copyright lawsuits, these are desperate lawsuits, by the way, desperate attacks by all these journalists and, you know, authors, writers, et cetera, who hate AI, and I understand why they hate it. but they just hate it. So they just want to kill the thing. And, you know, they'll say,

are you an AI supporter with like venom in their voice? It's like, have you not heard that one? I, I, yeah, go ahead. I'll follow up, I promise. I will let you just get away with that. Okay, okay. Yeah, so it's like, because like, you know,

they'd say like, are you a Trump supporter? Are you an AI supporter? You know, and some, there was some company, there's a few that it's similar to actually like when Discord tried to roll out crypto, People are like, you're doing crypto, you know, people got super, super mad, right? And that is a building thing of an anti-AI, anti-crypto, anti-tech, and is setting fire to the Waymo's. It's a real thing that we should not just watch out for.

I think it's going to become actually the future political axis between futurism and primitism. That's going to be the new left-right after the whole thing finishes rotating. But so the issue is that those attacks from a copyright standpoint and also the energy constraints, because data center buildouts are going to just start hitting, you know, sparing. energy constraints. And the fact that the Chinese models are open and they're actually pretty good and they're distributed them quickly. And China's, do you see my post on AI production a few months ago?

Yeah. That's happening now. You've got Kimmy, you've got Quinn, you've got Deepseek. These are good models and they're open. I shouldn't say fully open source because they're open coefficients, but not open source because they haven't released a full source code to build them and all the complexity that involves and so and so forth. But they are open coefficients.

And so the combination of those three things means it's quite possible. And then the fourth is, you know, I already saw something where some, you know, government restriction on using hosted deep seek. Okay, I could understand that hosted deep seek is going to China. But I wouldn't be surprised to see something where it all combines such that, A, USAI companies are hit with copyright lawsuits. B, they're blocked by the lack of energy. C, the Chinese open models are out there.

Indeed, U.S. regulations prohibit people from using the Chinese open models so that actually that lead in AI is actually lost and it becomes harder to do AI in the U.S. And it's similar to what happened with crypto where crypto had to decentralize outside the U.S. in the 2020 and 24 range. I don't think that's the intent, but I can see those storm clouds coming. And the one other thing I'd say is,

because AI does it middle-to-metal, not end-to-end, It doesn't do everything, but it does do a lot of, there's a lot of, you know, bureaucratic jobs, you know, jobs that lawyers do, that doctors do, the teachers do, professors, artists, journalists. This is going after, like, the blue base, really going after them. And so, you know, doing all of this AI in San Francisco and publicly making millions or even billions of dollars and being demographically different with all these immigrants and being very public. rich and recognizable in the blue state in the blue city and a blue state in the union to me is not a good long-term recipe for peace and prospering right it results in accumulating too much capital too publicly and then you just start to see some very very nasty things happening so so because of all that i think uh i am bullish on decentralized AI but i'm not so sure how how centralized

american AI is going to i think this is a good way to close i'm going to I'm going to do the impossible thing with eubology, which is I'm going to try to get the last word in and let Eric just say, thank you very much. Go, good, go. No, we opened up a lot of topics, and I would encourage comments and dialogue out on X for where we should take the next part of this

because we should keep going. But like, I want to say broadly and deeply, I agree on the biggest issue we all face right now in the technology sector of the economy is the risk to, to the AI innovation trajectory in the U.S. And you can look at that from a technology perspective, a regulatory perspective, a business practices perspective,

an immigration perspective, like a research funding, any way you want to look at it, there are arrows aimed at, from various perspectives, from preventing it. When the right answer is we need, we just need to let the market work, the market for talent, the market for technology, the market for people.

There's just a very strong market that can really, really work. Because from the Clay Christensen perspective, what China is trying to do is commoditizing our strength. And so the release of a bunch of pure open source, open-weight models coming from China is specifically designed to go after a rigid or complacent American view of AI,

which is, you know, cloud hosted, buy a few big players, you know, closed source, you know, that, that, so China is just doing, and I can look at this very emotionally and personally, which is this is Google releasing Google Docs for free. Yeah, yeah, exactly. And I'm running Microsoft Office, and Google is just like, we're never going to make money from this. And here we are in 2025, they still don't make any money from it. but they, they, and what Microsoft that's end up relying on is the worst part of the business, which is just enterprise distribution

lock-in as your core part of your business, not innovation, not moving forward, which bums me out. I mean, they made money from G-Suite, the host of G-Suite is starting to get expensive. It gets expensive, but relative to what you guys are making. It's, like, it's, like, the profits from office are still the profits of Microsoft with Windows and stuff.

But the other angle is, But copyright, I'm going to come at it from a different angle, and we should maybe think about talking about this because I think people are rightfully panicked about the U.S. position and then point to one of those slings and arrows being copyright, which of course has no issue in China at all. Like they have no problem with copyrights, you know, ask the pharma industry.

I lived in China. I worked on copyright. I know exactly what they're doing. But the truth is that copyright also created the technology industry in the world. and it was Microsoft and Intel with intellectual property and copyright that an Apple that enable the industry.

And so we have to look at it a little bit more critically and not think of just about the, you know, the starving novelist in Brooklyn who is frustrated by being used as training data. There's a lot more... Totally. There's a lot more depth. Of course, of course. There's a lot of depth to the copyright issue.

Finally, I do think that there is a... To wrap up just the M&A side, the recent wave of deals is going to get looked at with scrutiny. And the truth is that something will change in what's permitted in deal structures in terms of oversight because I think they're too big to get ignored by regulators in a tech industry that they're no longer just going to ignore. But I also think that there's a lot of opportunity to have much more clarity in deal structure. to maybe it's a great idea from that Bology raised,

like to have designated survivors as part of corporate governance. I mean, there's a lot of interesting things you can think of to make that kind of outcome something that's thought about. Because, of course, today, you know, people who take on money from very late stage private equity investors or corporate venture,

they know the terms and conditions that you have to have in those deals to attract that money. And so in the same way, if you know the kinds of things that might happen, you structure your capital, table, you structure your corporate governance to facilitate that or prevent it. And right now, and then it becomes part of the business practice. And then it becomes formalized and it's less

likely to be something that could just be stopped by sort of an arbitrary ruling by an appellate court in the 8th district who doesn't like a deal that happened to a local company, you know, which I think is where we end up with the risk right now is that you'll, well, just it'll be arbitrary. And nothing is worse for anybody than arbitrary. But I feel like we had this very long arc of discussion that was super interesting in terms of M&A and where we're heading and look to where to pick it up. Great.

If Lena Kahn a few years ago when she was sort of, you know, if she was asking for advice or perspective, is your view, hey, let the markets work because M&A helps, you know, everybody from big companies to small companies to the second ecosystem to the consumer, or how should we think about antitrust? Well, I'll go first and then, but we should wrap up on biology for sure,

which is just, The truth is, because M&A will almost certainly fail, unless they want to come out on the regulatory side of, like, defending against the potential for failure, they really can't come out on the, we predict that this one will be successful because it's statistically not a supportable public policy approach to the action.

And the markets are much, much better. Otherwise, they're just basically instituting rent control on on investing, which is definitely not going to be the right way. Yeah, so we're just lighting it down there for a second. Can you hear that over there? Yeah. Oh, is it lightning, you said?

Lightning, okay, fine, sliding. Not a tsunami, not an earthquake. We're good, right? So, yeah, so Eric, to your question, I would say, we have to actually think more deeply in the following sense, which is if you model, you know, the public sector

as a platform and the private sector is the apps in that platform. Sometimes an app gets big enough that you just have to actually build a platform or become the platform, right? Like, you know, Google was search and then it grew and grew, grew and actually had to build its own platform, right?

And like essentially Google, you know, with Chrome, it kind of became its own thing as Steve is aware, built the things. And so what we have to do is we have to stop being reactive to Lena Kahn or like Scott Wiener on the AI bill or things like that. And we have to be proactive in the following way.

A, for every space that we're in, we figure out what is the ideal set of laws. B, we write model legislation for all 50 states and all 190 sovereign countries. And AI can help with this, but obviously it'll just give you a first trap. It'll get you on base. C, we build a sales team that goes down and knocks on the doors with those 50 states and 190 countries. And of course, there's subdivisions, there's cities and counties and all kinds of stuff, both within outside the U.S. Next, we actually find politicians, and of course you can rank, before you go and knock on the doors, you can rank that list by those that are the most pro-tech, the most amenable to tech, right? For example, JR police in Colorado is friendly to, like, accepting Bitcoin for payments there.

Or you have, you know, somebody who's posted about AI and they clearly, you know, their conversion with it. And often you'll find some state senator or, you know, some governor. Like, obviously, like, there's Bikeli before he became who he is today, was a very pro-tech, you know, person in government in El Salvador. And so we identify all the pro-tech politicians around the world. And in particular, in this process, small states are the friends of Lill Tech because they're the ones who don't take anything for granted. They want to build their economy and so and so forth.

And so we go to them, we say, here's a draft of a bill, and then here's 10 CEOs or 10 founders or 10 investors or whatever, 50 for representing X billion dollars in AUM or Y billion dollars in revenue or some combined thing. And if you pass this legislation, then we will invest in your country, right? Because then that is now unlocked, right? Now we can build speed of physics, not permits, right? I should write an article in this, Elon Salvador. Okay?

Elon Salvador is what it sounds like, which is the tie-up where in an American time zone, Elon gets some space where he can build the speed of physics, not permits, right? All 20th century barriers go away. You keep the common sense stuff like, you know, Bash and not kill, you know, assault, murder, blah, blah, but are all those, you don't have to sense at every law, obviously, right?

There's some laws that are just eternal laws. But lots of 20th century regulations are just very stupid. You know, as I have said, you know, after the internet, you have to kind of go back and look at a lot of laws and see if they still make sense, right? Permanent laws, this laws, you know, do they still make sense when you can build in different ways with robots or other things?

So the answer is, I don't think it would be a micro-answer, Eric, which is, it wouldn't just be like, you know, advising a con or a different than a con. It's a macro answer of like, go between countries. Essentially, you know what it is, rather than, here's a flip. Rather than say, oh, you know, how do we let them decide whether we're a monopoly or not,

assume the U.S. government was a monopoly, the federal government, and how do we build competition to that? Right? How do we build jurisdictional competition? How do we build choice? Because 90% of the world is not American and, you know, only, and 50% is on blue, even within the U.S. You've got lots of jurisdictional choice. So how do we do antitrust on that? Maybe that's something. Maybe we'll wrap on that big idea. I apologize, Stephen. There's been a fantastic conversation. Thanks so much. Thank you. Thanks for listening to the A16Z podcast.

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